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

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Lear Corporation

(Name of Registrant as Specified In Its Charter)

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

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21557 Telegraph Road

Southfield, Michigan 48033

 

April 1, 2009

 

Dear Fellow Stockholder:

 

On behalf of the Board of Directors of Lear Corporation, you are cordially invited to attend the 2009 Annual Meeting of Stockholders to be held on May 21, 2009, at 10:00 a.m. (Eastern Time) at Lear Corporation’s Corporate Headquarters at 21557 Telegraph Road, Southfield, Michigan 48033.

 

The attached proxy statement provides you with detailed information about the annual meeting. We encourage you to read the entire proxy statement carefully. You may also obtain more information about Lear from documents we have filed with the Securities and Exchange Commission.

 

We are delivering our proxy statement and annual report pursuant to the Securities and Exchange Commission rules that allow companies to furnish proxy materials to their stockholders over the Internet. We believe that this delivery method expedites stockholders’ receipt of proxy materials and lowers the cost and environmental impact of our annual meeting. On or about April 8, 2009, we will mail to our stockholders a notice containing instructions on how to access our proxy materials. In addition, the notice includes instructions on how you can receive a paper copy of our proxy materials.

 

You are being asked at the annual meeting to elect directors, ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm, consider two stockholder proposals (if presented at the meeting) and transact any other business properly brought before the meeting.

 

Whether or not you plan to attend the annual meeting, your vote is important, and we encourage you to vote promptly. You may vote your shares via a toll-free telephone number, over the Internet or by completing, dating, signing and returning your proxy card, as described in the attached proxy statement and proxy card.

 

Thank you in advance for your cooperation and continued support.

 

Sincerely,

 

/s/ Robert E. Rossiter

Robert E. Rossiter

Chairman, Chief Executive Officer and President

 

This proxy statement is dated April 1, 2009, and is first being made available to stockholders electronically via the Internet on or about April 8, 2009.

LEAR CORPORATION

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

May 21, 2009

10:00 a.m., Eastern Time

 

 

To the Stockholders of Lear Corporation:

 

The 2009 Annual Meeting of Stockholders will be held on May 21, 2009, at 10:00 a.m. (Eastern Time) at Lear Corporation’s Corporate Headquarters at 21557 Telegraph Road, Southfield, Michigan 48033. The purpose of the meeting is to:

 

 

Voting is limited to stockholders of record at the close of business on March 27, 2009. A list of stockholders entitled to vote at the meeting, and any postponements or adjournments of the meeting, will be available for examination between the hours of 9:00 a.m. and 5:00 p.m. at our headquarters at 21557 Telegraph Road, Southfield, Michigan 48033 during the ten days prior to the meeting and also at the meeting.

 

Your vote is important. Whether or not you plan to attend the annual meeting, please vote your shares via the toll-free telephone number, over the Internet or by completing, signing and dating the proxy card, as described in the attached proxy statement and proxy card. Your prompt cooperation is greatly appreciated.

 

By Order of the Board of Directors,

 

/s/ Terrence B. Larkin

Terrence B. Larkin

Senior Vice President, General Counsel and Corporate Secretary

 

     April 1, 2009

 

TABLE OF CONTENTS

 

LEAR CORPORATION
21557 Telegraph Road
Southfield, Michigan 48033

 

 

 

The 2009 Annual Meeting of Stockholders (the “Annual Meeting”) of Lear Corporation (referred to herein as the “Company,” “Lear,” “we,” “us” or “our” as the context requires) will be held at Lear’s Corporate Headquarters at 21557 Telegraph Road, Southfield, Michigan 48033, on May 21, 2009, at 10:00 a.m. (Eastern Time).

 

The date fixed to determine stockholders entitled to notice of and to vote at the meeting is the close of business on March 27, 2009.

 

As permitted by rules adopted by the United States Securities and Exchange Commission (the “SEC”), we are making this proxy statement and our annual report available to stockholders electronically via the Internet. On or about April 8, 2009, we will mail to our stockholders a notice (the “Notice”) containing instructions on how to access this proxy statement, the proxy card and our annual report. If you received a Notice by mail and would like to receive a printed copy of our proxy materials, you should follow the instructions for requesting such materials included in the Notice.

 

The SEC’s rules permit us to deliver a single Notice or set of proxy materials to one address shared by two or more of our stockholders. This delivery method is referred to as “householding” and can result in significant cost savings. To take advantage of this opportunity, we have delivered only one Notice to multiple stockholders who share an address, unless we received contrary instructions from the impacted stockholders prior to the mailing date. We agree to deliver promptly, upon written or oral request, a separate copy of the Notice and, if applicable, proxy materials, as requested, to any stockholder at the shared address to which a single copy of these documents was delivered. If you prefer to receive separate copies of the notice, proxy statement or annual report, contact Broadridge Financial Solutions, Inc. by calling 1-800-542-1061 or in writing at Broadridge, Householding Department, 51 Mercedes Way, Edgewood, New York 11717.

 

If you currently are a stockholder who shares an address with another stockholder and would like to receive only one copy of future notices and proxy materials for your household, please contact Broadridge at the above telephone number or address or contact Lear directly at Lear Corporation, 21557 Telegraph Road, Southfield, Michigan 48033, Attention: Investor Relations.

 

The agenda for the meeting is to:

 

1. elect six directors;

 

 

Lear’s Board of Directors (the “Board”) is soliciting your proxy to vote your shares at our Annual Meeting. We have engaged MacKenzie Partners, Inc. to assist in the solicitation of proxies for the Annual Meeting for a fee of approximately $5,000 plus reimbursement of reasonable out-of-pocket expenses.

 

You may vote in person at the Annual Meeting or by proxy. There are three ways to vote by proxy:

 

 

Telephone and Internet voting facilities for stockholders of record will be available 24 hours a day and will close at 11:59 p.m. (Eastern Time) on May 20, 2009.

 

Your proxy will be voted in accordance with your instructions, so long as, in the case of a proxy card returned by mail, such card has been executed and dated. If you execute and return your proxy card by mail but provide no specific instructions in the proxy card, your shares will be voted FOR our Board’s director nominees named on the proxy card, FOR the ratification of the appointment of our independent registered public accounting firm, and AGAINST the approval of the stockholder proposals, if presented.

 

We do not intend to bring any matters before the meeting except those indicated in the notice of Annual Meeting and described in this proxy statement, and we do not know of any matter which anyone else intends to present for action at the meeting. If any other matters properly come before the meeting, however, the persons named in the enclosed proxy will be authorized to vote or otherwise act in accordance with their judgment.

 

You may revoke your proxy at any time before it is voted at the meeting by:

 

 

On the record date, there were approximately 77,516,479 shares of our common stock, par value $0.01 per share, outstanding. Our common stock is the only class of our voting securities outstanding.

 

A quorum is established when a majority of shares entitled to vote is present at the meeting, either in person or by proxy. Abstentions and broker non-votes (as described below under “— Required Vote”) are counted for purposes of determining whether a quorum is present.

 

Each share of common stock that you hold as of the record date entitles you to one vote, without cumulation, on each matter to be voted upon at the meeting.

 

Our directors are elected by a plurality of the votes cast by the holders of our common stock. “Plurality” means that the six individuals who receive the highest number of the votes will be elected as directors. Any shares not voted (whether by abstention, broker non-vote or otherwise) have no impact on the election of directors except to the extent that the failure to vote for an individual results in another individual receiving a higher number of votes.

 

For each other item, the affirmative vote of the holders of a majority of the shares represented in person or by proxy and entitled to vote on the item will be required for approval.

 

Abstentions on any matter other than the election of directors will not be voted but will be counted for purposes of determining whether there is a quorum. Accordingly, an abstention will have the effect of a negative vote on such items.

 

If you hold your shares in “street name” through a bank, broker or other nominee, such bank, broker or nominee will vote those shares in accordance with your instructions. To so instruct your bank, broker or nominee, you should follow the information provided to you by such entity. Without instructions from you, a bank, broker or nominee will be permitted to exercise its own voting discretion with respect to so-called routine matters (Proposals No. 1 and 2) but may not be permitted to exercise voting discretion with respect to non-routine matters Proposals No. (3 and 4). Thus, if you do not give your bank, broker or nominee specific instructions with respect to Proposal No. 1 (election of directors) and Proposal No. 2 (ratification of auditors), your shares will be voted in such entity’s discretion. If you do not give your bank, broker or nominee specific instructions with respect to the remaining proposals, if presented at the meeting, your shares will not be voted on such proposals. These shares are called “broker non-votes.” Shares represented by such broker non-votes will be counted in determining whether there is a quorum. Broker non-votes are not considered votes for or against any particular proposal and therefore will have no direct impact on any proposal. We urge you to provide your bank, broker or nominee with appropriate voting instructions so that all your shares may be voted at the meeting.

 

The Northern Trust Company (the “Trustee”) serves as trustee under the Lear Corporation Retirement Savings Trust Salaried Plan and the Lear Corporation Retirement Savings Trust Hourly Plan. If you are a participant in one of the Plans, you have the right to direct the Trustee to vote the shares of Lear Corporation held in your account(s), subject to Part 4 of Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Trustee will vote shares of Lear Corporation for which no direction is received (“Undirected Shares”), in the same proportion as the shares for which direction is received, except as otherwise provided in accordance with ERISA. Under the Plans, participants are “named fiduciaries” to the extent of their authority to direct the voting of shares held in their accounts and their proportionate share of Undirected Shares. You may direct the Trustee to vote these shares in accordance with your instructions by voting by telephone, Internet or completing, signing and returning the proxy card, as described in this proxy statement.

 

The Board currently consists of three classes. Prior to the 2008 annual meeting of stockholders, one class of directors was elected at each annual meeting of stockholders to serve a three-year term. In July 2007, our Certificate of Incorporation was amended to begin declassifying the Board. As a result of the amendment, directors elected at each annual meeting of stockholders will hold office until their successors are elected at the next-succeeding annual meeting of stockholders. Directors not up for election this year will continue in office for the remainder of their terms, and the terms of all of our directors will expire at the annual meeting of stockholders in 2010.

 

The Nominating and Corporate Governance Committee has nominated Messrs. David E. Fry, Conrad L. Mallett, Jr., Robert E. Rossiter, David P. Spalding, James A. Stern and Henry D.G. Wallace to stand for election to the Board. The Board has determined that Messrs. Fry, Mallett, Spalding, Stern and Wallace are independent directors, as further described below in “Directors and Beneficial Ownership — Independence of Directors.” Unless contrary instructions are given, the shares represented by your proxy will be voted FOR the election of all nominees.

 

All nominees have consented to being named in this proxy statement and to serve if elected. However, if any nominee becomes unable to serve, proxy holders will have discretion and authority to vote for another nominee proposed by our Board. Alternatively, our Board may reduce the number of directors to be elected at the meeting.

