UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

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

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P. H. GLATFELTER COMPANY

96 South George Street, Suite 500

York, Pennsylvania 17401

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

TO BE HELD ON

 

May 3, 2007

 

TO THE SHAREHOLDERS:

 

The 2007 Annual Meeting of Shareholders of P. H. Glatfelter Company, a Pennsylvania corporation, will be held at the York Expo Center, 334 Carlisle Avenue, York, Pennsylvania, in the White Rose Room, on Thursday, May 3, 2007, at 10:00 am, to consider and act upon the following items:

 

 

Only holders of record of the Company’s common stock at the close of business on March 8, 2007, will be entitled to notice of, and to vote at, the Annual Meeting.

 

It is important that your shares be represented and voted at the Annual Meeting. Whether or not you currently plan to attend the Meeting, please complete, date and sign the accompanying proxy card and return it promptly in the enclosed envelope (requiring no postage if mailed in the United States). If you choose, you may still vote in person at the Meeting, even though you had previously submitted a proxy card.

 

Jeffrey J. Norton

Vice President,

General Counsel and Corporate

Secretary

 

March 28, 2007

 

TABLE OF CONTENTS

 

P. H. GLATFELTER COMPANY

 

 

PROXY STATEMENT

 

The accompanying proxy is being solicited by the Board of Directors (the “Board”) of P. H. Glatfelter Company (the “Company”), 96 South George Street, Suite 500, York, Pennsylvania 17401, in connection with the 2007 Annual Meeting of Shareholders of the Company (the “Annual Meeting” or “Meeting”) to be held on Thursday, May 3, 2007 at 10:00 am, at the York Expo Center, 334 Carlisle Avenue, York, Pennsylvania, in the White Rose Room.  This proxy statement and the accompanying proxy card are being mailed to the Company’s shareholders on or about March 28, 2007.

 

What is the purpose of the Annual Meeting?

 

At the Annual Meeting, shareholders will consider and act upon the following items:

 

 

In addition, following the Meeting, the Company’s management will report on the Company’s business during the year ended December 31, 2006, and respond to questions from shareholders.

 

Who is entitled to vote at the Annual Meeting?

 

Only holders of record of the Company’s common stock at the close of business on the record date, March 8, 2007, are entitled to receive notice of, and to vote at, the Meeting. Each holder of the Company’s common stock is entitled to one vote per share owned of record on all business presented at the Meeting, except that shareholders have cumulative voting rights with respect to electing Directors. Cumulative voting means that each shareholder is entitled to as many votes in electing Directors as is equal to the number of his or her shares of common stock multiplied by the number of Directors to be elected. A shareholder may cast all such votes for a single nominee or may distribute them between two or more nominees as he or she sees fit. The persons named in the accompanying proxy card as proxy holders will vote the shares as designated by the shareholder, including any exercise of cumulative voting rights through the distribution of votes among the nominees as indicated on the proxy card. Absent such designation, the proxy holders may use their discretionary authority to vote as they see fit, including to vote cumulatively.

 

How do I vote?

 

If you complete and properly sign the accompanying proxy card and return it to the Company, it will be voted as you specify. If you are a holder of record of the Company’s common stock on the record date and attend the Meeting in person, you may deliver your completed proxy card or vote in person at the Meeting. Judges of election appointed by the Company will count the votes.

 

What constitutes a quorum?

 

A quorum is necessary to permit a particular matter to be considered and acted upon at the Meeting. The presence at the Meeting, in person or by proxy, of shareholders entitled to cast at least a majority of the votes that all shareholders are entitled to cast on a particular matter will constitute a quorum for the purposes of such matter. Abstentions and broker “non-votes” are counted as present and entitled to vote for purposes of determining a quorum. A broker “non-vote” occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received instructions from the beneficial owner.

 

The Company had 44,920,698 shares of common stock outstanding on the record date.

 

What vote is required to elect a Director and to approve a proposal assuming there is a quorum?

 

Election of Directors. The three nominees for Directors receiving the highest number of votes cast by shareholders will be elected to serve on the Board. Votes withheld (or abstentions) with respect to the election of a Director will not be voted with respect to such Director; accordingly, votes withheld will have no direct effect on the result of the vote, unless the withheld votes are cast for another nominee. Broker non-votes are not counted for purposes of the election of Directors.

 

How does discretionary voting authority apply?

 

If you sign and return the accompanying proxy card, but do not make any selections, you give discretionary authority to the persons named as proxy holders on the proxy card. Your shares will then be voted as recommended by the Board.

 

What is the Board’s recommendation?

 

The Board recommends a vote:

 

 

Can I change my vote after I return my proxy card?

