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)

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21557 Telegraph Road

Southfield, Michigan 48033

 

March 30, 2011

 

Dear Stockholder:

 

On behalf of the Board of Directors of Lear Corporation, you are cordially invited to attend the 2011 Annual Meeting of Stockholders to be held on May 12, 2011, at 10:00 a.m. (Eastern Time) at Lear Corporation’s Corporate Headquarters, 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 March 30, 2011, 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, provide an advisory vote on executive compensation and the frequency of such advisory vote 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,

 

Robert E. Rossiter

Chief Executive Officer, President and Director

 

This proxy statement is dated March 30, 2011, and is first being made available to stockholders electronically via the Internet on or about March 30, 2011.

LEAR CORPORATION

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 12, 2011
10:00 a.m., Eastern Time

 

 

To the Stockholders of Lear Corporation:

 

The 2011 Annual Meeting of Stockholders will be held on May 12, 2011, at 10:00 a.m. (Eastern Time) at Lear Corporation’s Corporate Headquarters, 21557 Telegraph Road, Southfield, Michigan 48033. The purpose of the meeting is to:

 

1. elect eight directors;

 

2. ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2011;

 

3. provide an advisory vote on executive compensation;

 

4. provide an advisory vote on the frequency of the advisory vote on executive compensation; and

 

5. conduct any other business properly brought before the meeting or any adjournments or postponements thereof.

 

Voting is limited to stockholders of record at the close of business on March 25, 2011. 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,

 

Terrence B. Larkin

Senior Vice President, General Counsel and
Corporate Secretary

 

March 30, 2011

TABLE OF CONTENTS

 

LEAR CORPORATION
21557 Telegraph Road
Southfield, Michigan 48033

 

 

 

The 2011 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, 21557 Telegraph Road, Southfield, Michigan 48033, on May 12, 2011, at 10:00 a.m. (Eastern Time).

 

The date to determine stockholders entitled to notice of and to vote at the meeting is the close of business on March 25, 2011.

 

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 March 30, 2011, we will mail to most of our stockholders a notice (the “Notice”) containing instructions on how to access this proxy statement, the proxy card and our annual report and to vote via the Internet. Other stockholders, in accordance with their prior requests, will receive e-mail notification of how to access our proxy materials and vote via the Internet, or will be mailed paper copies of our proxy materials and a proxy card on or about March 30, 2010.

 

The Notice also contains instructions on how to request a printed copy of the proxy materials. In addition, you may elect to receive future proxy materials in printed form by mail or electronically by e-mail by following the instructions included in the Notice. If you have previously elected to receive our proxy materials electronically, you will continue to receive these materials via e-mail unless you elect otherwise.

 

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.

 

In addition , 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, you may notify your broker if your shares are held in a brokerage account or you may notify us if you hold registered shares. Registered stockholders may notify us by contacting Broadridge Financial Solutions, Inc. at the above telephone number or address or sending a written request to Lear Corporation, 21557 Telegraph Road, Southfield, Michigan 48033, Attention: Investor Relations.

 

The agenda for the meeting is to:

 

1. elect eight directors;

 

2. ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2011;

3. provide an advisory vote on executive compensation;

 

4. provide an advisory vote on the frequency of the advisory vote on executive compensation; and

 

5. conduct any other business properly brought before the meeting or any adjournments or postponements thereof.

 

Lear’s Board of Directors (the “Board”) is soliciting your proxy to vote your shares of common stock 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 11, 2011.

 

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 the director nominees named on the proxy card, FOR the ratification of the appointment of our independent registered public accounting firm, FOR the advisory approval of executive compensation described in this proxy statement and FOR the one year frequency option for the advisory vote on executive compensation.

 

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, March 25, 2011, there were approximately 104,889,387 shares of our common stock, par value $0.01 per share, outstanding (including 2,510,564 shares reserved for the satisfaction of certain claims in connection with our emergence from Chapter 11 bankruptcy proceedings). Our common stock is the only class of voting securities outstanding.

 

A quorum is established when a majority of shares entitled to vote is present in person or represented by proxy at the Annual Meeting. 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.

 

To be elected, director nominees must receive the affirmative vote of a majority of the votes cast (i.e., the number of shares voted “for” a director nominee must exceed the number of votes cast “against” that nominee) (Proposal No. 1). For the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm (Proposal No. 2), advisory approval of executive compensation (Proposal No. 3) and any other matter that may properly come before the Annual Meeting, 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. For the advisory vote on the frequency of the advisory approval vote on executive compensation (Proposal No. 4), the frequency alternative that receives the most votes will be the choice of stockholders.

 

Abstentions on any matter other than the election of directors (Proposal No. 1) and the advisory vote on the frequency of the advisory vote on executive compensation (Proposal No. 4) 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 other items (i.e. Proposal No. 2 and Proposal No. 3).

 

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 (Proposal No. 2) but may not be permitted to exercise voting discretion with respect to non-routine matters (Proposals No. 1, 3 and 4). Thus, if you do not give your bank, broker or nominee specific instructions with respect to 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, 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.

 

Upon the recommendation of our Nominating and Corporate Governance Committee (the “Nominating Committee”), the Board has nominated the individuals listed below to stand for election to the Board for a one-year term ending at the annual meeting of stockholders in 2012 or until their successors, if any, are elected or appointed. Our Amended and Restated Certificate of Incorporation and Bylaws provide for the annual election of directors, commencing with this Annual Meeting. To be elected, each director nominee must receive the affirmative vote of a majority of the votes cast (i.e., the number of shares voted “for” a director nominee must exceed the number of votes cast “against” that nominee). Unless contrary instructions are given, the shares represented by your proxy will be voted FOR the election of all director nominees. In addition, our Corporate Governance Guidelines contain a resignation policy which provides that in the event an incumbent director fails to receive a majority of the votes cast in an uncontested election, such director shall promptly tender his resignation to the Board for consideration. The Board has determined that each director nominee, other than Mr. Rossiter, is an independent director, as further described below in “Directors and Corporate Governance — Independence of Directors.”