 

 

Dr. Fry, who has been a director of Lear since August 2002, had served as the President and Chief Executive Officer of Northwood University, a university of business administration with campuses in Midland, Michigan, Dallas, Texas and Palm Beach, Florida, from 1982 until early 2006 and is now President Emeritus. Dr. Fry also serves as a director of Decker Energy International. Dr. Fry is also a director and member of the executive committee of the Automotive Hall of Fame and past Chairman of the Michigan Higher Education Facilities Authority.

 

 

Justice Mallett, who has been a director of Lear since August 2002, has been the President and CEO of Sinai-Grace Hospital since August 2003. Prior to his current position, Justice Mallett served as the Chief Administrative Officer of the Detroit Medical Center since March 2003. Previously, he served as President and General Counsel of Hawkins Food Group LLC from April 2002 to March 2003, and Chief Operating Officer for the City of Detroit from January 2002 to April 2002. From August 1999 to April 2002, Justice Mallett was General Counsel and Chief Administrative Officer of the Detroit Medical Center. Justice Mallett was also a Partner in the law firm of Miller, Canfield, Paddock & Stone from January 1999 to August 1999. Justice Mallett was a Justice of the Michigan Supreme Court from December 1990 to January 1999 and served a two-year term as Chief Justice beginning in 1997. Justice Mallett also serves as a General Board Member of the Metropolitan Detroit YMCA.

 

 

Mr. Rossiter is our Chairman, Chief Executive Officer and President, a position he has held since August 2007. Mr. Rossiter has served as our Chairman since January 2003, our Chief Executive Officer since October 2000, our President since August 2007 and from 1984 until December 2002 and our Chief Operating Officer from 1988 until April 1997 and from November 1998 until October 2000. Mr. Rossiter also served as our Chief Operating Officer — International Operations from April 1997 until November 1998. Mr. Rossiter has been a director of Lear since 1988.

 

 

Mr. Spalding has been a director of Lear since 1991. Mr. Spalding is the Vice President of Alumni Relations for Dartmouth College, a position he has held since October 2005. Prior to joining Dartmouth College, Mr. Spalding was a Vice Chairman of The Cypress Group L.L.C., a private equity fund manager, since 1994. Mr. Spalding also serves as a director for AMTROL Holdings, Inc., and he is the chairman of the investment committee of the Make-A-Wish Foundation of Metro New York.

 

 

Mr. Stern has been a director of Lear since 1991. Mr. Stern is Chairman and Chief Executive Officer of The Cypress Group L.L.C., a private equity fund manager, a position he has held since 1994. He is also a director of Affinia Group Inc. and Cooper-Standard Automotive, Inc.

 

 

Mr. Wallace has been a director of Lear since February 2005. Mr. Wallace worked for 30 years at Ford Motor Company until his retirement in 2001 and held several executive-level operations and financial oversight positions, most recently as Group Vice President, Mazda & Asia Pacific Operations in 2001, Chief Financial Officer in 2000 and Group Vice President, Asia Pacific Operations in 1999. Mr. Wallace also serves as a director of AMBAC Financial Group, Inc., Diebold, Inc. and Hayes-Lemmerz International, Inc.

 

YOUR BOARD RECOMMENDS A VOTE “FOR” THE ELECTION OF EACH NOMINEE.

 

PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED FOR THE PROPOSAL
UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE.

 

Set forth below is a description of the business experience of each of our directors other than Messrs. Fry, Mallett, Rossiter, Spalding, Stern and Wallace, whose biographies are set forth above in “Election of Directors (Proposal No. 1),” and Messrs. James H. Vandenberghe and Vincent J. Intrieri. Mr. Vandenberghe retired as our Vice Chairman in May 2008, and Mr. Intrieri resigned from our Board in November 2008. The terms of all our directors will expire at the annual meeting in 2010 as a result of the declassification of our Board.

 

 

Mr. McCurdy has been a director of Lear since 1988. In July 2000, Mr. McCurdy retired from Dana Corporation, a motor vehicle parts manufacturer and aftermarket supplier, where he served as President, Dana Automotive Aftermarket Group, since July 1998. Mr. McCurdy was Chairman of the Board, President and Chief Executive Officer of Echlin, a motor vehicle parts manufacturer, from March 1997 until July 1998 when it was merged into Dana Corporation. Prior to this, Mr. McCurdy was Executive Vice President, Operations of Cooper Industries, a diversified manufacturing company, from April 1994 to March 1997. Mr. McCurdy also serves as a director of General Parts Inc. and Mohawk Industries, Inc., as well as the non-executive Chairman of Affinia Group Inc., a privately-held supplier of aftermarket motor vehicle parts.

 

 

Mr. Parrott has been a director of Lear since February 1997. In January 2003, Mr. Parrott retired from Metaldyne Corporation where he served as President of Business Operations since December 2000. Metaldyne Corporation, an integrated metal solutions supplier, purchased Simpson Industries, Inc. in December 2000. Previously, Mr. Parrott was the Chief Executive Officer of Simpson Industries, Inc. from 1994 to December 2000 and Chairman of Simpson Industries, Inc. from November 1997 to December 2000. In January 2007, Mr. Parrott completed his term as Chairman of the Board of Michigan Biotechnology Institute (M.B.I.), a non-profit corporation dedicated to the research and commercial development of physical science technologies, a position which he held since June 2005. Mr. Parrott continues to serve as a director of M.B.I.

 

 

Mr. Wallman has been a director of Lear since November 2003. Mr. Wallman has more than 25 years of executive-level operations and financial oversight experience, most recently as Senior Vice President and Chief Financial Officer of Honeywell International, Inc. from 1999 to 2003 and of its predecessor, AlliedSignal, Inc., from 1995 to 1999. He has also held positions with International Business Machines Corporation, Chrysler Corporation and Ford Motor Company. In addition, Mr. Wallman serves as a director of Hayes-Lemmerz International, Inc., Ariba, Inc., Roper Industries, Inc. and Convergys Corporation.

 

Corporate Governance

 

The Board has approved Corporate Governance Guidelines and a Code of Business Conduct and Ethics. All of our corporate governance documents, including the Corporate Governance Guidelines, the Code of Business Conduct and Ethics and committee charters, are available on our website at www.lear.com or in printed form upon request by contacting Lear Corporation at 21557 Telegraph Road, Southfield, Michigan 48033, Attention: Investor Relations. The Board regularly reviews corporate governance developments and modifies these documents as warranted. Any modifications will be reflected on our website.

 

Board Meetings

 

In 2008, our full Board held seven meetings and executed one written consent. In addition to our full Board meetings, our directors attend meetings of committees established by our Board. Each director participated in at

least 75% of the total number of meetings of our Board and the committees on which he serves. Our directors are encouraged to attend all annual and special meetings of our stockholders. In 2008, our annual meeting of stockholders was held on May 8, 2008, and all of our directors attended.

 

Meetings of Non-Employee Directors

 

In accordance with our Corporate Governance Guidelines and the listing standards of the NYSE, our non-management directors meet regularly in executive sessions of the Board without management present. Our non-management directors have elected Larry W. McCurdy as the Presiding Director of such non-management sessions of our Board.

 

Communications to the Board

 

Stockholders and interested parties can contact the Board (including the Presiding Director and non-management directors) through written communication sent to Lear Corporation, 21557 Telegraph Road, Southfield, Michigan 48033, Attention: Terrence B. Larkin, Senior Vice President, General Counsel and Corporate Secretary. Our General Counsel reviews all written communications and forwards to the Board a summary and/or copies of any such correspondence that is directed to the Board or that, in the opinion of the General Counsel, deals with the functions of the Board or Board Committees or that he otherwise determines requires the Board’s or any Board Committee’s attention. Concerns relating to accounting, internal accounting controls or auditing matters are immediately brought to the attention of our internal audit department and handled in accordance with procedures established by the Audit Committee with respect to such matters. From time to time, the Board may change the process by which stockholders may communicate with the Board. Any such changes will be reflected in our Corporate Governance Guidelines, which are posted on our website at www.lear.com.

 

Communications of a confidential nature can be made directly to our non-management directors or the Chairman of the Audit Committee regarding any matter, including any accounting, internal accounting control or auditing matter, by submitting such concerns to the Audit Committee or the Presiding Director. Any submissions to the Audit Committee or the Presiding Director should be marked confidential and addressed to the Chairman of the Audit Committee or the Presiding Director, as the case may be, c/o Lear Corporation, P.O. Box 604, Southfield, Michigan 48037. In addition, confidential communications may be submitted in accordance with other procedures set forth from time to time in our Corporate Governance Guidelines, which are posted on our website at www.lear.com. Any submission should contain, to the extent possible, a full and complete description of the matter, the parties involved, the date of the occurrence or, if the matter is ongoing, the date the matter was initiated and any other information that the reporting party believes would assist the Audit Committee or the Presiding Director in the investigation of such matter.

 

Audit Committee

 

In 2008, the Audit Committee, which held ten meetings during the year, consisted of Messrs. McCurdy, Stern, Wallace and Wallman, all of whom were non-employee directors and currently remain members of the committee. Mr. Wallace served in 2008, and continues to serve, as the Chairman of the Audit Committee. The Board has determined that all of the members of the Audit Committee are independent as defined in the listing standards of the NYSE and that all such members are financially literate. In addition, the Board has determined that Messrs. McCurdy, Wallace and Wallman are audit committee financial experts, as defined in Item 407(d) of Regulation S-K under the Securities Exchange Act of 1934, as amended, and have accounting or related financial management expertise. Our Corporate Governance Guidelines limit the number of public company audit committees on which an Audit Committee member can serve to three or less audit committees (including the Company’s Audit Committee) without approval of the Board. For a description of the Audit Committee’s responsibilities and findings, see “Audit Committee Report” on page 53. The Audit Committee operates under a written charter setting forth its functions and responsibilities. A copy of the current charter is available on our website at www.lear.com or in printed form upon request.

Compensation Committee

 

In 2008, the Compensation Committee, which held five meetings during the year, consisted of Messrs. Mallett, Parrott, Spalding and Wallman, all of whom were non-employee directors and currently remain members of the committee. Mr. Spalding served in 2008, and continues to serve, as the Chairman of the Compensation Committee. The Board has determined that all of the current members of the Compensation Committee are independent as defined in the listing standards of the NYSE. The Compensation Committee has overall responsibility for approving and evaluating director and officer compensation plans, policies and programs of the Company and reviewing the disclosure of such plans, policies and programs to our stockholders in the annual proxy statement. The Compensation Committee operates under a written charter setting forth its functions and responsibilities. A copy of the current charter is available on our website at www.lear.com or in printed form upon request.