 

Yes. Even after you have submitted your proxy card, you may revoke your proxy and change your vote at any time before the proxy is exercised by filing with the Company’s Secretary either a notice of revocation or a duly executed proxy bearing a

later date. Your authorization of the proxy holders to vote on your proxy will be revoked if you attend the Annual Meeting in person and request to change your vote, vote in person or revoke your proxy. Attendance at the Meeting will not by itself revoke a previously granted proxy.

 

Who bears the cost of solicitation of proxies?

 

The Company bears the cost of preparing, printing, assembling and mailing this proxy statement and other Board proxy solicitation materials. The Company will also reimburse brokers and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and solicitation materials to the owners of the Company’s common stock. In addition to the solicitation of proxies by mail, some of the officers and other employees of the Company may solicit proxies personally, by telephone and by other means. These persons receive no special compensation for any solicitation activities.

 

How can a shareholder nominate Director candidates?

 

You may recommend nominees for consideration by the Board’s Nominating and Corporate Governance Committee for nomination for election to the Board. Shareholder recommendations for Director nominees will receive the same consideration by the Board’s Nominating and Corporate Governance Committee that all other nominations receive. Shareholders wishing to recommend a nominee for Director should submit such recommendation in writing, along with any supporting materials the shareholder deems appropriate, to the Secretary of the Company.

 

You may nominate a person for election to the Board, provided the recommendation is made in accordance with the procedures described herein and the Company’s By-laws. To nominate a candidate for Director at the 2008 Annual Meeting, your notice of the nomination must be received by the Company’s Secretary no later than November 29, 2007. The notice must describe various matters regarding the nominee, including name, address, occupation and Company shares held, all as provided by the Company’s By-laws. Copies of the Company’s By-laws may be obtained free of charge from the Secretary of the Company.

 

When are shareholder proposals due for inclusion in the proxy statement for the 2008 Annual Meeting of Shareholders?

 

Proposals that a shareholder would like to present at the 2008 meeting must be submitted to the Company prior to the preparation of the annual proxy statement. To be included in the proxy statement for the Company’s 2008 Annual Meeting, shareholder proposals must be submitted in writing to the Company’s Secretary no later than November 29, 2007. The Company’s By-laws prescribe the procedures shareholders must follow to bring business before shareholder meetings. To bring matters before the 2008 Annual Meeting, under the terms of the Company’s By-laws, and to include a matter in the Company’s proxy statement and proxy card for that meeting, notice must be received by the Company within the time limit described above. Such notice must meet the Company’s By-law requirements, and otherwise comply with the requirements of Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). No shareholder proposals were submitted to the Company for presentation at the 2007 Annual Meeting.

 

 

SECURITY OWNERSHIP OF

 

To the Company’s knowledge, the following table sets forth information regarding ownership of Glatfelter’s 45,013,488 outstanding shares of common stock as of March 20, 2007 (except as otherwise noted) by: (i) each person who is known by the Company to own beneficially more than 5% of the common stock of the Company; (ii) each Director and named executive officer; and (iii) all Directors and executive officers as a group. Except as otherwise indicated and subject to applicable community property laws, each owner has sole voting and investment powers with respect to the securities listed. The number of shares beneficially owned by each person is determined under the rules of the Securities and Exchange Commission (“SEC”) and the information is not necessarily indicative of beneficial ownership for any other purpose. Under the rules of the SEC, all shares with respect to which a person has the right to acquire beneficial ownership within 60 days is considered beneficially owned by that person.

 

 

 

 

 

 

 

The following table provides certain information as of December 31, 2006 regarding the Company’s equity compensation plans.

 

 

 

 

 

Section 16(a) of the Exchange Act requires the Company’s Directors and executive officers, and persons who own more than ten percent of a registered class of the Company’s equity securities (“10% Holders”), to file reports of holdings and transactions in the Company’s common stock with the SEC and the New York Stock Exchange (the “NYSE”). Based on the Company’s records and other information, the Company believes that, in 2006, its Directors, executive officers and 10% Holders (of which there are none) filed all required reports of holdings and transactions in the Company’s common stock with the SEC and the NYSE. However, a Form 4 reporting the vesting on April 7, 2006 of 1,900 shares of restricted stock held by Mr. van Roden, an executive officer of the Company, was not completed until May 12, 2006.

 

At the Annual Meeting, the Company’s shareholders will vote to fill three Director positions, each with three-year terms expiring on the date of the Company’s 2010 Annual Meeting of Shareholders and until their respective successors are elected and qualified. The Board proposes that Kathleen A. Dahlberg, Richard C. Ill and Lee C. Stewart, who are currently serving as Directors of the Company, be re-elected as Directors for terms expiring in 2010. The nominees have consented to serve if elected to the Board.