 

All of the director nominees listed below 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.

 

 

Biographical information relating to each of the director nominees is set forth below under “Directors and Corporate Governance” and incorporated by reference herein.

 

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

 

PROXIES SOLICITED BY THE BOARD WILL BE VOTED FOR THE ELECTION OF EACH DIRECTOR NOMINEE UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE.

 

Set forth below is a description of the business experience of each director, with the exception of Philip F. Murtaugh, as well as the specific qualifications, skills and experiences considered by the Nominating Committee and the Board in recommending our slate of director nominees. Mr. Murtaugh resigned from the Board in January 2011. Each director listed below originally was appointed as a director in connection with the our emergence from Chapter 11 bankruptcy proceedings in November 2009, and each such director is nominated for reelection to the Board for a term expiring at the annual meeting of stockholders in 2012. See “Election of Directors (Proposal No. 1).”

 

 

Mr. Rossiter currently serves as the Company’s Chief Executive Officer and President, and also has served as the Company’s Chairman, as described above. In July 2009, the Company filed for bankruptcy protection.

 

Mr. Clawson currently serves, and has served, as the president and chief executive officer of Hayes Lemmerz, as described above. In May 2009, Hayes Lemmerz filed for bankruptcy protection.

 

Mr. Runkle held various executive-level positions at Delphi Corporation, as described above, until he retired in July 2005. Delphi Corporation filed for bankruptcy protection in October 2005.

 

The following are the general criteria for the selection of our directors that the Nominating 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 Committee believes would contribute to the effective functioning of our Board. The Nominating Committee considers, without limitation, a director nominee’s independence, skills and other attributes, experience, perspective, background and diversity. The general criteria set forth below are not listed in any particular order of importance:

 

 

Our Corporate Governance Guidelines and Nominating Committee charter provide guidelines with respect to the consideration of director candidates. Under these guidelines, the Nominating 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 Committee also may recommend to the Board changes to the portfolio of director skills, experience, perspective and background required for the effective functioning of the Board considering our strategy and the regulatory, geographic and market environments. Any such changes to the director selection criteria must be approved by the Board. The Nominating Committee screens candidates and recommends director nominees who are approved by the full Board.

 

The Nominating Committee considers candidates for Board membership suggested by its members and other Board members, as well as management and stockholders. The Nominating Committee also may retain a search firm (which may be paid a fee) to identify director candidates. Once a potential candidate has been identified, the Nominating 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. All director candidates are evaluated on the same basis. Diversity is one of the criteria described above that the Nominating Committee and the Board consider in identifying director nominees, which they consider in the context of the Board as a whole. We define “diversity” broadly to include differences in viewpoints, background, experience, skill, education, national origin, gender, race, age, culture and current affiliations that may offer Lear exposure to contemporary business issues. Candidates also are evaluated in light of Board policies, such as those relating to director independence and service on other boards, as well as considerations relating to the size and structure of the Board. These qualifications may vary from year to year, depending on the composition 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” below, the Nominating Committee would evaluate such candidate in the same manner in which it evaluates other director candidates considered by the Nominating Committee.

 

In accordance with its charter, the Nominating 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 1.13 of Lear’s Bylaws for nominations by stockholders of persons to serve as directors.

 

Pursuant to Section 1.13 of the Bylaws, 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 90 nor more than 120 days prior to the first anniversary of the preceding year’s annual meeting; provided, however, that if the annual meeting is more than 30 days prior to the anniversary of the preceding year’s annual meeting or more than 70 days after such anniversary date, notice by the stockholder must be delivered not earlier than the close of business on the one hundred twentieth day prior to such annual meeting and not later than the close of business on the later of the ninetieth day prior to such annual meeting or the tenth day following the day on which “public announcement” of the date of such annual meeting is made by Lear. For purposes of the Bylaws, “public announcement” 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 Bylaws, as amended, has been filed as an exhibit to our Current Report on Form 8-K filed with the SEC on November 9, 2009.

 

The Company’s Corporate Governance Guidelines provide that a majority of the members of the Board, and each member of the Audit Committee, Compensation Committee and Nominating Committee, must meet the criteria for independence set forth under applicable law and the New York Stock Exchange (“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. 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.

 

The Board has made director independence determinations with respect to each person who served as a director during any portion of 2010. Based on our director independence guidelines and the NYSE independence guidelines, the Board has affirmatively determined that (i) Messrs. Capo, Clawson, Foster, Mallet, Murtaugh, Runkle and Smith (A) have no relationships or only immaterial relationships with us, (B) meet our director independence guidelines and the NYSE independence guidelines with respect to any 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) Mr. Rossiter is not independent. Mr. Rossiter is our Chief Executive Officer and President. In making its independence determinations, the Board also considered the additional factors described below.

 

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 is not an executive officer of such company, (ii) the amount of business with the company falls below the NYSE’s independence 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. The Board has concluded that this relationship is not material and that Mr. Wallace is independent.

 

The Board, with the assistance of the Board committees, is responsible for ensuring that material risks affecting the Company are identified and managed appropriately. The Board and its committees regularly review material operational, financial, compensation and compliance risks with senior management. In addition, the Board and its committees exercise their risk oversight function by carefully evaluating the reports they receive from management and by making inquiries of management on areas of particular interest to the Board.

 

As set forth in its charter, the Audit Committee is responsible for discussing with management the Company’s process for assessing and managing risks, including the Company’s major financial risk exposures and the steps necessary to monitor and control such exposures. In addition, the Audit Committee is responsible for ensuring that the Company has an internal audit function to provide management and the Audit Committee with ongoing assessments of the Company’s risk management process and system of internal controls. The Audit Committee also performs a central oversight role with respect to financial and compliance risks, meets periodically with senior management, our vice presidents of internal audit and compliance and our independent auditor, Ernst & Young LLP, and reports on its findings at each regularly scheduled meeting of the Board.