 

In consultation with the Company’s management, the Compensation Committee establishes the general policies relating to senior management compensation and oversees the development and administration of such compensation programs. Our human resources executives and staff support the Compensation Committee in its work. These members of management work with compensation consultants whose engagements have been approved by the committee, accountants and legal counsel, as necessary, to implement the Compensation Committee’s decisions, to monitor evolving competitive practices and to make compensation recommendations to the Compensation Committee. Our human resources management develops specific compensation recommendations for senior executives, which are first reviewed by senior management and then presented to the Compensation Committee and its independent compensation consultant. The committee has final authority to approve, modify or reject the recommendations and to make its decisions in executive session. The Compensation Committee approves all awards to executive officers. Under our equity award policy, an aggregate equity award pool to non-executives may be approved by the Compensation Committee and allocated to individuals by a committee consisting of the CEO and the Chairman of the Compensation Committee.

 

The Compensation Committee has retained Towers Perrin as its independent compensation consultant. The consultant reports directly to the committee as requested, including with respect to management’s recommendations of compensation programs and awards. The Compensation Committee has the sole authority to approve the scope and terms of the engagement of such compensation consultant and to terminate such engagement. The mandate of the consultant is to serve the Company and work for the Compensation Committee in its review of executive compensation practices, including the competitiveness of pay levels, design issues, market trends and technical considerations. Towers Perrin has assisted the committee with the development of competitive market data and a related assessment of the Company’s executive compensation levels, evaluation of long-term incentive grant strategy and compilation and review of total compensation data and tally sheets (including data for certain termination and change in control scenarios) for certain of the Company’s Named Executive Officers (as defined in “Compensation Discussion and Analysis”). As part of this process, the committee also reviewed a comprehensive global survey of peer group companies which was compiled by Towers Perrin in 2008 and is generally compiled every two years. In 2007, Towers Perrin also prepared a survey of peer group companies with respect to executive officer compensation amounts and trends. See, “Compensation Discussion and Analysis — Benchmarking” beginning on page 19.

 

Nominating and Corporate Governance Committee

 

In 2008, the Nominating and Corporate Governance Committee, which held three meetings during the year, consisted of Messrs. Fry, Intrieri, McCurdy and Stern, all of whom, other than Mr. Intrieri, currently remain members of the committee. Mr. Stern served in 2008, and continues to serve, as the Chairman of the Nominating and Corporate Governance Committee. Mr. Intrieri served on the Nominating and Corporate Governance Committee until his resignation from the Board in November 2008. The Board of Directors has determined that the current members of the Nominating and Corporate Governance Committee are independent as defined in the listing standards of the NYSE.

 

The Nominating and Corporate Governance Committee is responsible for, among other things: (i) identifying individuals qualified to become members of the Board, consistent with criteria approved by the Board; (ii) recommending to the Board director nominees for the next annual meeting of the stockholders of Lear; (iii) in the event

of a vacancy on or an increase in the size of the Board, recommending to the Board director nominees to fill such vacancy or newly established Board seat; (iv) recommending to the Board director nominees for each committee of the Board; (v) establishing and reviewing annually our Corporate Governance Guidelines and Code of Business Conduct and Ethics; and (vi) reviewing potential conflicts of interest involving our executive officers. The Nominating and Corporate Governance Committee operates under a written charter setting forth its functions and responsibilities. A copy of the current charter is available on our website at www.lear.com or in printed form upon request.

 

Executive Committee

 

In 2008, the Executive Committee, which held one meeting and executed one written consent during the year, consisted of Messrs. McCurdy, Rossiter, Spalding, Stern and Wallace, all of whom currently remain members of the committee. Mr. Stern served in 2008, and continues to serve, as Chairman of the Executive Committee. The Executive Committee meets, as needed, during intervals between meetings of our Board and may exercise certain powers of our Board relating to the general supervision and control of the business and affairs of the Company.

 

Recommendation of Directors by Stockholders

 

In accordance with its charter, the Nominating and Corporate Governance Committee will consider candidates for election as a director of the Company recommended by any Lear stockholder, provided that the recommending stockholder follows the procedures set forth in Section 2.3 of Lear’s By-Laws for nominations by stockholders of persons to serve as directors.

 

Pursuant to Section 2.3 of the By-Laws, nominations of persons for election to the Board at a meeting of stockholders may be made by any stockholder of the Company entitled to vote for the election of directors at the meeting who sends a timely notice in writing to our Corporate Secretary. To be timely, a stockholder’s notice must be delivered to, or mailed and received by, our Corporate Secretary at the Company’s principal executive offices not less than 60 nor more than 90 days prior to the meeting; provided, however, that if Lear has not “publicly disclosed” the date of the meeting at least 70 days prior to the meeting date, notice may be timely made by a stockholder if received by our Corporate Secretary not later than the close of business on the tenth day following the day on which Lear publicly disclosed the meeting date. For purposes of the By-Laws, “publicly disclosed” or “public disclosure” means disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly filed by us with the SEC.

 

The stockholder’s notice or recommendation is required to contain certain prescribed information about each person whom the stockholder proposes to recommend for election as a director, the stockholder giving notice and the beneficial owner, if any, on whose behalf notice is given. The stockholder’s notice must also include the consent of the person proposed to be nominated and to serve as a director if elected. Recommendations or notices relating to director nominations should be sent to Lear Corporation, 21557 Telegraph Road, Southfield, Michigan 48033; Attention: Terrence B. Larkin, Senior Vice President, General Counsel and Corporate Secretary.

 

A copy of our By-Laws, as amended, has been filed as an exhibit to our Current Report on Form 8-K filed with the SEC on February 17, 2009.

 

Criteria for Selection of Directors

 

The following are the general criteria for the selection of Lear’s directors that the Nominating and Corporate Governance Committee utilizes in evaluating candidates for Board membership. None of the following criteria should be construed as minimum qualifications for director selection nor is it expected that director nominees will possess all of the criteria identified. Rather, they represent the range of complementary talents, backgrounds and experiences that the Nominating and Corporate Governance Committee believes would contribute to the effective functioning of our Board. The general criteria set forth below are not listed in any particular order of importance:

 

 

 

The Nominating and Corporate Governance Committee is responsible for, subject to approval by the Board, establishing and periodically reviewing the criteria for Board membership and selection of new directors, including independence standards. The Nominating and Corporate Governance Committee may also recommend to the Board changes to the portfolio of director skills, experience, perspective and background required for the effective functioning of the Board considering Lear’s strategy and its regulatory, geographic and market environments. Any such changes to the director selection criteria must be approved by the Board.

 

The Nominating and Corporate Governance Committee considers candidates for Board membership suggested by its members and other Board members, as well as management and stockholders. Once a potential candidate has been identified, the Nominating and Corporate Governance Committee evaluates the potential candidate based on the Board’s criteria for selection of directors (described above) and the composition and needs of the Board at the time.

 

If a director candidate were to be recommended by a stockholder in accordance with the procedures set forth under “Recommendation of Directors by Stockholders” above, the Nominating and Corporate Governance Committee would evaluate such candidate in the same manner in which it evaluates other director candidates considered by the committee.

 

The Nominating and Corporate Governance Committee has approved the retention of Russell Reynolds Associates, Inc., a third-party search firm, to assist the committee with its search for qualified director candidates. The firm has the task of identifying potential director candidates based on the criteria for the selection of Lear’s directors approved by the Board of Directors.

 

The Board has adopted Corporate Governance Guidelines to address significant issues of corporate governance, including Board and Board Committee composition and responsibilities, compensation of directors, executive selection and succession planning and director tenure. The Nominating and Corporate Governance Committee is responsible for overseeing and reviewing the Corporate Governance Guidelines and reporting and recommending to the Board any changes to the Guidelines.

 

Our Corporate Governance Guidelines provide that a majority of the members of the Board, and each member of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, must meet the criteria for independence set forth under applicable law and the NYSE listing standards. No director qualifies as independent unless the Board determines that the director has no direct or indirect material relationship with the Company. The Board has established guidelines to assist in determining director independence. These guidelines are part of our Corporate Governance Guidelines, available on our website at www.lear.com, and are set forth in Annex A to this proxy statement. In addition to applying these director independence guidelines and the NYSE independence guidelines, the Board will consider all relevant facts and circumstances of which it is aware in making an independence determination with respect to any director.

Based on our director independence guidelines and the NYSE independence guidelines, the Board has affirmatively determined that (i) Messrs. Fry, Intrieri, Mallett, McCurdy, Parrott, Spalding, Stern and Wallman (A) have only immaterial relationships with us, (B) meet our director independence guidelines and the NYSE independence guidelines with respect to such relationships and (C) are independent, (ii) Mr. Wallace (A) has only immaterial relationships with us, (B) meets our director independence guidelines with respect to such relationships, other than the relationship relating to his brother discussed below, (C) meets the NYSE independence guidelines with respect to all such relationships and (D) is independent and (iii) Messrs. Rossiter and Vandenberghe are not independent. Mr. Rossiter is our Chairman, Chief Executive Officer and President, and Mr. Vandenberghe was our Vice Chairman until May 2008. In making its independence determinations, the Board also considered the additional factors described below.

 

In making its determination with respect to Mr. Intrieri, the Board considered that Mr. Intrieri is employed by, and/or a director of, various entities controlled by Mr. Carl Icahn, whose affiliates beneficially owned up to approximately 16% of our outstanding common stock during a portion of 2008. Since November 2008, affiliates of Mr. Icahn have owned less than 5% of our outstanding common stock. Lear’s business with any of such entities, other than Federal-Mogul Corporation, was inconsequential in each of the last three years. The Board also considered the fact that Lear has done business for the past several years with Federal-Mogul Corporation for which Mr. Intrieri serves as a director and affiliates of Mr. Icahn hold a controlling interest. The Board noted that (i) Lear’s business with Federal-Mogul was significantly less than the thresholds contained in the NYSE’s guidelines and Lear’s independence guidelines, (ii) Lear’s business relationship with Federal-Mogul predates Mr. Icahn’s holding a significant equity interest in Lear, and (iii) Mr. Intrieri has had no involvement in Lear’s business with Federal-Mogul. The Board also considered the fact that Mr. Intrieri is a director of Icahn Enterprises G.P. Inc., the general partner of Icahn Enterprises, L.P. (formerly known as American Real Estate Partners, L.P.). In 2007, Lear paid certain amounts to a subsidiary of Icahn Enterprises, L.P. in connection with the termination of the merger agreement between Lear and subsidiaries of Icahn Enterprises, L.P. The Board considered that (i) such amounts were less than the thresholds contained in the NYSE’s guidelines, (ii) the merger agreement was negotiated on an arm’s-length basis and (iii) Mr. Intrieri recused himself from participation in Lear’s discussions and negotiations with respect to the merger agreement. The Board has concluded that these relationships are not material and that Mr. Intrieri is independent.

 

In making its determination with respect to Mr. McCurdy, the Board considered the fact that Mr. McCurdy serves as the non-executive chairman of the board of directors of a company (i) for which Mr. Stern is an investor and director and (ii) formed by an investment fund for which Mr. Stern serves as the chairman. Lear has done no business with such company in the past three years. The Board has concluded that these relationships are not material and that Mr. McCurdy is independent.