 

If a nominee is unable to serve as a Director at the time of the Meeting, an event that the Board does not anticipate, the persons named in the accompanying proxy card will vote for such substitute nominee as may be designated by the Board, unless the Board reduces the number of Directors accordingly.

 

Board of Directors

 

The following table sets forth information as to the nominees and the other persons who are to continue as Directors of the Company after the Annual Meeting. The offices referred to in the table are offices of the Company unless otherwise indicated.

 

 

The Board of Directors and management of the Company are dedicated to good corporate governance. The Board has adopted Governance Principles to provide a framework for governance of the Company. These Governance Principles are set forth in full on the Company’s website at www.glatfelter.com/e/govprinciples.htm and available in print upon request directed to the Corporate Secretary, 96 South George Street, Suite 500, York, PA 17401-1434.

 

What is the composition of the Board?

 

The Board currently consists of eight members. In the Company’s Governance Principles, the Board has adopted the NYSE standards for determining the independence of Directors, which requires that a Director does not have a material relationship with the Company.

 

The Board has determined the following Directors to be independent and not to have any material relationship with the Company: Ms. Dahlberg and Messrs. DeBenedictis, Hall, Ill, Naples, Smoot and Stewart. The Board determined that Mr. Glatfelter has a material relationship with the Company because he is the Chairman and Chief Executive Officer. Thus, Mr. Glatfelter is deemed not to be an independent Director by NYSE standards and the Company’s Governance Principles.

 

What committees has the Board established?

 

The Company’s Board of Directors has four standing committees: the Audit Committee, the Compensation Committee, the Finance Committee, and the Nominating and Corporate Governance Committee. The Board appoints the members of all of these standing committees and their Chairpersons at its organizational meeting following the Company’s Annual Meeting.

 

The Board has adopted a written charter for its standing committees, all of which are posted on the Company’s website at www.Glatfelter.com/e/govcommittees.htm, and available in print upon request directed to the Corporate Secretary, 96 South George Street, Suite 500, York, PA 17401-1434.

 

Audit Committee. The Audit Committee currently consists of four Directors: Messrs. Hall (Chair), DeBenedictis, Ill and Naples. In the opinion of the Board, all four Audit Committee members meet the Director independence requirements set forth in the listing standards of the NYSE and the applicable rules and regulations of the SEC in effect on the date this proxy statement is first mailed to shareholders. The Board has determined that, based on their experience, Messrs. DeBenedictis, Hall, Ill and Naples are audit committee financial experts, as that term is defined in the applicable SEC regulations. The Audit Committee held 10 (ten) meetings during 2006.

 

In accordance with its Board-approved Charter, the Audit Committee:

 

 

The Audit Committee has the authority to retain special legal, accounting, or other experts as it deems necessary to carry out its duties, and the Company makes funds available to the Committee for such retention. The Audit Committee routinely holds executive sessions without management.

 

Compensation Committee. The Compensation Committee currently consists of four Directors: Ms. Dahlberg (Chair), and Messrs. DeBenedictis, Naples and Smoot. In the opinion of the Board, all four Compensation Committee members meet the Director independence requirements set forth in the NYSE listing standards in effect on the date this proxy statement is first mailed to shareholders. The Compensation Committee held 8 (eight) meetings during 2006.

 

In accordance with its Board-approved charter, the Compensation Committee is responsible for discharging the Board’s duties related to compensation of the Company’s executives and also reviews, recommends for approval by the Board and oversees the Company’s management incentive and equity-based incentive compensation plans, defined benefit and contribution plans, and other welfare benefit plans. In addition to, or in furtherance of, the Compensation Committee’s functions described above, the Compensation Committee:

 

 

The Compensation Committee has the authority to engage independent compensation consultants, legal counsel or advisors, as it may deem appropriate in its sole discretion, and to approve related fees and retention terms of such consultants, counsel, or advisors, and routinely holds executive sessions without management.

 

The Chair of the Compensation Committee is responsible for leadership of the Committee and sets meeting agendas. The Committee may form subcommittees and delegate authority to them, as it deems appropriate.

 

The CEO gives performance assessments and compensation recommendations for each executive officer of the Company (other than himself). The Compensation Committee considers the CEO’s recommendations with the assistance of a compensation consultant and approves the compensation of the executive officers (other than the CEO) based on such deliberations. In the case of the CEO, the Committee develops its own recommendation in executive session without the CEO, or any other member of management, present and then provides this recommendation to the independent members of the Board for approval in executive session. The CEO, the Vice President of Human Resources & Administration, and the Vice President, General Counsel & Secretary generally attend, and the Senior Vice President & Chief Financial Officer occasionally attends, Compensation Committee meetings, but none are present for executive session or any discussion of their own compensation.