 

In the past, we have completed both comprehensive and focused risk assessments. During 2010, we expanded and formalized an enterprise risk management process designed to facilitate the identification, assessment and management of certain key risks to achieving our strategic objectives. The enterprise risk management process supplements management’s ongoing responsibilities to monitor and address risks by working with risk owners to identify causes of and action plans for certain key risks, which then are discussed with senior management to promote visibility and ensure appropriate risk response strategies. The Audit Committee receives quarterly reports from senior management on the progress of our enterprise risk management process, and reports to the Board, as appropriate. The Audit Committee and Board also periodically receive reports on risks addressed in the enterprise risk management process, in addition to reports on other risks.

 

Our other Board committees also have responsibility for the oversight of risk management. For example, the Compensation Committee considers the risks associated with our compensation policies and practices, as discussed further under “Compensation and Risk.” Further, the Nominating Committee oversees risks associated with our governance structure and processes and annually reviews our organizational documents, Corporate Governance Guidelines and other policies. The committees primarily keep the Board informed of their risk oversight and related activities through reports of the committee chairmen to the full Board. The Board also considers specific risk topics in connection with strategic planning and other matters.

 

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.

 

Leadership Structure of the Board

 

The Board appointed Henry D. G. Wallace as Non-Executive Chairman of the Board in August 2010. Prior to such appointment, Robert E. Rossiter, our current Chief Executive Officer, President and member of our Board, acted as Chairman of the Board. We separated these positions to allow the Chief Executive Officer to focus on the execution of our business strategy, growth and development, while allowing the Non-Executive Chairman to lead the Board in its fundamental role of providing advice to, and independent oversight of,

management. The Board recognizes the time, effort and energy that the Chief Executive Officer is required to devote to his position in the current business environment, as well as the commitment required to serve as our Chairman. While our Bylaws and Corporate Governance Guidelines do not require that our Chairman and Chief Executive Officer positions be separate, the Board believes that having separate positions and having an independent director serve as Non-Executive Chairman is the appropriate leadership structure for us at this time.

 

Board Meetings

 

In 2010, our full Board held six meetings. 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 2010, our annual meeting of stockholders was held on May 13, 2010, 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. Mr. Wallace, our Non-Executive Chairman, presides over these executive sessions.

 

Committees of the Board

 

The Board has three standing committees of the Board: the Audit Committee, the Compensation Committee and the Nominating Committee. The following chart sets forth the directors who served during 2010, and currently serve, as members of each of the Board committees. In addition, Mr. Murtaugh served as a member of the Nominating Committee until his resignation from the Board in January 2011.

 

 

 

 

Audit Committee

 

In 2010, the Audit Committee held nine meetings during the year. Each of the members of the Audit Committee is a non-employee director. In addition, 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. The Board also has determined that all members of the Audit Committee are audit committee financial experts, as defined in Item 407(d) of Regulation S-K under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), 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 fewer audit committees (including the Company’s Audit Committee) without approval of the Board. None of our Audit Committee members serves on more than three

public company audit committees (including the Company’s Audit Committee). For a description of the Audit Committee’s responsibilities and findings, see “Audit Committee Report.” 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 2010, the Compensation Committee held seven meetings and executed two written consents during the year. Each of the members of the Compensation Committee is a non-employee director. In addition, the Board has determined that all of the 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 Compensation 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 utilized Towers Watson as its independent compensation consultant until October 2010. The Compensation Committee currently utilizes Pay Governance LLC (“Pay Governance”), as its independent compensation consultant, after the individual principally providing the consulting services left Towers Watson and joined Pay Governance in October 2010. The consultant reports directly to the Compensation 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 and director compensation practices, including the competitiveness of pay levels, design issues, market trends and technical considerations. Towers Watson and then Pay Governance have assisted the Compensation Committee with the development of competitive market data and a related assessment of the Company’s executive compensation levels, evaluation of annual and 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 the Company’s Named Executive Officers (as defined in “Compensation Discussion and Analysis”). As part of this process, the Compensation Committee also reviewed a comprehensive global survey of peer group companies which was compiled by Towers Watson in 2009 and is generally compiled every two years. See, “Compensation Discussion and Analysis — Benchmarking.” Other than with respect to consulting on executive and director compensation matters, Pay Governance has performed no other services for the Compensation Committee or the Company.

 

Nominating Committee

 

In 2010, the Nominating Committee held five meetings and executed one written consent during the year. Each of the members of the Nominating Committee is a non-employee director. In addition, the Board has

determined that all of the members of the Nominating Committee are independent as defined in the listing standards of the NYSE.

 

The Nominating 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 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.

 

Communications to the Board

 

Stockholders and interested parties can contact the Board (including the Non-Executive Chairman 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 Non-Executive Chairman. Any submissions to the Audit Committee or the Non-Executive Chairman should be marked confidential and addressed to the Chairman of the Audit Committee or the Non-Executive Chairman, 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 Non-Executive Chairman in the investigation of such matter.

 

As described more fully below, the following table summarizes the annual compensation for our non-employee directors during 2010.