 

In making its determination with respect to Mr. Parrott, the Board considered that two children and a son-in-law of Mr. Parrott previously were employed by Lear, with such employment ending in April 2007, February 2007 and November 2005, respectively. Additionally, one of those children currently provides services to Lear, in a non-executive position, through an independent staffing agency frequently used by Lear to fill certain staffing needs. Such services fall within the NYSE independence guidelines. In addition, none of these family members lives in the same household as Mr. Parrott, and none is dependent on him for financial support. Mr. Parrott has not sought or participated in any employment decisions regarding these family members. The Board has concluded that these relationships are not material and that Mr. Parrott is independent.

 

In making its determination with respect to Mr. Spalding, the Board considered that Lear employs Mr. Spalding’s brother in a non-executive position. Such relationship falls within the NYSE independence guidelines. In addition, the employment relationship is on an arm’s-length basis, and Mr. Spalding has no involvement or interest, directly or indirectly, in employment decisions affecting his brother. The Board also considered that Mr. Spalding previously served on the board of directors of another company with Mr. Stern. The Board has concluded that these relationships are not material and that Mr. Spalding is independent.

 

In making its determination with respect to Mr. Stern, the Board considered that Messrs. Rossiter and Vandenberghe have small investments as limited partners in an investment fund for which Mr. Stern serves as the chairman. Additionally, the Board considered that Mr. Stern serves on the board of directors of a company with

Mr. McCurdy and previously served on the board of directors of another company with Mr. Spalding. The Board has concluded that these relationships are not material and that Mr. Stern is independent.

 

In making its determination with respect to Mr. Wallace, the Board considered that Mr. Wallace’s brother serves as the non-executive chairman of a company with which Lear has done business in the last three years. The Board considered that (i) Mr. Wallace’s brother in not an executive officer of such company, (ii) the amount of business with the company falls below the NYSE’s guidelines, (iii) neither Mr. Wallace nor his brother were involved in Lear’s business relationship with the company and (iv) such business was conducted in accordance with Lear’s standard purchasing procedures for such products. Additionally, the Board considered that Mr. Wallace serves on the board of directors of another company with Mr. Wallman. The Board has concluded that these relationships are not material and that Mr. Wallace is independent.

 

In making its determination with respect to Mr. Wallman, the Board considered that Mr. Wallman serves on the board of directors of another company with Mr. Wallace. The Board has concluded that this relationship are not material and that Mr. Wallman is independent.

 

As described more fully below, the following table summarizes the annual compensation for our non-employee directors during 2008. Amounts reported in the “Stock Awards” column in the following table represent the expense recognized in 2008, for financial reporting purposes, of all unvested restricted units for each non-employee director. Because restricted units are settled in cash upon vesting, the vested restricted unit value must be “marked to market” and consequently, negative numbers are reported due to the decline in our common stock price in 2008.

 

2008 Director Compensation

 

 

 

 

 

 

 

 

 

 

 

Summary of Director Compensation

 

In 2008, non-employee directors were compensated pursuant to our Outside Directors Compensation Plan, which provided for an annual retainer of $45,000 for each of our non-employee directors with an additional retainer of $20,000 for the Chairman of the Audit Committee and an additional $10,000 retainer for each of the Chairmen of the Compensation Committee and the Nominating and Corporate Governance Committee, as well as for our Presiding Director. In addition, each non-employee director received a fee of $1,500 for each Board and committee meeting attended. The non-employee director annual retainer and meeting fees were paid quarterly pursuant to the Outside Directors Compensation Plan. Directors were also reimbursed for their expenses incurred in attending meetings.

Pursuant to the Outside Directors Compensation Plan, each non-employee director received annually on the last business day of January, restricted units representing shares of Lear common stock having a value of $90,000 on the date of the grant. Restricted unit grants were made on January 31, 2008 to all non-employee directors. The restricted units granted to non-employee directors vest over the three-year period following the grant date, with one-third of each recipient’s restricted units vesting on each of the first three anniversaries of the grant date. During the vesting period, non-employee directors receive credits in a dividend equivalent account equal to amounts, if any, that would be paid as dividends on the shares represented by the restricted units. Once a restricted unit vests, the non-employee director holding such restricted unit will be entitled to receive a cash distribution equal to the value of a share of Lear common stock on the date of vesting, plus any amount in his dividend equivalent account attributable to the vested unit. The restricted units are also immediately vested upon a director’s termination of service due to death, “disability,” “retirement” or upon a “change in control” of Lear (as each such term is defined in the Outside Directors Compensation Plan) prior to or concurrent with the director’s termination of service.

 

A non-employee director may elect to defer receipt of all or a portion of his annual retainer and meeting fees, as well as any cash payments made upon vesting of restricted units. At the non-employee director’s election, amounts deferred were:

 

 

Each stock unit is equal in value to one share of Lear common stock, but does not have voting rights. Stock units are credited with dividend equivalents which are paid into an interest account (credited with interest at an annual rate equal to the prime rate (as defined in the Outside Directors Compensation Plan)) if and when the Company declares and pays a dividend on its common stock.

 

In general, amounts deferred are paid to a non-employee director as of the earliest of:

 

 

Amounts deferred are paid in cash in a single sum payment or, at the director’s election, in installments. Deferred stock units are paid in cash based on the fair market value of our common stock on the payout date.

 

A non-employee director could elect to defer receipt of all or a portion of the payment due to him when a restricted unit vests, including the amount in his dividend equivalent account. This deferral is generally subject to the same requirements that apply to deferrals of the annual retainer and meeting fees.

 

In February 1997, we implemented stock ownership guidelines for non-employee directors. In 2007, the Compensation Committee modified the guidelines to provide for specified share ownership levels rather than a value of share ownership based on a multiple of a director’s annual retainer. A similar change to a fixed share amount was also made to the management stock ownership guidelines. The management stock ownership guidelines are discussed in “Compensation Discussion and Analysis — Elements of Compensation — Long-Term Incentives — Management Stock Ownership Guidelines” beginning on page 25. The stock ownership level of 3,500 shares (or share equivalents) must be achieved by each outside director within five years of becoming a director.

 

Directors who are also our employees receive no compensation for their services as directors except reimbursement of expenses incurred in attending meetings of our Board or Board committees.

 

2009 Director Compensation Update

 

In light of challenging automotive industry conditions and a desire to reduce our overall compensation costs and simplify compensation programs, the Director Compensation program was restructured, effective January 1, 2009. Annual retainers and meeting fees and the annual restricted unit grant have been reduced by 20% and future

restricted grants and deferrals of amounts under the program will no longer be linked to the value of our common stock. Effective January 1, 2009, the annual retainer for non-employee directors has been reduced from an annual rate of $45,000 to $36,000, with the additional retainer for the Chairman of the Audit Committee reduced from $20,000 to $16,000 and the additional retainer for the Chairmen of the Compensation Committee and Nominating and Corporate Governance Committee and for the Presiding Director reduced from $10,000 to $8,000. In addition, the amount each non-employee director will receive for each Board and committee meeting attended has been reduced from $1,500 to $1,200, other than the meeting fee for certain special committee meetings, which has been reduced from $1,000 to $800. The retainers and meeting fees will now be paid on a monthly, rather than quarterly, basis. To the extent that any amounts of the retainer or meeting fees paid after March 24, 2009 are deferred, they will be deferred into the interest account (and will bear interest at an annual rate equal to the prime rate, as defined in the Outside Directors Compensation Plan) instead of the stock account. Beginning in 2010, the amount of the annual restricted unit grant will be reduced from $90,000 to $72,000. Instead of restricted units that track the value of our common stock, the annual restricted grant will be cash-based and will be credited to the notional interest-bearing account that vests and pays out in cash in equal amounts on each of the first three anniversaries of the grant date. Deferrals of future restricted grants will be held in an interest-bearing account until ultimately paid.

 

The following table sets forth, as of March 27, 2009 (except as indicated below), beneficial ownership, as defined by SEC rules, of our common stock and ownership of restricted stock units (“RSU”), restricted units and deferred stock units by the persons or groups specified. Each of the persons listed below has sole voting and investment power with respect to the beneficially owned shares listed unless otherwise indicated. The percentage calculations set forth in the table are based on 77,516,479 shares of common stock outstanding on March 27, 2009 rather than based on the percentages set forth in various stockholders’ Schedules 13G.

 

 

 

 

 

Based upon our review of reports filed with the SEC and written representations that no other reports were required, we believe that all of our directors and executive officers complied with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934 during 2008 with the following exception: the grant and vesting of restricted units and acquisition of deferred stock units by Mr. David P. Spalding on January 31, 2008 was inadvertently reported late on a Form 4 filed on February 5, 2008.

 

The following discusses the material elements of the compensation for our Chief Executive Officer, Chief Financial Officer and each of the other current and former executive officers listed in the “2008 Summary Compensation Table” on page 31 (collectively, the “Named Executive Officers”) during the year ended December 31, 2008. To assist in understanding compensation for 2008, we have included a discussion of our compensation policies and decisions for periods before and after 2008 where relevant. To avoid repetition, in the discussion that follows we make occasional cross-references to specific compensation data and terms for our Named Executive Officers contained in “Executive Compensation” which begins on page 31. In addition, because we have a global team of managers, with senior managers in 36 countries, our compensation program is designed to provide some common standards throughout the Company and therefore much of what is discussed below applies to executives in general and is not limited specifically to our Named Executive Officers.

 

In 2008, automotive industry conditions were, and continue to be, extremely challenging. These challenging conditions and the broad economic downturn have affected Lear’s business performance and, consequently, our executive compensation program. Lear has taken steps to reduce operating costs and efficiently manage its business through these conditions and consequently, has modified its executive compensation programs as well. The primary factors influencing our compensation programs are a desire to reduce compensation costs, simplify our program, retain key employees through the downturn and efficiently manage the share availability under our equity plan. The results and modifications related to the industry environment include the following:

 

 

As the challenging industry and economic conditions continue, we will continue to monitor our executive compensation programs and consider appropriate modifications that will allow us to achieve our compensation program objectives.

 

The objectives of our compensation policies are to:

 

 

 

To achieve these objectives, we believe that the total compensation program for executive officers should consist of the following:

 

 

The Compensation Committee routinely reviews the elements noted above, which are designed to both attract and retain executives while also providing proper incentives for performance. In general, the Compensation Committee monitors compensation levels ensuring that a higher proportion of an executive’s total compensation is awarded in the form of “at risk” components (dependent on individual and Company performance) as the executive’s responsibilities increase. The Compensation Committee selects the specific form of compensation within each of the above-referenced elements based on competitive industry practices, the cost to the Company versus the benefit provided to the recipient, the impact of accounting and tax rules and other relevant factors.