 

The Committee has engaged Compensation Strategies, Inc., an independent executive compensation consulting firm, to provide advice and assistance to the Committee and to management in the area of executive and non-employee Director compensation for the Company. The consultant reports directly to the Committee but has been authorized by the Committee to work with certain executive officers of the Company as well as other employees in the Company’s human resources, legal, and finance departments. The consultant conducts regular reviews of total compensation of the Company’s executive group, based on the process described in the Compensation Discussion & Analysis contained elsewhere in this proxy statement, for review by management (except in the case of the CEO) and subsequently by the Committee in determining the appropriate levels of compensation for each executive.

 

The consultant also conducts regular reviews of total compensation of the Company’s non-employee Directors and assists the Committee in the development of recommended changes in such compensation for approval by the Board of Directors. The consultant also provides advice to the Committee and management with respect to other executive, board and general compensation matters that might arise throughout the year.

 

Finance Committee. The Finance Committee currently consists of three Directors: Messrs. Stewart (Chair), Glatfelter and Hall. The Finance Committee provides advice to the Board on the financial policies of the Company and oversees matters of financial significance to the Company. Specifically, the Finance Committee is charged with:

 

 

The Finance Committee held 3 (three) meetings during 2006.

 

Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee currently consists of five Directors: Mr. Smoot (Chair), Ms. Dahlberg, and Messrs. DeBenedictis, Hall and Stewart. In the opinion of the Board, all five members of the Nominating and Corporate Governance Committee meet the Director independence requirements as set forth in the NYSE listing standards in effect on the date this proxy statement is first mailed to shareholders. The Nominating and Corporate Governance Committee:

 

 

The Nominating and Corporate Governance Committee considers candidates for Board membership suggested by its members, other Board members, management and shareholders. When evaluating whether to recommend an individual for election or re-election to the Board, the Nominating and Corporate Governance Committee will consider, at a minimum and in accordance with the Company’s Governance Principles, the nominee’s independence, availability of sufficient time to serve on the Company’s Board and the possession of such knowledge, experience, skills, expertise, wisdom, integrity, business acumen, understanding of the Company’s business environment and diversity so as to enhance the Board’s ability to manage and direct the affairs and business of the Company. Shareholders wishing to recommend a nominee for election to the Board should follow the procedures set forth on page 2 of this proxy statement.

 

The Committee periodically reviews and oversees orientation programs for newly elected Directors and continuing education programs for incumbent Directors. The Committee also reviews shareholder proposals and Director

nominations submitted for presentation at the annual meeting and proposed responses from the Board, and makes recommendations to the Board concerning Board procedures. The Nominating and Corporate Governance Committee is charged with developing and recommending corporate governance principles to the Board and reviewing these principles for appropriateness and compliance with SEC and NYSE requirements. The Nominating and Corporate Governance Committee reviews the senior management organization and succession plan and makes nominations to the Board for election of officers.

 

The Nominating and Corporate Governance Committee has the authority to retain Director search consultants, outside counsel or other experts as it deems necessary to carry out its duties, and the Company makes funds available to the Committee for such retention. No third party Director search firms were engaged in 2006. The Nominating and Corporate Governance Committee held 3 (three) meetings during 2006.

 

How may shareholders communicate with the Company’s Board or the non-management Directors of the Company?

 

You may submit any written correspondence to the Board or any individual Director (whether management or non-management), c/o Corporate Secretary, 96 South George Street, Suite 500, York, PA 17401-1434. You can also call the Company’s Integrity Helpline (1-800-346-1676).

 

The Company’s Board has approved a process whereby the Corporate Secretary will regularly forward any and all communications received on behalf of the Board or individual Directors to the Board or the respective Director and the Chair of the Committee responsible for the matter addressed in the communication. All communication that relates to concerns regarding accounting, internal controls or auditing matters will be forwarded to the Chair of the Audit Committee promptly upon receipt with a copy to the addressee.

 

What is the Company’s policy regarding Director attendance at the Annual Meeting?

 

While the Company does not have a formal policy regarding Director attendance at the annual meeting of shareholders, the Company’s Directors, including persons nominated for election at the annual meeting, generally attend the annual meeting.

 

How often did the Board meet during 2006?