 

2010 Director Compensation

 

 

 

 

										Aggregate
						First Tranche of				Non-Standing
						Restricted Cash				Committee Meeting
Name		Annual Retainer Fee				Grant Plus Interest				Fees
Thomas P. Capo		$	96,000			$	24,792			$	5,000
Curtis J. Clawson		$	86,000			$	24,792			$	—
Jonathan F. Foster		$	86,000			$	24,792			$	4,000
Conrad L. Mallett, Jr.		$	96,000			$	24,792			$	1,200
Philip F. Murtaugh		$	86,000			$	24,792			$	—
Donald L. Runkle		$	86,000			$	24,792			$	—
Gregory C. Smith		$	94,333			$	24,792			$	5,000
Henry D.G. Wallace		$	135,167			$	24,792			$	7,400

 

 

Annual Cash Retainer

 

Following the completion of our financial restructuring, the Outside Directors Compensation Plan was amended, effective January 1, 2010. Under the amended plan, the annual cash retainer for each non-employee director is $110,000. The additional cash retainer for the Presiding Director and the Chairman of the Compensation Committee and the Nominating Committee is $10,000 and the additional cash retainer for the Chairman of the Audit Committee is $20,000. The annual cash retainer for each non-employee director is paid in installments on the last business day of the month (for the following month’s installment). The annual cash retainer for each director who received a final restricted cash grant on January 29, 2010, was reduced by $24,000 per year for three years to offset the amount of the $72,000 final restricted cash grant. The restricted cash grants are described in more detail below.

 

Meeting fees for the Board and standing committees have been eliminated, except that each non-employee director remained eligible to receive $1,500 for each meeting of the Board in excess of twelve that he attends in a calendar year. Meeting fees for special committees of the Board are set by the Board at the time of the formation of the special committee. Meeting fees, if any, are paid on the last business day of the month (for that month’s meeting fees).

 

Equity Compensation

 

Pursuant to the amended Outside Directors Compensation Plan, each non-employee director received an annual unrestricted grant of Lear common stock equal in value to $130,000 and subject to the stock ownership guidelines described below. Stock grants for 2010 were made in February 2010 and future grants will be made on the date of the Annual Stockholders Meeting at which a director is elected or re-elected to serve on the Board.

 

Non-Executive Chairman Compensation

 

In August 2010, the Board appointed Mr. Wallace as Non-Executive Chairman and approved an additional annual cash retainer in the amount of $70,000 and an additional annual grant of Lear common stock equal in value to $82,500. Mr. Wallace received a pro-rated portion of these additional amounts for the remainder of 2010 following his appointment. Other than the pro-rated stock grant in August 2010 (as described in note 3 to the 2010 Director Compensation Table), the payment schedule for this additional annual compensation is the same as that described above. Mr. Wallace ceased receiving the additional cash retainer for his service as Presiding Director upon his appointment as Non-Executive Chairman. There currently is no Presiding Director.

 

Restricted Cash Grant

 

The final restricted cash grant of $72,000 was made on January 29, 2010. After this final restricted grant, non-employee directors shall no longer receive restricted grants. The final restricted grant was cash-based and credited to a notional interest-bearing (at the prime rate) account that vests monthly over a three-year period and pays out in cash in equal amounts (i.e. approximately $24,000) on each of the first three anniversaries of the grant date. There may be accelerated vesting of the final restricted grant upon a change in control, death, disability or retirement (termination of service if a director is at least 70 years of age, has 6 years of service on the termination date, or in circumstances that the Board, in its discretion, determines not to be adverse to the Company’s best interests). As mentioned above, the annual cash retainer for each director who received a final restricted cash grant on January 29, 2010, was reduced by $24,000 per year for three years to offset the amount of the $72,000 final restricted grant.

 

Deferrals

 

A non-employee director may elect to defer receipt of all or a portion of his annual retainer and any meeting fees, as well as any cash payments made upon vesting of the restricted cash grant, pursuant to a valid

deferral election. To the extent that any amounts are deferred, they are credited to a notional account and bear interest at an annual rate equal to the prime rate (as defined in the Outside Directors Compensation Plan).

 

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.

 

Stock Ownership Guidelines

 

The Company has a long-standing practice of having 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.” The stock ownership level of 13,000* shares must be achieved by each outside director within five years of becoming a director. *This share amount is shown as adjusted for our 2-for-1 stock split of our common stock, effective March 17, 2011.

 

General

 

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.

 

The following table sets forth, as of March 25, 2011 (except as indicated below), beneficial ownership, as defined by SEC rules, of our common stock and ownership of restricted stock units (“RSUs”) 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 104,889,387 shares of common stock outstanding on March 25, 2011, rather than based on the percentages set forth in stockholders’ Schedules 13G filed with the SEC. In addition, all share and share equivalent amounts set forth in the table and footnotes below have been adjusted to reflect the 2-for-1 stock split of our common stock, effective March 17, 2011.

 

 

 

 

 

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 Exchange Act during 2010 with the following exception: the acquisition of common stock by Mr. Jonathan F. Foster on May 18, 2010 was inadvertently reported late on a Form 4 filed on September 20, 2010.

 

The following discusses the material elements of the compensation for our Chief Executive Officer (or “CEO”), Chief Financial Officer and each of the other executive officers listed in the “2010 Summary Compensation Table” (collectively, the “Named Executive Officers”) during the year ended December 31, 2010. To assist in understanding compensation for 2010, we have included a discussion of our compensation policies and practices for periods before and after 2010 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.” In addition, because we have a global team of managers, with senior managers in 34 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. All share and share equivalent amounts in this Compensation Discussion and Analysis section reflect the 2-for-1 stock split of our common stock, effective March 17, 2011.

 

We are a leading Tier 1 supplier to the global automotive industry. Our business spans all major automotive markets, and we supply our products to virtually every major automotive manufacturer in the world. With a manufacturing, engineering and administrative footprint spanning 34 countries and 200 locations, we are continuing to expand into emerging markets as opportunities develop. We entered 2010 with a competitively-based executive compensation program, which was closely linked to our Company’s performance. Highlights of our performance in 2010 include the following:

 

 

 

 

The highlights of our 2010 executive compensation program resulting from our 2010 Company performance were as follows:

 

 

 

 

We maintain several features and corporate governance practices to ensure a strong link between executive pay, Company performance and stockholder interests and to ensure that we have a fully competitive executive compensation program:

 

 

 

As we move forward through challenging industry and economic conditions, we will continue to monitor our executive compensation programs and consider appropriate modifications that will allow us to maintain fully-competitive compensation programs and practices and 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 to ensure that a higher proportion of an executive’s total compensation is awarded in the form of variable components (dependent on 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. Fundamentally, we target the amounts of each element of our executive compensation program to the market median but allow for compensation to be earned above or below the median based on individual and Company performance.