 

To ensure that our executive compensation is competitive in the marketplace, we benchmark ourselves against two comparator groups of companies. However, pay benchmarking is only one of several factors considered in setting target pay levels. Our two comparator groups are as follows: one consisting of Tier 1 automotive suppliers and one consisting of a broad range of industrial companies (including these same automotive suppliers). For 2007 and 2008, this larger group consisted of approximately 40 companies (listed below). Although this group is generally consistent in its make-up from year to year, companies may be added or removed from the list based on their willingness to participate in annual executive compensation surveys. In 2008, we reviewed a comprehensive global survey of these companies which was prepared by Towers Perrin, the Compensation Committee’s independent consultant. This comprehensive global survey is generally compiled every two years.

 

The Compensation Committee generally targets base salaries, annual incentive awards, long-term incentive awards and total remuneration of our senior executives at the median of these comparator groups with a potential for compensation above that level in return for comparable performance. However, this percentile is only a target and actual compensation is dependent on various factors. Examples of these factors include the Company’s actual financial performance, an individual executive’s performance, and achievement of specified management objectives. Overall performance may result in actual compensation levels that are more or less than the target. We believe that the broad industrial comparator group listed below is more representative of the market in which we compete for executive talent. We believe it is appropriate to include companies outside of the automotive supplier industry in our comparator group because many of our executives possess transferable skills. The broad industrial group also provides more robust and position-specific data than the automotive supplier group and reduces the volatility, or year-over-year change, in the position-specific market data.

 

In addition to the 2006 and 2008 comprehensive surveys, in 2007 the Compensation Committee reviewed, with the assistance of Towers Perrin, its independent compensation consultant, the competitiveness of the base salaries, target annual incentive awards, target long-term incentive awards and target total direct compensation of our

executive officers within both comparator groups. The comparator groups for the 2007 review were generally the same as those for the 2008 comprehensive survey, as shown in the table below:

 

 

The 2007 Towers Perrin review and the 2008 comprehensive survey showed that, within the automotive supplier comparator group, the base salaries, target total cash compensation (base salary and target annual incentive opportunity) and target total direct compensation of our executive officers were, on average, competitive. However, the average annualized expected value of our long term incentive awards for executive officers remains below the market median within the automotive supplier group. Relative to the median pay levels in the broad industrial comparator group, base salaries and target total cash compensation levels of our executive officers were, on average, competitive, but target total direct compensation levels were significantly below the competitive range. This relative positioning in target total direct compensation of our executives within the broad industrial group was due to the average expected value of our most recent targeted long-term incentive awards granted in 2007 being significantly below the market median.

 

In 2007, the last year in which the annual long-term incentive grants were made, the Compensation Committee reviewed materials setting forth the various components of the compensation for our Named Executive Officers. These materials included a specific review of dollar amounts for salary, annual incentive, long-term incentive compensation, equity award and individual holdings, and, with respect to our qualified and non-qualified executive retirement plans, outstanding balances and the actual projected payout obligations. These materials also contained potential payment obligations under our executive employment agreements, including an analysis of the resulting impact created by a change in control of the Company. The Compensation Committee is committed to reviewing

total compensation summaries or tally sheets for our executive officers as appropriate in connection with material grants or awards.

 

Our human resources executives and staff support the Compensation Committee in its work. These members of management work with compensation consultants, whose engagements have been approved by the committee, and with accountants and legal counsel, as necessary, to implement the Compensation Committee’s decisions, to monitor evolving competitive practices and to make compensation recommendations to the Compensation Committee. Our human resources management develops specific compensation proposals, which are first reviewed by senior management and then presented to the Compensation Committee and Towers Perrin, its independent compensation consultant. The committee has final authority to approve, modify or reject the recommendations and to make its decisions in executive session. Mr. Rossiter generally does not attend meetings of the Compensation Committee, and if he does attend, he is not involved in decisions of the committee affecting the compensation of our executive officers. While our Executive Vice President, Chief Financial Officer, General Counsel and members of our human resources management attend such meetings to provide information and present material to the Compensation Committee and answer related questions, they are not involved in decisions of the committee affecting the compensation of our executive officers. The Compensation Committee typically meets in executive session after each of its regularly scheduled meetings to discuss executive compensation decisions.

 

The Compensation Committee generally has the discretion to make awards to the Named Executive Officers. The Compensation Committee did not exercise discretion in 2008 to increase or reduce the size of any award or to award compensation when a performance goal was not achieved. Under the terms of Lear’s annual incentive compensation plan (bonus plan) and other performance awards, the Compensation Committee may exercise negative discretion to reduce awards. The Compensation Committee also has the authority, outside of the bonus plan and the other performance awards, to pay, on a discretionary basis, amounts in excess of those provided under the bonus plan and other performance awards. In 2008, the Compensation Committee did not exercise discretion to pay, outside of the bonus plan and other performance awards, amounts in excess of those provided under the bonus plan and other performance awards to the Named Executive Officers.

 

As identified above, the elements of our executive compensation program consist of a base salary, annual incentives, long-term incentives, retirement plan benefits, termination/change in control benefits, and certain health, welfare and other benefits. A discussion of each of these elements of compensation follows.

 

Base Salary

 

Base salaries are paid to our executive officers in order to provide a steady stream of current income. Base salary is also used as a measure for other elements of our compensation program. For example, annual incentive targets in 2008 were set as a percentage of base salary (from 70% to 150% for our Named Executive Officers). In addition, those executives who had in the past received annual performance share grants were awarded a target amount of performance shares equal to 25% of an executive’s base salary (50% for Mr. Rossiter) as of January 1 of each year, through 2007. Because the amount of base salary can establish the range of potential compensation for other elements, we take special care in establishing a base salary that is competitive and at a level commensurate with an executive’s experience, performance and job responsibilities.

 

Base salaries for our executive officers are targeted around the median level for comparable positions within our comparator groups. On an annual basis, we review respective responsibilities, individual performance, Lear’s business performance and base salary levels for senior executives at companies within our comparator groups. Base salaries for our executive officers are established at levels considered appropriate in light of the duties and scope of responsibilities of each officer’s position. In this regard, the Compensation Committee also considers the compensation practices and corporate financial performance of companies within the comparator groups. Our

Compensation Committee uses this data as a factor in determining whether, and the extent to which, it will approve an annual merit salary increase for each of our executive officers. Merit increases in base salary for our senior executives, which generally are considered in May of each year, are also determined by the results of the Board’s annual leadership review. At this review, Mr. Rossiter assesses the performance of our top executives and presents his perspectives to our Board. Mr. Rossiter’s base salary and total compensation are reviewed by the Compensation Committee following the annual CEO performance review. Generally in February of each year, the CEO provides to the committee his goals and objectives for the upcoming year, and thereafter, the committee evaluates his performance for the prior year against the prior year’s goals and objectives.

 

As a result of the annual leadership review, the base salaries of the following Named Executive Officers were increased effective May 1, 2008: Mr. Ninivaggi — from $775,000 to $790,000; Mr. Scott — from $625,000 to $640,000; Mr. Salvatore — from $625,000 to $640,000; and Mr. Simoncini — from $575,000 to $640,000. The base salaries for these Named Executive Officers were increased in recognition of leadership contributions that generated superior Company performance in 2007. No increase was made to the annual base salary of Mr. Rossiter in 2008.

 

Annual Incentives

 

Our executive officers participate in the Annual Incentive Compensation Plan, which was approved by stockholders in 2005. Under this plan, the Compensation Committee makes annual cash incentive awards designed to reward successful financial performance and the achievement of goals considered important to Lear’s future success. Awards are typically made in the first quarter of each year based on our performance achieved in the prior fiscal year.

 

Target Annual Incentive.  Each Named Executive Officer is assigned an annual target opportunity under the Annual Incentive Compensation Plan expressed as a percentage of such officer’s base salary. An executive’s target bonus percentage generally increases as his ability to affect the Company’s performance increases. Consequently, as an executive’s responsibilities increase, his variable compensation in the form of an annual incentive bonus, which is dependent on Company performance, generally makes up a larger portion of the executive’s total compensation.

 

The target opportunities in 2008 were 150%, 80%, 70%, 70% and 70% of base salary for Messrs. Rossiter, Ninivaggi, Simoncini, Salvatore and Scott, respectively. The Compensation Committee assessed the competitiveness of the annual incentive targets in 2008, with the assistance of its compensation consultant, and found that they were competitive within the two comparator groups described above.

 

Measures.  Historically, the target opportunity for a given year’s performance had been based 50% upon whether our earnings per share reached a threshold established by the Compensation Committee and 50% upon whether the return on our net assets reached a threshold set by the Compensation Committee. In 2006, the Compensation Committee determined that the annual incentive award would be based 50% on the achievement of certain levels of free cash flow and 50% on the achievement of certain levels of operating income, excluding special items. Under the 2008 Executive Bonus Program terms, (i) free cash flow means net cash provided by operating activities before the net change in sold accounts receivable, less capital expenditures and (ii) operating income means pretax income excluding interest and other expense, restructuring costs up to $125 million and other special items. These measures were used because they are important measures of operating performance, relied upon by investors and analysts in evaluating our operating performance. In 2007 and 2008, we continued our use of these measures in setting targets and determining awards under the Annual Incentive Compensation Plan.

 

The 2008 budgeted threshold, target and maximum levels of these measures were set at $545 million, $680 million and $816 million, respectively, for operating income, excluding special items, and $156 million, $250 million and $345 million, respectively, for free cash flow. Final results for 2008, which were presented to the Compensation Committee in February 2009, were operating income, excluding special items, of $356 million, and free cash flow of negative $71 million, with each result falling below the threshold performance levels and resulting in no bonus payment for either portion.

Long-Term Incentives

 

The long-term incentive component of our executive compensation program is designed to provide our senior management with substantial at-risk components and to align the interests of our senior management with those of our stockholders. To achieve these goals, we have traditionally adopted a “portfolio” approach that recognizes the strengths and weaknesses that various forms of long-term incentives provide.

 

2008 Awards

 

We limited our equity incentive awards in 2008 to stock-settled SAR grants to our Named Executive Officers and certain other senior executives in November. As mentioned above, in August 2008 we granted cash retention awards to other key executives that vest in May 2009 and May 2010 if the executives remain with Lear. Our Named Executive Officers and certain other senior executives did not participate in this key employee retention plan. The grants of SARs to our Named Executive Officers in November 2008 were in lieu of participation in the broader retention program, with 50% of the SARs vesting in each of May 2009 and May 2010. These awards were designed to retain and incentivize our executives during the significant industry downturn. The size of the SAR grants was considerably smaller than the equity grants to these executives in prior years. The amount of each grant was determined by balancing the need for retention with the desire to manage the limited amount of shares available under our equity plan.

 

Prior Year Awards

 

In years prior to 2008, we followed the portfolio approach described above, and specifically, in 2007 we:

 

 

While base salaries and annual incentives for our executives have been competitive compared to companies in our comparator groups, our long-term incentive compensation was below that of the two comparator groups used in Towers Perrin’s latest executive compensation review. In our recent compensation benchmarking (in 2008 and prior thereto), our long-term incentive compensation was also found to be below market median levels.