 

The Board held 8 (eight) meetings during 2006, including a two-day retreat to discuss strategic issues. The standing committees established by the Board held a total of 24 (twenty-four) meetings in 2006. Each of the incumbent Directors attended at least 75% of the aggregate of the meetings of the Board and Board committees on which he or she served in 2006, except for Ronald J. Naples who attended an aggregate of 73% of the meetings of the Board and committees of which he was a member. Non-management Directors meet in regularly scheduled executive sessions (without management), at which the Chair of the Nominating and Corporate Governance Committee presides.

 

Where can additional Corporate Governance and related information be obtained?

 

Our corporate website (www.glatfelter.com) includes a Corporate Governance page consisting of, among others, our Governance Principles and Code of Business Conduct, listing of our Board of Directors and Executive Officers, Nominating and Corporate Governance, Finance, Audit and Compensation Committees of the Board of Directors and their respective Charters, Code of Business Ethics for the CEO and Senior Financial Officers of Glatfelter, our “whistle-blower” policy and other related material. We intend to satisfy the disclosure requirement for any future amendments to, or waivers from, our Code of Business Conduct or Code of Business Ethics for the CEO and Senior Financial Officers by posting such information on our website. We will provide a copy of the Code of Business Conduct or Code of Business Ethics for the CEO and Senior Financial Officers, without charge, to any person who requests one, upon request directed to the Corporate Secretary, (717) 225-4711, 96 South George Street, Suite 500, York, PA 17401-1434.

 

How are Non-Employee Directors compensated?

 

Current Base Compensation. Effective May 1, 2006, non-employee Directors receive an annual retainer fee of $27,000, two thirds of which consists of shares of the Company’s common stock with an equivalent market value on the grant date, with the balance paid in cash. In addition to the annual retainer, non-employee Directors are paid in cash $2,000 for attendance at the annual Board retreat, $1,500 for each Board meeting and $1,000 for each committee meeting they attend. Non-employee Directors serving as committee chairpersons are paid an additional $5,000 (in cash) annually for their service. In addition, each non-employee Director receives an annual restricted stock unit award valued at $15,500, rounded to the nearest whole share, on the grant date that will vest over a three-year period. Director cash compensation payments are made semi-annually on each May 1st and November 1st.

 

Changes to Base Compensation.  Effective May 1, 2007, the Company’s Director compensation policy has been revised. Under the revised policy, non-employee Directors will receive an annual retainer fee of $35,000, two thirds of which consists of shares of the Company’s common stock with an equivalent market value on the grant date, with the balance paid in cash. In addition to the annual retainer, non-employee Directors are paid in cash $2,000 for attendance at the annual Board retreat and $1,500 for each Board and committee meeting they attend. In addition, non-employee directors will receive an annual retainer fee of $10,000 for serving as chairman of the Audit Committee or the Compensation Committee and

$5,000 for serving as chairman of the Nominating and Corporate Governance Committee or the Finance Committee. Finally, each non-employee Director will receive an annual restricted stock unit award valued at $30,000, rounded to the nearest whole share, on the grant date that will vest over a three-year period. Director cash compensation payments will continue to be made semi-annually on each May 1st and November 1st.

 

Deferred Compensation. Pursuant to the Company’s Deferred Compensation Plan for Directors (the Deferred Compensation Plan), every year each Director may elect to defer 50%, 75% or 100% of his or her annual retainer payable to such Director for serving on the Board, but not including any fees paid to a Director for attending meetings of the Board or any committee of the Board or for serving as a chairperson of a committee of the Board. No such elections were made with respect to fees earned in 2006.

 

For previous deferral elections, the Company has credited a deferred fee account with phantom shares of the Company’s common stock (stock units) on the date the retainer would otherwise have been paid. The number of stock units credited to a Director’s deferred account is the amount of the deferred fee divided by the fair market value of the Company’s common stock on such date. Additional stock units representing dividend equivalents are credited to each Director’s account when dividends are paid on the Company’s common stock. A Director will be entitled to receive a cash payment equal to the fair market value of the stock units credited to his or her account following termination of such Director’s service on the Board.

 

Benefits. Each non-employee Director is covered by the Company’s Directors and officers’ liability insurance, as well as the Company’s travel accident insurance.