 

General

 

To ensure that our executive compensation program is competitive in the marketplace, we have historically benchmarked ourselves against a comparator group of broad industrial companies, including Tier 1 automotive suppliers. In addition to pay benchmarking, other factors (including our business strategy, talent needs, cost, etc.) are considered in setting target pay and incentive levels. In late 2009, after the culmination of our financial restructuring, we reviewed a comprehensive survey of these comparator group companies which was prepared by Towers Watson, the Compensation Committee’s independent consultant at the time. (The

Compensation Committee currently utilizes Pay Governance as its independent compensation consultant, after the individual principally providing the consulting services left Towers Watson and joined Pay Governance in October 2010.) This comprehensive survey is generally compiled every two years. In determining our comparator group, we focus on companies with global operations of more than $1 billion in revenue, strive for a consistent group of companies from year to year, but do delete and replace companies when changes in comparators make them inappropriate. We also strive to select comparator group companies that participate in annual executive compensation surveys, allowing for analysis of relevant data. For the 2009 analysis, this broad industrial group consisted of 42 companies (listed below) with median revenues of $15 billion. Although this group is generally consistent in its composition from year to year, companies may be added or removed from the list based on their willingness to participate in annual executive compensation surveys or based on significant business changes such as mergers, acquisitions or bankruptcies. For 2010, the following three companies were removed from the prior comparator group because they no longer met the selection criteria (listed below): Timken Company; Corning Inc.; and Lafarge North America. In addition, the following five companies that met the selection criteria (participant in the Towers Watson database, publicly-traded, generally headquartered in the U.S. with international operations, and durable goods manufacturer, including automotive suppliers) were added to the comparator group: 3M Company; ArvinMeritor; Deere & Company; Ingersoll-Rand Plc; and SPX Corp.

 

The Compensation Committee targets base salaries, annual incentive awards, long-term incentive awards and total direct compensation of our senior executives at the median of the comparator group, on average, with a potential for compensation above that level in return for superior performance. However, this percentile is only a target and actual compensation is dependent on various factors. These factors include external business conditions, 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. For 2010, following market-based increases, the base salaries, targeted annual incentive awards, targeted long-term incentive awards and targeted total direct compensation for our Named Executive Officers were, on average, market competitive with the median level for comparable positions within our comparator group.

 

We believe that the broad industrial comparator group listed below is the most 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 we are seeking the best executive talent available and many of our executives possess transferable skills. The broad industrial group also provides more robust and position-specific data than a group solely consisting of automotive suppliers and reduces the volatility, or year-over-year change, in the position-specific market data.

The comparator group for the 2009 comprehensive survey (used in 2010) is shown in the table below:

 

 

 

 

The Towers Watson 2009 comprehensive survey (used as a basis for 2010 awards) showed the following regarding our Named Executive Officers’ historical compensation relative to the comparator group median:

 

 

The Compensation Committee took the results of the survey into consideration in its 2010 compensation actions and addressed these shortcomings in the 2010 awards.

 

The Compensation Committee regularly reviews materials setting forth the various components of compensation for our Named Executive Officers. These materials include a specific review of dollar amounts for salary, annual incentive, long-term incentive compensation, equity awards and individual stock holdings, and, with respect to our qualified and non-qualified executive retirement plans, outstanding balances and the actual projected payout obligations. These materials also contain 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 on an annual basis. Tally sheets provide for an overall assessment of our compensation program while ensuring the proper linkage to financial performance and stock price appreciation. In addition, although each component is assessed independently, the total complement of the components must work in harmony to achieve a proper balance, which, in turn, helps manage compensation risk.

 

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 Compensation Committee, and with accountants, legal counsel and other advisors, 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 Pay Governance, its independent compensation consultant. The Compensation Committee has final authority to approve, modify or reject the recommendations and to make its decisions in executive session. Mr. Rossiter, our Chief Executive Officer and President, generally does not attend meetings of the Compensation Committee, and if he does attend, he may provide input with respect to compensation of the executive officers (other than himself) but is otherwise not involved in decisions of the Compensation Committee affecting the compensation of our executive officers. While our Chief Financial Officer, General Counsel, Senior Vice President of Human Resources and other 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 Compensation Committee affecting the compensation of our executive officers. The Compensation Committee typically meets in executive session (without management present) after each of its regularly scheduled meetings to discuss and make executive compensation decisions.

 

The Compensation Committee generally has the discretion to make awards under our incentive plans to our executive officers, including the Named Executive Officers. The Compensation Committee did not exercise discretion in 2010 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 Plan (cash incentive plan) (“AIP”) and other performance awards, the Compensation Committee may exercise negative discretion to reduce awards.

 

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 as a foundational element 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 2010 were set as a percentage of base salary. 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 group. 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 group. 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 and considering internal pay equity. In this regard, the Compensation Committee also considers the compensation practices and financial performance of companies within the comparator group. 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 Compensation Committee his goals and objectives for the upcoming year, and the Compensation Committee evaluates his performance for the prior year against the prior year’s goals and objectives. As a result of our annual salary merit review for 2010, the annual base salaries of our Named Executive Officers were increased effective May 1, 2010 by approximately 3% after an average of two years without any increase.