 

Restricted Stock Units, Stock Appreciation Rights and Performance Units

 

Although Lear did not make its customary, annual long-term equity grants in 2008 (other than the SAR grants in November described above), equity grants were generally approved in November of prior years. The Compensation Committee has striven to achieve a proper balance between grants of long-term equity awards with time-based vesting such as RSUs and grants of equity awards whose value is entirely performance-based, such as SARs and performance shares. In 2003 and 2004, the Compensation Committee awarded time-vested RSUs to executives in lieu of awarding stock options. The Compensation Committee took into account that RSUs result in less dilution of the ownership interests of existing stockholders than the options they replaced and RSUs are effective incentives for our superior performing employees to remain with us and to continue their performance during periods of stock price fluctuations, when stock options may have no realizable value. Based on a review of evolving market practices and industry trends, in 2005 the Compensation Committee approved a combination of equity awards for members of senior management, with 75% of the value coming from stock-settled SARs and 25% of the value coming from

time-vested RSUs for the Named Executive Officers. The Compensation Committee believes that stock-settled SARs result in less dilution to existing stockholders than a comparable amount of options and are more performance-based than time-vested RSUs. This is consistent with the Compensation Committee’s desire to make a substantial portion of executive compensation dependent on Company performance. In addition, participants do not need to fund the exercise price to exercise a SAR.

 

In 2006, the Compensation Committee approved awards to certain of our executives (including the Named Executive Officers) consisting of RSUs, SARs and cash-based performance units. The addition of cash-based performance units (which awards were granted in February 2007) as part of the long-term incentive program was based on the Compensation Committee’s objective of providing additional incentive compensation based on the Company’s operating performance (earnings growth for the 2007-2009 period) but limiting dilution to stockholders. In addition, by assigning these performance units a specific dollar value upon grant instead of tying their value to our common stock, we limit the exposure of these awards to cyclical stock price fluctuations and focus the Company’s management team on the achievement of specified performance objectives.

 

In November 2007, the Compensation Committee again approved awards to our executives (including the Named Executive Officers) of RSUs, SARs and cash-based performance units. For the performance units, the Committee established a target dollar amount of performance units for each Named Executive Officer and payment of these awards is dependent upon the Company achieving certain levels of earnings growth and improvement on return on invested capital during the 2008-2010 period. Specific performance targets for the 2008-2010 performance period and their respective payment levels are as follows:

 

 

 

 

The total value of the Compensation Committee’s November 2007 awards to our Named Executive Officers was allocated as follows: 35% to RSUs; 35% to SARs; and 30% to performance units. We believe this approach strikes the appropriate balance between creating incentives for higher levels of performance while encouraging long-term retention. By offering 30% of this award in the form of cash-based performance units, we are able to limit the dilutive effect to our stockholders while utilizing performance criteria directly related to shareholder value. In addition, this mix of long-term incentive awards is consistent with the general industry average, based on the comparator group benchmarking provided by the Compensation Committee’s compensation consultant.

 

Performance Share Awards

 

In the past few years (ending in 2007), we had awarded a target number of performance shares to our senior executives for a three-year performance period. Performance share awards ensure that a significant component of certain executives’ compensation depends upon the achievement of specified performance objectives over that period. The Compensation Committee chooses from various measures of corporate performance to determine the level of payout of performance share awards. In 2007, no payment was made for the 2004-2006 cycle as results over the period did not achieve minimum thresholds. In 2008, we paid executives the performance share awards for the 2005-2007 cycle based on attainment of the threshold level of performance on the two performance measures of relative improvement on return on invested capital and relative return to shareholders, in each case compared to the peer group described below.

 

In February 2009, we paid executives the performance share awards for the 2006-2008 cycle at 75% of the targeted level based on attainment of the superior level of performance on the performance measure of improvement on return on invested capital. The threshold level of performance was not achieved for the performance measure of relative return to shareholders, and as a result we did not pay any performance shares based on that measure.

As in prior years, the Compensation Committee granted performance share awards in 2007 to senior management personnel under the Long-Term Stock Incentive Plan with target performance shares equal on the date of the award to a specified percentage of each such executive’s base salary on January 1, 2007. The specified percentage for Mr. Rossiter was 50% and for each of the other Named Executive Officers was 25%. The 2007-2009 performance criteria for these performance share awards were (i) our relative return to stockholders compared to a peer group consisting of the component companies within the S&P 500 Index and (ii) improvement on return on invested capital. Specific performance targets and their respective payment levels are as follows:

 

 

Prior to 2006, for the relative return to stockholders measure we had used a peer group of representative independent automotive suppliers, which in 2005 consisted of ArvinMeritor, Inc., Dana Corporation, Delphi Automotive Systems Corporation, Eaton Corporation, Johnson Controls, Inc., Magna International, Inc., and Visteon Corporation. The Compensation Committee chose to move to the S&P 500 Index as the peer group for performance share awards granted in 2006 and 2007 because it is a broader group and, therefore, more representative of investment alternatives available to our stockholders and more indicative of relative performance.

 

In order to recognize the cyclical nature of the automotive supply industry, we also introduced an alternative annual calculation under the terms of these performance share awards. It had been our experience in the past that one year of poor performance could virtually eliminate any possibility of an award from an entire cycle of performance share awards. Therefore, the Compensation Committee concluded that relying exclusively on cumulative three-year performance for these awards did not always provide an effective incentive for executives, given the cyclicality of the automotive industry. The 2006-2008 and 2007-2009 award cycles included an alternative calculation whereby participants can earn a pro rata amount of performance shares in each year of the performance period to the extent performance objectives are achieved in any single year of the performance period. This alternative calculation will be applied in the 2007-2009 award cycle if an executive would earn more performance shares thereby than by measuring performance over the three-year period. Payout of these awards under either calculation, if earned, occurs at the end of the three-year performance period.

 

As part of our desire to streamline our long-term incentive program, the Compensation Committee decided to eliminate performance share awards in future years beginning in 2008. Because of this, the value of the potential 2008 performance share award was instead applied to the November 2007 grants of SARs, RSUs and performance units, resulting in a somewhat higher value than that of the November 2006 grants.

 

Management Stock Ownership Guidelines

 

The Compensation Committee had historically implemented stock ownership guidelines providing that our officers achieve, within five years of reaching officer status, specified stock ownership levels, based on a multiple of such officer’s base salary. In 2007, the Compensation Committee modified the guidelines to provide for specified share or share-equivalent ownership levels rather than a value of share ownership based on a multiple of an executive’s base salary. This change mitigates the effect of stock price volatility and retains, as a fundamental objective, significant stock ownership by senior management. The stock ownership guidelines were intended to create a strong link between our long-term success and the ultimate compensation of our officers. Compliance with the guidelines is determined in January of each year. If an executive does not comply with the guidelines (which are subject to certain transition rules), the Company may pay up to 50% of his annual incentive award in the form of

restricted stock until he is in compliance. The stock ownership levels which must be achieved by our senior officers within the five-year period (subject to certain transition rules) are as follows:

 

 

Share ownership targets for officers reaching age 60 are reduced by 10% annually through age 65. For information regarding the share and share-equivalent ownership levels of our Named Executive Officers, see “Directors and Beneficial Ownership — Security Ownership of Certain Beneficial Owners and Management” beginning on page 16.

 

Management Stock Purchase Plan

 

To further its goal of aligning the interests of officers and key employees with those of our stockholders, the Compensation Committee has historically permitted our Named Executive Officers and certain other management personnel to participate in the MSPP. The program has been part of the Long-Term Stock Incentive Plan and, in 2008, there were approximately 240 eligible participants. In late 2008, we suspended participation in the MSPP for 2009 because a lower stock price results in increased share utilization for each dollar deferred under the MSPP, and we had limited share availability under our equity incentive plan. Under the MSPP, members of management had been able to elect to defer a portion of their base salary and/or annual incentive bonuses and receive RSUs credited at a discount to the fair market value of our common stock. Executive participants in the MSPP are also subject to the stock ownership guidelines described above. The discount rates on RSUs purchased with deferred salary or bonus are based on the following scale:

 

 

Participants in the MSPP are electing to invest their personal wealth in Company stock for a significant period of time. In consideration for deferring their 2008 base salary in a deferral election made in December 2007, participants were credited with a number of RSUs under the Long-Term Stock Incentive Plan equal to 125% or 143% of the amount deferred divided by the fair market value of a share of common stock determined in a manner approved by the Compensation Committee. This formula effectively provided participants with a 20% or 30% discount on RSUs credited under the Plan, depending on the amount of the deferral as set forth in the above table.

 

For RSUs credited in March 2008 for 2008 base salary deferral elections, the fair market value of a share of our common stock was based on the average of the closing trading prices of our common stock during the last five trading days of 2007, which was $28.37 per share. Because no annual incentive bonus was earned for 2008, no RSUs were credited in March 2009 for 2008 bonus deferral elections. In addition, as described above, the MSPP program was suspended for 2009; consequently, no amounts of 2009 salary are being deferred under the MSPP. Generally, a participant must hold RSUs and remain employed for at least three years following the grant date, at which time the participant receives, net of taxes, a number of shares of common stock equal to the RSUs held and a cash payment equal to the amount of dividends, if any, the participant would have earned if he had held shares of common stock rather than RSUs, together with accrued interest on such dividends.

 

In August 2008, the Compensation Committee approved an amendment and supplement to existing award agreements under the MSPP to provide eligible participants with additional deferral options under the existing MSPP deferrals made in 2006, 2007 and 2008. These additional alternatives included a notional cash account that accrues interest (at a rate set on January 1st of each year based on the average of the 10-year Treasury note rates

reported on the first business day of the four preceding calendar quarters) (“Notional Cash Account”) and a cash-settled SAR. Participants were offered a one-time opportunity to reallocate up to 50% of their existing deferral from RSUs into one or both of the other investment alternatives. The opportunity to exchange RSUs for a SAR and/or credit to a Notional Cash Account was given to provide participants with flexibility and choice with respect to investment alternatives for their deferred compensation, including RSUs, a SAR and a Notional Cash Account, thereby creating a balanced equity-based deferred compensation program that would enhance employee retention and motivation. The SAR investment alternative was designed to provide participants with the opportunity to meaningfully benefit from an increase in the market price of the Company’s common stock from its level on the exchange date of September 12, 2008. The Notional Cash Account was designed to provide a more conservative investment alternative for executives who did not wish to assume the risk of the fluctuations in the value of the Company’s common stock following the exchange date. Under the SAR alternative, each eligible RSU (which represented one share of Lear common stock) could be exchanged for a SAR covering three shares of Lear common stock, with respect to the 2007 and 2008 MSPP deferrals, and covering four shares, with respect to 2006 MSPP deferrals. The base price of the SAR and the conversion price for the Notional Cash Account were based on the closing market price of Lear’s common stock on the business day following the expiration of the exchange offer, which was $14.55. Amounts in the Notional Cash Account will generally be distributed, and the SAR will generally become exercisable, at the same time as the associated RSUs for which they were exchanged would have been distributed. RSUs that were not reallocated into a new investment alternative remain subject to their existing terms and conditions. Mr. Rossiter and Mr. Ninivaggi each elected to participate in the exchange offer. Mr. Rossiter reallocated 25% of his RSUs under the 2007 and 2008 MSPP into SARs and Mr. Ninivaggi reallocated 50% of his RSUs under the 2006 MSPP into a Notional Cash Account and 25% of his RSUs under the 2007 and 2008 MSPP into SARs.