 

NON-EMPLOYEE DIRECTOR SUMMARY COMPENSATION TABLE

 

 

 

 

Overview of Compensation Program Objectives and Design

 

The Company’s compensation program for the Named Executive Officers (“NEOs”) is designed to attract, retain, and motivate highly qualified executives. In order to accomplish these objectives, the program consists of several forms of compensation, including base salary, annual incentives, long-term incentives, limited perquisites, and benefits. The Company believes that structuring total compensation opportunities that are competitive and that target the 50th percentile of market levels will allow these objectives to be attained. A significant portion of each NEO’s compensation opportunity consists of annual and long-term variable compensation that is contingent on the achievement of specific Company business and strategic goals, reflects individual performance, and is designed to align the NEOs’ interests with those of the Company’s shareholders. Variable compensation opportunity varies among the NEOs and generally increases with increased responsibility within the Company. In addition, the mix of annual and long-term incentive compensation also varies with the relative weighting of long-term incentive compensation being greater for greater levels of responsibility. The Company’s annual compensation is cash-based, while long-term compensation consists of both cash and equity-based awards. The Company does not have specific allocation goals between cash-and equity-based compensation or between annual and long-term incentive compensation; instead, the Company relies on the process described below in its determination of compensation levels for each NEO.

 

In order to determine competitive market levels, the Compensation Committee annually reviews total compensation levels for similarly situated executives of a group of peer companies and with reference to certain broader-based market data, compiled by Compensation Strategies, Inc., the Committee’s independent compensation consultant. Consistent with standard practices, statistical analysis is used to adjust all market compensation data to reflect the current annual revenues of the Company given the variation in size of the companies from which compensation data is collected. Each element of compensation as well as total compensation are quantified and reviewed to determine the Company’s competitiveness compared to the market. In determining appropriate individual compensation levels for the NEOs, the Committee considers this competitive market compensation data, including information ranging from the 25th to the 75th percentiles, as well as the individual’s tenure, experience, and particular set of skills and individual and Company performance. Compensation levels for all NEOs, except the CEO, are approved by the Committee based on the recommendation of the CEO. In the case of the CEO, the Committee develops its own recommendation in executive session without the CEO, or any other member of management, present and then provides this recommendation to the independent members of the Board for approval in executive session. All subsequent references to action by the Compensation Committee assumes without further reference that the independent members of the Board act with respect to CEO compensation in accordance with the recommendation of the Committee.

 

The group of peer companies used in the review of total compensation levels consists of publicly traded companies with annual revenues ranging from approximately $250 million to $6 billion that compete against the Company’s products, are from the broader paper and packaging industries, or compete for the same executive talent, including other companies headquartered in south central Pennsylvania. The group was developed by the Committee’s compensation consultant and approved by the Committee. The Committee reviews the make-up of the group on an annual basis with the assistance of the compensation consultant. Since the Company competes for executive talent with a broad range of companies and industries, the companies in this group are not necessarily the same as those appearing in the peer group that is included in the Company’s performance graph in the Company’s annual report to shareholders. Each company included in the group, and whether it also appears in the performance graph, is shown below:

 

 

For 2007, the Company has continued to target the 50th percentile of market levels for the NEOs. However, given the increase in annual revenues of the Company associated with the recent acquisitions, the NEOs’ 2006 levels of compensation were below the 50th percentile of the market when adjusted for this increased size. The Committee has approved certain increases to compensation levels for the NEOs for 2007, as described below, that bring total compensation levels closer to the 50th percentile of the market and may adopt further changes in the future that will bring the NEOs’ compensation levels up to the 50th percentile, as determined to be appropriate by the Committee for each NEO, over the next two to three years.

 

Base Salary

 

The Company’s policy is to set salaries for the NEOs at levels that are sufficient to attract and retain high-caliber individuals, based on the relative value of each position as measured against the market, as discussed above. The Company targets NEOs’ base salaries at the 50th percentile of the market for their respective assignments, with the ability to set actual base salaries based on an assessment of each NEO’s tenure, experience, and skill set and individual and Company performance, as well as competitive and internal equitable considerations. Base salaries are reviewed and approved annually (typically in the first quarter of the calendar year) by the Compensation Committee.

 

For 2006, base salary adjustments for the Company’s NEOs ranging from 2.0% to 5.0% were approved by the Committee and became effective as of February 1, 2006. In addition, Mr. Jacunski received a base salary increase of 20.8%, effective with his promotion to Senior Vice President & Chief Financial Officer on July 1, 2006. Such adjustments reflect the Compensation Committee’s assessment of individual performance, achievement of business objectives, a market analysis conducted by the Committee’s independent compensation consultant for the executive’s position, and the Committee’s desire to retain leadership skills necessary to execute the Company’s business strategy. Based on the pre-acquisition size of the Company, the NEOs’ adjusted base salaries were approximately equivalent to the 50th percentile of the market.