 

2010 Incentive Programs

 

Pay for Performance

 

Lear’s annual and long-term incentive award opportunities directly connect its executives to Company performance. All of the annual incentive opportunity and the majority (75%) of the long-term incentive opportunity are determined based on selected performance measures that drive achievement of our business strategy while ensuring sharp focus on critical results. RSUs make up the remaining portion (25%) of our 2010 long-term incentive awards and derive their value from our stock price. In order to drive profitable growth with efficient capital management, we have selected three complementary performance measures to use in our incentive plans for 2010:

 

 

 

 

 

 

 

Annual Incentives

 

Our executive officers participate in the AIP, which was negotiated and approved as part of our Plan of Reorganization by our creditors and the bankruptcy court in November 2009. Under the AIP, the Compensation Committee provides annual cash incentive award opportunities designed to reward successful financial performance and the achievement of goals considered important to Lear’s future success. Awards, if earned, 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 AIP expressed as a percentage of such officer’s base salary. An executive’s target annual incentive percentage generally increases as his or her 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, which is dependent on Company performance, generally makes up a larger portion of the executive’s total compensation.

 

The target opportunities in 2010 were 150% of base salary for Mr. Rossiter and 80% of base salary for each of Messrs. Simoncini, Scott, Salvatore and Larkin. The Compensation Committee had assessed the competitiveness of the annual incentive targets in late 2009, with the assistance of its compensation consultant, and for 2010, the target annual incentive opportunity for each of Messrs. Simoncini, Scott, Salvatore and Larkin was increased from 70% to 80% of base salary to approximate the median annual incentive opportunity within our industrial comparator group.

 

Measures.  The target opportunity for 2010 performance was based 50% on the achievement of certain levels of adjusted operating income and 50% on the achievement of certain levels of free cash flow. These measures were used because they are highly visible and important measures of operating performance, relied upon by investors and analysts in evaluating our operating performance. The 2010 budgeted threshold, target and maximum levels of these measures were set at $225 million, $300 million and $450 million, respectively, for adjusted operating income, and $23 million, $75 million and $180 million, respectively, for free cash flow. If threshold, target or maximum adjusted operating income and free cash flow goals were attained in 2010, 75%, 100% or 200% of the target incentive amount for each executive, respectively, would be earned (subject to an overall limit of 250% of base salary under our AIP) as shown below:

 

 

Results.  Our 2010 adjusted operating income was $627 million and our free cash flow was $429 million, which resulted in annual incentive awards being earned at 200% of target. Adjusted operating income and free cash flow are non-GAAP measures. Adjusted operating income consists of pretax income before interest, other (income) expense and restructuring costs and other special items. Free cash flow consists of net cash provided by operating activities before the net change in sold accounts receivable, less capital

expenditures. The resulting annual incentive amounts earned by our Named Executive Officers were as follows:

 

2010 Annual Incentives

 

 

 

 

Long-Term Incentives

 

The long-term incentive component of our executive compensation program is designed to provide our senior management with performance-based components, to drive superior longer-term performance 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.

 

In light of industry conditions, we significantly cut back our practice of an annual grant of long-term incentive awards beginning in November 2008. Again in early 2009, the Compensation Committee confirmed the approach of foregoing any long-term incentive grants until the industry conditions and Lear’s financial condition stabilized. Upon effectiveness of our Plan of Reorganization, all then-outstanding shares of our common stock were cancelled for no value, as were our prior equity incentive plan and all equity-based awards and performance awards thereunder. Upon emergence from Chapter 11 bankruptcy proceedings, we established a new equity incentive plan (the Lear Corporation 2009 Long-Term Stock Incentive Plan (“LTSIP”)), which was approved by our key Chapter 11 stakeholders and the bankruptcy court. The LTSIP offers the same menu of awards for future grants to executives as existed under our former plan. Up to an aggregate of 11,815,748 shares of our common stock may be issued pursuant to awards under the LTSIP.

 

2010 Awards.  On February 12, 2010, the Compensation Committee approved the 2010 long-term incentive program, pursuant to which awards consisting of RSUs and cash-settled performance units (“Performance Units”) were granted under the 2009 LTSIP to certain officers and key employees, including to the Named Executive Officers. These awards were generally structured, consistent with market practices, such that recipients received 75% of the total award value in the form of performance-based awards (Performance Units) and the remaining 25% in time-based RSUs. Consistent with our objective of attracting and retaining the best available executive talent, the total potential target awards for the Named Executive Officer group were set to approximate the median long-term incentive level within our comparator group.

 

Mr. Rossiter received 35,560 RSUs and a target Performance Unit award of $3,750,000, and each of Messrs. Simoncini, Scott, Salvatore and Larkin received 10,468 RSUs and a target Performance Unit award of $1,104,000. The RSUs vest and are paid in shares of common stock on the third anniversary of the grant date and are otherwise on terms similar to the Company’s standard RSU terms and conditions. Payment of each Performance Unit award is contingent on the Company attaining certain levels of performance in the three performance periods (1-year period for 2010, 2-year period for 2010-2011, and 3-year period for 2010-2012). For each period, performance is measured based on the Company’s adjusted ROIC. Twenty-five percent (25%) of the Performance Unit award may be earned for each of the 1-year and 2-year periods, and fifty percent

(50%) of the award may be earned for the 3-year period. If threshold, target or maximum performance goals are attained in a performance period, 50%, 100% or 200% of the target amount, respectively, may be earned as shown below:

 

Performance Units
% of Target Award Per Period

 

 

For 2010, the threshold, target and maximum ROIC levels were 2.5%, 4.9% and 7.4%, respectively. Our actual ROIC for 2010 was 12.2%, which resulted in 25% of Performance Unit awards being earned at 200% of the target level. Adjusted ROIC is a non-GAAP measure. ROIC, in general, consists of Adjusted Operating Income (as defined in “— 2010 Incentive Programs — Annual Incentives” above) after taxes (assuming the highest U.S. Federal corporate income tax rate of 35 percent), divided by average invested capital during the fiscal year. Average invested capital consists of total assets, less accounts payable and drafts and accrued liabilities, and certain other adjustments. The resulting amounts earned by our Named Executive Officers were: $1,874,950 for Mr. Rossiter; and $551,950 for each of Messrs. Simoncini, Scott, Salvatore and Larkin. Goals for the three performance periods commencing in 2010 under the Performance Unit Awards were set based on our strategic plan and with the objective of annually increasing ROIC results while striving to exceed the Company’s cost of capital by 2012.