 

Equity Award Policy

 

We do not time the grant of equity awards in coordination with the release of material non-public information. Our equity awards are generally approved and effective on the dates of our regularly scheduled Compensation Committee meetings. In 2006, the Compensation Committee approved and formalized our equity award policy. It provides that the effective grant date of equity awards must be either the date of Compensation Committee or other committee approval or some future date specifically identified in such approval. The exercise price of stock options and grant price of SARs shall be the closing market price of our common stock on the grant date. The Compensation Committee must approve all awards to our executive officers. An aggregate award pool to non-executives may be approved by the Compensation Committee and allocated to individuals by a committee consisting of the CEO and the Chairman of the Compensation Committee.

 

Retirement Plan Benefits

 

Our Named Executive Officers participate in our retirement savings plan, qualified pension plan, pension equalization plan and supplemental savings plan. The general terms of these plans and formulas for calculating benefits thereunder are summarized following the 2008 Summary Compensation table, 2008 Pension Benefits table and 2008 Nonqualified Deferred Compensation table, respectively, in “Executive Compensation” beginning on page 31. These benefits provide rewards for long-term service to the Company and an income source in an executive’s post-employment years. In 2006, we elected to freeze our salaried defined benefit pension plan effective December 31, 2006 and established a new Pension Savings Plan component under the defined contribution retirement plan effective January 1, 2007 (and a corresponding non-qualified benefit component). This action also resulted in the freeze of benefit accruals under the Lear Corporation Pension Equalization Program and a related portion of the Lear Corporation Executive Supplemental Savings Plan (collectively, the “SERP”).

 

In making this transition, we considered that from a financial perspective the volatility of the market makes the costs associated with funding a defined benefit plan increasingly unpredictable. In contrast, the more predictable cost structure of a defined contribution plan makes it easier to effectively budget and manage plan expenses. In general, our pension and retirement benefits have been competitive with those of other companies in our comparator groups, assuming executives retire at the normal retirement age of 65. Our plans do not provide for enhanced credits or benefits upon early retirement.

In December 2007, the Compensation Committee approved further amendments to the SERP to (i) comply with changes in the tax laws (pursuant to Section 409A of the Internal Revenue Code of 1986, as amended) governing the permitted timing of distributions from non-qualified deferred compensation plans such as the SERP and (ii) provide for the payment of vested benefits to SERP participants in equal installments over a 5-year period beginning at age 60. For an active participant eligible to receive benefits, after-tax amounts that would otherwise be payable are used to fund a third party annuity or other investment vehicle. In such event, the participant will not have access to the invested funds or receive any cash payments until he retires or otherwise terminates employment with the Company. Under these SERP amendments, all distributions under the SERP will be completed within five years after the last participant vests or turns age 60, whichever is later. In approving these amendments to the SERP, the Compensation Committee recognized the value of funding pension benefits accumulated by participants over long tenures of service, while stipulating that in-service distribution and withdrawal of retirement assets be prohibited.

 

As described above, we also elected to wind down our non-qualified deferred compensation program under the Executive Supplemental Savings Plan (“ESSP”). This program had traditionally been a low-cost vehicle under which executives could defer salary and bonus above limits prescribed by the IRS and earn a fixed rate of interest. In recent years the program’s popularity had decreased (due in part to the lack of diverse investment alternatives) and the increased burdens (and costs) of administering the program under the new IRS deferred compensation regulations made the program more costly. In addition, the ability to defer base salary and bonus at a fixed interest rate was added to the revised MSPP program (which was suspended for 2009 but may be re-established in the future), thereby rendering the ESSP redundant. The amendment that winds down the ESSP (i) terminated future elective deferrals of salary and bonus as well as Company matching contributions, (ii) voided deferral elections made in 2007 with respect to bonuses payable in 2009 (though no bonuses were ultimately paid based on 2008 performance), and (iii) provided for the distribution of participants’ balances of all elective deferrals and Company matching contributions in a lump sum. Participants with balances of less than $50,000 received a distribution in January 2009. Each participant with a balance exceeding $50,000 received a distribution in January 2009 if they agreed to a 10% reduction in the amount to which such participant would otherwise be entitled, and if a participant chose not to agree to the reduction, such participant would receive a distribution of the unreduced amount in January 2010.

 

Termination/Change in Control Benefits

 

As described in detail and quantified in “Executive Compensation — Potential Payments Upon Termination or Change in Control” beginning on page 44, our Named Executive Officers receive certain benefits under their employment agreements upon certain termination of employment events, including a termination following a change in control of the Company. They also receive, as do all employees who hold equity awards, accelerated or pro rata vesting of equity awards upon a change in control of the Company. These benefits are intended to ensure that members of senior management are not influenced by their personal situations and are able to be objective in evaluating a potential change in control transaction. In addition, the benefits associated with early vesting of equity awards protect employees in the event of a change in control and ensure an orderly transition of leadership. In March 2005, the Compensation Committee, in connection with its review of our executive severance program, approved amendments to the employment agreements for our senior executives that reduced severance benefits by one-third. In addition, we increased the ownership threshold for defining a “change in control” event from 20% to 25% in our equity award grants beginning in November 2006. The Compensation Committee regularly reviews termination and change in control benefits and continues to believe that the severance benefits in connection with certain terminations of employment and the accelerated equity award vesting upon a change in control constitute reasonable levels of protection for our executives.

 

Health, Welfare and Certain Other Benefits

 

To remain competitive in the market for a high-caliber management team, Lear provides its executive officers, including our Chief Executive Officer, with health, welfare and other fringe benefits. The Estate Preservation Plan, in which certain of our senior executives participate, provides the beneficiaries of a participant with death benefits that may be used to pay estate taxes on inherited common stock. In addition, in the past we had provided certain perquisites, including financial counseling services, reimbursement of country club membership dues, the use of a

company automobile and limited personal use of the corporate aircraft. In certain instances, the Company had also provided tax gross-up payments for the imputed income associated with such perquisites. Beginning in 2006 for our Named Executive Officers, we transitioned from the provision of individual perquisites toward the provision to each executive of an aggregate perquisite allowance. This gives executives the ability to choose the form of benefit and eliminates our cost of administering the perquisites program. We also permit limited personal use of the corporate aircraft by our most senior executives. In addition, in limited circumstances we will pay or reimburse certain senior executives for initiation fees related to social club and country club memberships, provided that the executive must repay the fees (with the amount reduced by 20% per elapsed year) to the Company if he is terminated for cause or voluntarily terminates employment within five years of such payment or reimbursement. For additional information regarding perquisites, please see “Executive Compensation — 2008 Summary Compensation Table” beginning on page 31 and notes 6 and 8 through 11 to the 2008 Summary Compensation Table.

 

Chief Executive Officer Compensation

 

As described above, base salaries for our executive officers are established at levels considered appropriate in light of the duties and scope of responsibilities of each officer’s position. In this regard, the Compensation Committee also considers the compensation practices and corporate financial performance of companies within the comparator groups. Our Compensation Committee uses this data as a factor in determining whether, and the extent to which, it will approve an annual merit salary increase for each of our executive officers. Mr. Rossiter’s base salary and total compensation are reviewed by the Compensation Committee following the annual CEO performance review. Generally in February of each year, the CEO provides to the Compensation Committee his goals and objectives for the upcoming year and thereafter the Compensation Committee evaluates his performance for the prior year against the prior year’s goals and objectives.

 

Mr. Rossiter did not receive an increase in his base salary in 2008. In connection with the negotiation of his new employment agreement in November 2007, Mr. Rossiter’s base salary was increased to $1,250,000 from $1,100,000. Mr. Rossiter’s base salary was increased to reflect his increased role in assuming direct oversight of our global business units and his additional position of President, each in August 2007. Mr. Rossiter’s base salary had last been increased in December 2004 by the Compensation Committee to $1,100,000 from $1,000,000. In addition to Mr. Rossiter assuming increased responsibilities, the Compensation Committee considered that Mr. Rossiter had declined any increase in salary for the past several years and that his salary as compared to Chief Executive Officers of comparator group companies was no longer competitive nor commensurate with his responsibilities and contributions. Mr. Rossiter’s target annual incentive award for 2008 was 150% of his base salary, but no annual incentive bonus was earned for 2008 performance. An executive’s target bonus percentage generally increases as his ability to affect the Company’s performance increases. Consequently, as an executive’s responsibilities increase, his variable compensation in the form of an annual incentive bonus, which is dependent on Company performance, generally makes up a larger portion of the executive’s total compensation. Accordingly, Mr. Rossiter received a larger grant of SARs in November 2008 than did our other Named Executive Officers.

 

Under our performance share program, as it did in prior years, the Compensation Committee granted performance share awards in 2007 to senior management personnel under the Long-Term Stock Incentive Plan with target performance shares equal on the date of the award to a specified percentage of each such executive’s base salary on January 1, 2007. The specified percentage for Mr. Rossiter was 50% and for each of the other Named Executive Officers was 25%. Mr. Rossiter’s target performance share award is larger because his ability to influence the performance of the Company is greater and the Compensation Committee believes his incentive based compensation should reflect his role. In addition, Mr. Rossiter has traditionally received a lower portion of his total compensation in the form of fixed amounts like base salary relative to our other executives in order to link more closely his compensation to the performance of the Company. Additionally, Mr. Rossiter’s required stock ownership level is greater than that of our other executives under the Stock Ownership Guidelines.

 

Lear does not have a formal policy, beyond the requirements of Section 304 of the Sarbanes-Oxley Act of 2002, regarding the adjustment or recovery of awards or payments if the relevant performance measures upon which they are based are restated or otherwise adjusted in a manner that would reduce the size of the award.