 

For 2007, base salary adjustments for the Company’s NEOs ranging from 4.0% to 20.0% were approved by the Committee and became effective as of February 1, 2007. As with the prior year, the adjustments reflect the Compensation Committee’s assessment of individual performance, achievement of business objectives, a market analysis conducted by the Committee’s independent compensation consultant for the executive’s position, and the Committee’s desire to retain leadership skills necessary to execute the Company’s business strategy. Based on the new, increased size and complexity of the Company, the NEOs’ adjusted base salaries continue to remain below the 50th percentile of the market. The Committee intends to re-evaluate the levels of the NEOs’ base salaries, as they compare to the market, for 2008.

 

Annual Incentives

 

The Company currently provides an annual incentive opportunity to the NEOs under the Company’s Management Incentive Plan (“MIP”). The MIP is designed to encourage the NEOs, as well as other eligible executives and key employees, to increase the performance of the Company through cash annual incentive bonuses. The Company targets annual incentive bonus opportunities under the MIP at the 50th percentile of the market for the NEOs, with the ability to set actual opportunities based on an assessment of each NEO’s tenure, experience, skill set, and individual and Company performance, as well as competitive and internal equitable considerations. The objectives of the MIP are to assure that incentive bonus awards represent at-risk compensation, to reward the NEOs and other eligible employees on the basis of corporate financial results on an annual basis, and to provide an incentive bonus award that is competitive with the market for each position. Incentive bonus opportunities are set annually and potentially represent a significant portion of total compensation.

 

For 2006, the Company established Operating Net Income (which consists of net income excluding after-tax pension income and gains from the sale of timberlands as well as certain unusual, non-recurring items such as shutdown charges relating to the Neenah facility) as the single performance metric for payment of bonuses under the MIP. No acquisition-related items were excluded from Operating Net Income in 2006. The Compensation Committee established threshold, target, and maximum Operating Net Income performance levels for the MIP. The amount actually received by the participants is dependent on the extent of achievement of such performance levels. Under this design, no payments will be made under the MIP if the threshold Operating Net Income is not attained. For the NEOs, target bonus opportunities for 2006 ranged from 40% to 70% of base salary. Payments for achievement of the threshold performance level would result in payments equal to 40% of the target opportunities, or 16% to 28% of base salary, and achievement of the maximum performance level would result in payments equal to 200% of the target opportunities, or 80% to 140% of base salary. In addition, all payments to the NEOs under the MIP are based entirely on Operating Net Income performance of the Company; no portion of the MIP payment is based on individual performance of each NEO. However, the Committee has the authority to reduce payments under the MIP based on the Committee’s assessment of individual performance during the year, with

the approval of the independent members of the Board of Directors in the case of the CEO.

 

In 2006, the threshold Operating Net Income performance level was not achieved, and no bonuses were paid to the NEOs under the MIP. Based on the pre-acquisition size of the Company, the NEOs’ target bonus opportunities were approximately equivalent to the 50th percentile of the market. For 2007, the Company has continued to use Operating Net Income as the performance metric for the MIP. The Company believes that the target performance goal has been set for 2007 at an appropriate level based on market and industry expectations and that it is realistic and achievable for 2007. The range of target opportunities under the 2007 MIP has been increased to 45% to 75% of base salary for the NEOs. Payment amounts for achievement of the threshold performance level have also been increased to 50% of the target opportunities, with an appropriate increase in the Operating Net Income necessary to achieve the threshold performance level. As with 2006, achievement of the maximum performance level would result in payments equal to 200% of the target opportunities. Based on the new, increased size of the Company, the NEO’s target opportunities for 2007 are approximately equivalent to the 50th percentile of the market based on a percentage of salary. However, given the below market base salaries, the dollar level of target bonus opportunities are below the 50th percentile.

 

Discretionary Annual Compensation

 

The Compensation Committee may approve additional compensation, including limited annual discretionary bonuses, to any NEO or other executive for performance or retention purposes or to serve any other corporate objective, with the approval of the independent members of the Board of Directors in the case of the CEO. For 2006, discretionary bonuses, in recognition of management’s outstanding performance with respect to the Company’s legacy business and the execution of the Company’s growth strategy through the recent acquisitions, were granted to all of the NEOs ranging from $30,845 to $137,619, as listed in the Summary Compensation Table. Further discretionary awards in the form of RSUs were also granted under the Company’s 2005 Long-Term Incentive Plan for 2006 performance to four of the NEOs ranging from 1,563 to 3,750. These awards were in addition to the Company’s long-term incentive program (as described below), vest ratably, with one-third of the units vesting on the first, second, and third anniversaries of the date of grant, and are intended to provide additional retention as well as to provide additional incentives to maximize shareholder value.