 

Management Stock Ownership Guidelines

 

The Compensation Committee has a long-standing practice of having 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:

 

 

 

 

As a result of our Chapter 11 restructuring in November 2009, all of our shares of common stock then outstanding, including those owned by our senior officers, were cancelled and, as noted above, all equity awards and performance awards granted under our prior incentive compensation plans also were cancelled. Following our Chapter 11 restructuring, current executives were given five years to comply with the stock ownership guidelines. Share ownership targets for executives reaching age 60 are reduced by 10% annually through age 65. Our stock ownership guidelines were established in 2009 based upon then-existing market conditions and are reviewed periodically to ensure ongoing market competitiveness while also considering significant changes in our stock price.

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 Stock Appreciation Rights (“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-executive officers 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, as eligible. The general terms of these plans and formulas for calculating benefits thereunder are summarized following the 2010 Summary Compensation table, 2010 Pension Benefits table and 2010 Nonqualified Deferred Compensation table, respectively, in “Executive Compensation.” 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 for all participants 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 company-wide freeze of benefit accruals under the Lear Corporation Pension Equalization Program and a related portion of the Lear Corporation Executive Supplemental Savings Plan (n/k/a the PSP Excess Plan) (collectively, the “SERP”).

 

Thereafter, 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. As described above, we also elected to wind down our non-qualified deferred compensation program under the Executive Supplemental Savings Plan (n/k/a the PSP Excess Plan) (the “ESSP”). This program had traditionally been a low-cost vehicle under which executives could defer salary and annual incentive payments 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.

 

Termination/Change in Control Benefits

 

As described in detail and quantified in “Executive Compensation — Potential Payments Upon Termination or Change in Control”, 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. No changes to the employment agreements were made during 2010. 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 two 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. New participants were no longer eligible to participate in the Estate Preservation Plan beginning in 2002. 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 annual 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. No such initiation fees were paid in 2010. The Company does not provide tax gross-up payments for the imputed income associated with such perquisites. For additional information regarding perquisites, please see “Executive Compensation — 2010 Summary Compensation Table” and notes 6, 8 and 9 to the 2010 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 financial performance of companies within the comparator group. 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 the Compensation Committee evaluates his performance for the prior year against the prior year’s goals and objectives.

 

Mr. Rossiter received an increase in his base salary in 2010 from $1,250,000 to $1,290,000. Previously, in connection with the negotiation of his new employment agreement in November 2007, Mr. Rossiter’s annual 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 in August 2007. 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 2010 was 150% of his base salary, and, as described above, the annual incentive payments earned were at 200% of the target level under this plan for 2010 performance. However, under the terms of the AIP, Mr. Rossiter’s annual incentive award was capped at 250% of his base salary and, consequently, his final award was $3,225,000. An executive’s target annual incentive percentage generally increases as his or her ability to affect the Company’s performance increases. Consequently, as an executive’s responsibilities increase, his or her variable compensation in the form of an annual incentive award, which is dependent on Company performance, generally makes up a larger portion of the executive’s total compensation. Accordingly, Mr. Rossiter received larger annual incentive and long-term incentive award opportunities than the other Named Executive Officers as described above. Mr. Rossiter’s opportunities and awards were larger because his ability to influence the performance of the Company is greater and the Compensation Committee believes that his incentive-based compensation opportunity should reflect his leadership role in ensuring our successful performance. Mr. Rossiter’s Key Management Incentive Plan award earned in 2009 upon emergence from Chapter 11 (unlike those of the other Named Executive Officers) provided for payment of 50% upon the effective date of our Plan of Reorganization and 50% payable on the first anniversary of our emergence from Chapter 11. Mr. Rossiter’s emergence award of RSUs vests

monthly over a 36-month period and the accelerated vesting of such RSUs upon a retirement after age 55 with 10 years of service – a benefit that he had under prior pre-Chapter 11 awards – is subject to the concurrence of the Board. The Board has subsequently concurred with this retirement vesting.

 

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 has been and continues to be greater than that of our other executives under the Stock Ownership Guidelines.

 

Lear currently 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. However, Lear intends to comply fully with the clawback provisions included in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and is in the process of developing a clawback policy to be compliant with the Dodd-Frank Act.

 

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 2010 Summary Compensation Table. The Compensation Committee generally considers this limit when determining compensation; however, there are instances where the Compensation 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 2010 the Compensation Committee chose to increase Mr. Rossiter’s salary to $1,290,000, thereby making a total of $290,000 of it non-deductible to the Company. 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. Under the terms of the AIP, payments are limited to 250% of a participant’s base salary. Given that Mr. Rossiter’s potential award represented 300% of his base salary (target of 150%, increased by 200% performance achievement), his payment under the Plan was capped at 250%.

 

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 or PSP Excess Plan) 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. Stock appreciation rights and stock options 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, PSP Excess Plan, 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 have generally sought to grant stock-settled equity awards to executives, 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.

 

On February 16, 2011, the Compensation Committee approved the 2011 long-term incentive program, pursuant to which awards consisting of RSUs and Performance Shares were granted under the 2009 LTSIP to certain officers and key employees, including to the Named Executive Officers. These awards were generally structured such that recipients received 25% of the total award value in the form of RSUs and the remaining 75% in Performance Shares. Consistent with our objective of attracting and retaining the best available executive talent, the total potential target award for each Named Executive Officer was set to approximate the median long-term incentive level within our broad industrial comparator group.