 

One of the factors the Compensation Committee considers when determining compensation is the anticipated tax treatment to Lear and to the executives of the various payments and benefits. Section 162(m) of the Internal Revenue Code applies to Lear by limiting the deductibility of non-performance based compensation in excess of $1,000,000 paid to the Chief Executive Officer (or an individual acting in such a capacity), and the three next highest compensated officers other than the Chief Financial Officer (or an individual acting in such a capacity) appearing in the 2008 Summary Compensation Table. The Compensation Committee generally considers this limit when determining compensation; however, there are instances where the Committee has concluded, and may conclude in the future, that it is appropriate to exceed the limitation on deductibility under Section 162(m) to ensure that executive officers are compensated in a manner that it believes to be consistent with the Company’s best interests and those of its stockholders. For example, as described above, in 2007 the Compensation Committee chose to increase Mr. Rossiter’s salary to $1,250,000 from $1,100,000, thereby making an additional $150,000 of it non-deductible. In making this decision, the Compensation Committee weighed the cost of this non-deductible compensation against the benefit of awarding competitive compensation to our Chief Executive Officer.

 

The Company has taken actions to both amend its plans and to operate its plans in compliance with the requirements of Internal Revenue Code Section 409A. Under Section 409A, amounts deferred by or on behalf of an executive officer under a nonqualified deferred compensation plan (such as the Pension Equalization Program, ESSP or MSPP) may be included in gross income when deferred and subject to a 20% additional federal tax plus additional interest, unless the plan complies with certain requirements related to the timing of deferral election and distribution decisions. SARs may be exempt from Section 409A if the right satisfies certain requirements (i.e., the grant price is not less than the fair market value on the grant date, the number of shares subject to right is fixed on the grant date, and there is no deferral feature beyond exercise). We administer the Pension Equalization Program, ESSP, SAR awards, MSPP, and other applicable plans and awards consistent with Section 409A requirements.

 

We have generally considered the accounting treatment of various forms of awards in determining the components of our overall compensation program. For example, we considered the commencement of option expensing under the fair value accounting guidance of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation”, as a factor in switching from option awards to RSUs in 2003. In addition, we have generally sought to grant stock-settled equity awards, which receive fixed accounting treatment, as opposed to cash-settled equity awards, which receive variable accounting treatment. We intend to continue to evaluate these factors in the future.

 

The following table shows information concerning the annual compensation for services to the Company in all capacities of the Chief Executive Officer, Chief Financial Officer and the other Named Executive Officers during the last completed fiscal year. The footnotes accompanying the 2008 Summary Compensation Table generally explain amounts reported for 2008. For a detailed explanation of the 2007 and 2006 amounts, see the footnotes to the 2007 and 2006 Summary Compensation Tables.

 

 

 

 

 

 

 

 

 

Employment Agreements and Consulting Agreement

 

We have entered into employment agreements with each of our Named Executive Officers. The employment agreement with Mr. Rossiter has a fixed term ending on December 31, 2010 and contemplates that Mr. Rossiter will enter into a one-year consulting agreement with Lear thereafter. Unless terminated earlier pursuant to a written notice of termination provided by us or the executive, each employment agreement with our other Named Executive Officers remains in effect until the earlier of (i) the date two years after a written notice of non-renewal is provided by us or the executive or (ii) the date the executive reaches his normal retirement date under our retirement plan for salaried employees then in effect. Each employment agreement specifies the annual base salary for the executive, which may be increased at the discretion of the Compensation Committee. In addition, the employment agreements specify that the executives are eligible for an annual incentive compensation bonus at the discretion of the Compensation Committee. Under the terms of the employment agreements, each Named Executive Officer is also eligible to participate in the welfare, retirement, perquisite and fringe benefit, and other benefit plans, practices, policies and programs, as may be in effect from time to time, for senior executives of the Company generally. Under the employment agreements, the Company may generally reduce an executive’s base salary or bonus, defer payment of his compensation, or eliminate or modify his benefits, without enabling him to terminate for good reason (as defined in the employment agreement), so long as such changes are made for all executive officers of the Company; however, any such actions by the Company within one year after a change in control (as defined in the employment agreement) would give the executive a basis for termination for good reason.

 

Each executive who enters into an employment agreement has agreed to comply with certain confidentiality covenants both during employment and after termination. Each executive, other than Mr. Rossiter, also agreed to comply with certain non-competition and non-solicitation covenants during his employment and for two years after the date of termination unless he is terminated by us for cause, pursuant to a notice of non-renewal from us, or if he terminates employment for other than good reason, in which cases he agreed to comply with such covenants for one year after the date of termination. Mr. Rossiter agreed to comply with certain non-competition and non-solicitation covenants during his employment and for two years after the date of his termination for any reason or, if later, two years after the end of his consulting period. Upon any transfer of all or substantially all of our assets to a successor entity, we will require the successor entity expressly to assume performance of each executive’s employment agreement.

 

On November 15, 2007, we entered into a one-year consulting agreement with Mr. Vandenberghe, which was effective upon his retirement from Lear on May 31, 2008. Under the terms of the consulting agreement, Mr. Vandenberghe receives cash compensation of $700,000 during the term of the Consulting Agreement and provides transition, consulting and other related services to Lear. The restrictive covenants from his prior employment agreement will continue to apply until two years after the end of the consulting period.

Lear Corporation Salaried Retirement Program

 

The Lear Corporation Salaried Retirement Program (“Retirement Program”) is comprised of two components: (i) the Retirement Savings Plan and (ii) the Pension Savings Plan. We established the Retirement Savings Plan pursuant to Section 401(k) of the Internal Revenue Code for eligible employees who have completed one month of service. Under the Retirement Savings Plan, each eligible employee may elect to contribute, on a pre-tax basis, a portion of his eligible compensation in each year. Effective January 1, 2007, the Retirement Savings Plan generally provided for a Company matching provision of 25% or 50% on an employee’s contribution up to a maximum of 5%, of an employee’s eligible compensation, depending on years of service. In addition, the Retirement Savings Plan allows for discretionary Company matching contributions. Company matching contributions are initially invested in accordance with the Participant’s deferral contributions and can be transferred by the participant to other funds under the Retirement Savings Plan at any time. Matching contributions generally become vested under the Retirement Savings Plan at a rate of 20% for each full year of service. The matching contributions were suspended effective July 1, 2008 and subsequently reinstated as of January 1, 2009.

 

Effective January 1, 2007, we established the Pension Savings Plan as a component of the Retirement Program. Under the Pension Savings Plan, we make contributions to each eligible employee’s Pension Savings Plan account based on the employee’s “points,” which are the sum total of the employee’s age and years of service as of January 1 of the plan year. Based on an employee’s points, we contribute: (i) from 3% to 8% of compensation up to the Social Security Taxable Wage Base and (ii) from 4.5% to 12% of compensation over the Social Security Taxable Wage Base. For the 2007 through 2011 plan years, we will make additional contributions on behalf of employees who have at least 70 points as of January 1 and who were eligible employees on December 31, 2006 as follows: (1) from 3.5% to 4% of compensation up to the Social Security Taxable Wage Base and (2) from 5.25% to 5.7% of compensation over the Social Security Taxable Wage Base. All Pension Savings Plan contributions are generally determined as of June 30th and December 31st of each calendar year (or, effective January 1, 2009, on the last day of each month), provided that the employee is actively employed on such date, and allocated as soon as administratively practicable thereafter. Contributions generally become vested under the Pension Savings Plan at a rate of 20% for each full year of service. The contributions to the Pension Savings Plan were suspended effective October 31, 2008 and subsequently reinstated as of January 1, 2009.

 

The following table discloses the grants of plan-based awards to our Named Executive Officers in 2008. The approval date of each grant was the same as the grant date, except where specifically indicated in the table.

 

 

 

 

 

Annual Incentives

 

A summary description of the Company’s Annual Incentive Compensation Plan is set forth above under the heading “Compensation Discussion and Analysis — Elements of Compensation — Annual Incentives” on page 22.

 

Restricted Stock Units

 

The Company’s equity-based awards to the Named Executive Officers for 2008 included RSUs granted under the MSPP based on deferral elections with respect to salary and bonus otherwise payable in 2008. The values of the RSU awards reported reflect the premium portions (as a result of the discounted unit price) awarded to each Named Executive Officer based on such officer’s deferral election, and such value is reported based on the average closing prices of our common stock on the last five trading days of 2008. RSUs are converted into shares of our common stock on a one-for-one basis, net of taxes, on the vesting date, which is generally three years from the date of grant. Delivery of shares is made at the time of vesting.

 

Holders of RSUs are entitled to dividend equivalents if and when cash dividends are declared and paid on our common stock. The dividend equivalents are calculated by multiplying the dividend amount by the number of RSUs held. The dividend equivalents are credited to an account established by the Company for bookkeeping purposes only and credited monthly with interest at an annual rate equal to the prime rate. Dividend equivalents vest in accordance with the vesting schedule of the RSUs to which they relate.

 

Stock Appreciation Rights

 

The Company’s equity-based awards to the Named Executive Officers for 2008 included (i) stock-settled SARs granted under the Long-Term Stock Incentive Plan and (ii) cash-settled SARs granted in exchange for MSPP restricted stock units reallocated by certain Named Executive Officers pursuant to an exchange offer by the Company in August 2008. The SARs entitle the executive, upon exercise, to receive shares of our common stock or cash, as applicable, equal to the aggregate difference between the grant price of each exercised SAR and the fair market value of one share of common stock on the date the SAR is exercised.

 

With respect to the stock-settled SARs granted under the Long-Term Stock Incentive Plan, the grant price was equal to the closing price of the Company common stock on the New York Stock Exchange on the grant date. The stock-settled SARs generally vest and become exercisable in two equal installments on May 1, 2009 and May 1, 2010, provided the recipient remains employed by the Company and certain other conditions are satisfied. The amount scheduled to become exercisable on May 1, 2010 may become exercisable on an accelerated basis as of the date that is the later of (i) the end of the first 10-consecutive trading day period beginning after the grant throughout which the Company’s closing stock price has equaled or exceeded an amount representing an increase of 100% from the grant price, or (ii) May 1, 2009. If a change in control (as defined in the Long-Term Stock Incentive Plan) of the Company occurs, the SARs will immediately vest in full. The stock-settled SARs will expire on May 1, 2012, unless earlier exercised or terminated following the executive’s termination of employment.

 

With respect to the cash-settled SARs received in exchange for MSPP restricted stock units, the grant price was equal to the closing price of the Company common stock on the New York Stock Exchange on the business day following the expiration of the exchange offer. The cash-settled SARs are scheduled to vest and become exercisable on the same date that the MSPP restricted stock units for which they were exchanged would have been distributed.

The SARs may become vested and exercisable on an accelerated basis as of the date that is the later of (i) the end of the first 10-consecutive trading day period beginning after the grant date throughout which the fair market value of a share of Company common stock has equaled or exceeded 150% of the grant price, or (ii) the six-month anniversary of the grant date. If a change in control (as defined in the Long-Term Stock Incentive Plan) of the Company occurs, the SARs held by an executive who was employed by the Company immediately before the change in control will immediately vest in full and will be exercisable until the expiration date. The cash-settled SARs will expire on the second anniversary of the scheduled vesting date.

 

The following table shows outstanding stock options, SARs, RSUs and performance shares as of December 31, 2008, for each Named Executive Officer.