 

Mr. Rossiter received 30,760 RSUs and a target number of 92,280 Performance Shares, and each of Messrs. Simoncini, Scott, Salvatore and Larkin received 8,016 RSUs and a target number of 24,050 Performance Shares. The RSUs vest and are paid in shares of common stock on the third anniversary of the grant date and are otherwise on terms similar to the Company’s standard RSU terms and conditions. Payment of each Performance Share award is contingent on the Company attaining certain levels of adjusted ROIC and cumulative pre-tax income during the three-year period ending December 31, 2013. Two-thirds of each Performance Share award can be earned based on ROIC performance and one-third can be earned based on cumulative pre-tax income performance. If threshold, target or maximum performance goals are attained upon completion of the three-year performance period, 50%, 100% or 200% of the target amount of Performance Shares, respectively, may be earned. Performance Shares, if earned, are payable in shares of common stock on a one-for-one basis.

 

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 2010 Summary Compensation Table generally explain amounts reported for 2010, unless otherwise noted. In accordance with SEC rules, 2008 compensation is not presented for Mr. Larkin because he was not a Named Executive Officer in that year.

 

 

 

 

						First performance
						period under 2010
Named Executive Officer		Annual Incentive Plan				performance unit awards
Robert E. Rossiter		$	3,225,000			$	1,874,950
Matthew J. Simoncini		$	1,056,000			$	551,950
Raymond E. Scott		$	1,056,000			$	551,950
Louis R. Salvatore		$	1,056,000			$	551,950
Terrence B. Larkin		$	1,056,000			$	551,950

 

 

 

										Pension Savings				Retirement Savings
		Pension Savings				Pension Savings				Plan Nonqualified				Plan Qualified
		Plan Qualified				Plan Nonqualified				Matching				Matching
Name		Contribution				Contribution				Contribution				Contribution
Mr. Rossiter		$	32,500			$	1,008,165			$	12,250			$	—
Mr. Simoncini		$	18,846			$	84,270			$	—			$	12,250
Mr. Scott		$	18,846			$	84,270			$	—			$	12,250
Mr. Salvatore		$	18,846			$	84,270			$	—			$	12,250
Mr. Larkin		$	15,705			$	70,225			$	—			$	6,125

 

 

 

We have entered into employment agreements with each of our Named Executive Officers. 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, if the Company reduces an executive’s base salary or bonus, defers payment of his compensation, or eliminates or substantially modifies his benefits, the executive would have 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 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 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. 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. For a description of the severance provisions of the employment agreements, see “- Potential Payments upon Termination or Change in Control.”

 

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. Prior to 2011, the Retirement Savings Plan generally provided for a Company matching provision of 25% or 50% of an employee’s contribution up to a maximum of 5% of an employee’s eligible compensation, depending on years of service. Effective for 2011, the Company provides a matching contribution of 100% on the first 3% of a participant’s deferral contribution, plus 50% on the next 3% of a participant’s deferral contribution, regardless 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 eligible compensation up to the Social Security Taxable Wage Base and (ii) from 4.5% to 12% of eligible 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 eligible compensation up to the Social Security Taxable Wage Base and (2) from 5.25% to 5.7% of eligible compensation over the Social Security Taxable Wage Base. All Pension Savings Plan contributions are generally determined as of the last day of each month (or, for years ending before January 1, 2009, semi-annually), provided that the employee is actively employed on such date, and are allocated monthly. 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 2010. All share and share equivalent amounts set forth in the table below have been adjusted to reflect the 2-for-1 stock split of our common stock, effective March 17, 2011.

 

 

 

 

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

 

The Performance Unit awards were granted pursuant to the LTSIP. Payment of each cash-based Performance Unit award is contingent on the Company attaining certain levels of adjusted ROIC performance in the three performance periods (1-year period for 2010, 2-year period for 2010-2011, and 3-year period for 2010-2012). Twenty-five percent (25%) of the Performance Unit award may be earned for each of the 1-year and 2-year periods, and fifty percent (50%) of the award may be earned for the 3-year period. If threshold, target or maximum performance goals are attained in a performance period, 50%, 100% or 200% of the target amount, respectively, may be earned.

 

The RSU awards were granted pursuant to the LTSIP. A summary description of the LTSIP is set forth above under the heading “Compensation Discussion and Analysis — Elements of Compensation — Long-Term Incentives.”

 

The RSUs vest and settle in shares of common stock on the third anniversary of the grant date. If the executive’s employment terminates for any reason other than cause or a voluntary termination by the executive, vesting of the RSUs will accelerate as of the termination date. In addition, if the executive retires after reaching age 55 with 10 years of service, he will receive an additional 24 months of vesting of the RSUs. Upon a change in control, all unvested RSUs will vest in their entirety.

 

The following table shows outstanding equity awards as of December 31, 2010, for each Named Executive Officer. Except where otherwise specified, all share and share equivalent amounts set forth in the table and footnotes below have been adjusted to reflect the 2-for-1 stock split of our common stock, effective March 17, 2011.

 

 

 

 

		Total
		Number
		of Cancelled
		Awards
Mr. Rossiter			660,381
Mr. Simoncini			136,031
Mr. Scott			176,625
Mr. Salvatore			181,625
Mr. Larkin			73,853

 

 

		Total
		Number of
		Cancelled RSUs
Mr. Rossiter			89,380
Mr. Simoncini			41,458
Mr. Scott			26,774
Mr. Salvatore			25,711
Mr. Larkin			7,951

 

 

 

		Number of
		Cancelled Equity
		Incentive Plan Awards
Mr. Rossiter			18,556
Mr. Simoncini			3,374
Mr. Scott			4,218
Mr. Salvatore			3,880
Mr. Larkin			—

 

The following table sets forth certain information regarding stock-based awards that vested during 2010 for our Named Executive Officers. No options were exercised in 2010. All share amounts set forth in the table below have been adjusted to reflect the 2-for-1 stock split of our common stock, effective March 17, 2011.