 

Long-Term Incentives

 

The Company’s long-term incentive program consists of a cash-based long-term incentive plan (“LTIP”) and annual awards of RSUs. The program is designed to retain the NEOs and other executives and to focus their attention on the long-term performance of the business, while recognizing that the cyclical nature of the paper industry can impact short-term incentive compensation. In addition, the RSUs directly align the NEOs’ financial interests with those of the Company’s shareholders. The Company targets the value of its long-term incentive awards at the 50th percentile of the market for the NEOs, with the ability to set actual award levels based on an assessment of each NEO’s tenure, experience, skill set, and individual and Company performance, as well as competitive and internal equitable considerations. Based on the pre-acquisition size of the Company, the value of the NEOs’ long-term incentive compensation was approximately equivalent to the 50th percentile of the market.

 

RSUs. RSUs, which are granted under the Company’s 2005 Long-Term Incentive Plan, are intended to create strong incentives for the NEOs and other executives to maximize shareholder value and, at the same time, provide an incentive to remain through the full vesting date of the awards. RSUs generally vest ratably, with one-third of the units vesting on each December 31st of the second, third, and fourth full year after they are awarded, with all shares being delivered at the time of final vesting. In order to provide additional cash payments to NEOs and other executives during the vesting period, those who have been awarded RSUs receive cash payments equal to the dividends paid on an equivalent number of shares of Company common stock. Due to the challenging conditions in the paper industry in general, the Company’s focus was on increasing the retention power of its long-term incentive program; therefore, the value of RSUs for each NEO represented approximately two-thirds of the NEO’s total long-term incentive compensation. During 2006, a total of 52,700 RSUs were awarded to the NEOs.

 

LTIP. The LTIP was established in 2004 and was intended to provide an aggregated multi-year cash incentive to the NEOs and other executives to achieve long-term financial goals of the Company and also to reduce the annual share usage and dilution under the Company’s 2005 Long-Term Incentive Plan. Under the LTIP, performance cash awards would be paid to participants if the Company achieves a preset financial target, which was set by the Board on the Committee’s recommendation, by the end of 2009. The financial target was an estimate of three-year cumulative Operating Net Income (which consists of net income excluding after tax pension income, gains from the sale of timberlands as well as certain unusual, non-recurring items, such as shutdown charges relating to the Neenah facility and certain acquisition-related items). Upon achieving the financial target, participants would receive an individual cash award, ranging from $130,000 to $630,000 for the NEOs, the amount of which varied by position. If the financial target was not met by the end of 2009, the program would have been cancelled. The value of the LTIP for each NEO was intended to represent approximately one-third of the NEO’s total long-term incentive. The target was met as of the third quarter of 2006, and payments occurred in the fourth quarter ranging from $130,000 to $630,000 for the NEOs.

 

For 2007, the long-term incentive program with respect to the NEOs and other executives includes RSUs, an LTIP, and stock-only stock appreciation rights (“SOSARs”). Under this new program, RSUs are designed to represent approximately 20% of each NEO’s total long-term incentive, the LTIP represents approximately 40%, and SOSARs represent approximately 40%. The reduced weighting for RSUs relative to 2006 is intended to reflect reduced retention concerns given current market and industry expectations. The RSUs were granted on March 7, 2007 and vest ratably, with one-third of the units vesting on the third, fourth, and fifth anniversaries of the date of grant, with all shares being delivered at the time of final vesting. The introduction of SOSARs will provide a direct linkage to shareholders through awards the value of which is entirely dependent on appreciation in the Company’s stock price from the date the awards are granted. The SOSARs were granted on March 7, 2007, have an exercise price equal to the Company’s closing common stock price on the date of grant, have a ten-year expiration term, and vest ratably, with one-third of the SOSARs vesting on the first, second, and third anniversaries of the date of grant. This vesting schedule ensures that recipients remain employed with the Company for an appropriate length of time prior to being able to exercise the SOSARs. Upon exercise of a vested SOSAR, the recipient will receive shares of Company common stock with a value equal to the appreciation of the Company’s common stock from the date of grant. The re-pricing of SOSARs is not permitted under the Company’s 2005 Long-Term Incentive Plan. The design of the new LTIP is expected to be similar to the previous LTIP. Under this new LTIP, performance cash awards will be paid to participants if the Company achieves a preset financial target by the end of a specified time period. The financial target will be established by the Board later in 2007 based on the Company’s long-term strategic objectives. Upon achieving the financial target, participants will receive an individual cash award, the amount of which will vary by position. If the financial target is not met by the end of the time period, the program will be cancelled and no payments will be made. Based on the new, increased size of the Company, the value of the NEO’s long-term incentive compensation for 2007 is expected to be approximately equivalent to the 50th percentile of the market.

 

Share Ownership Guidelines

 

The Company has established share ownership guidelines for its NEOs and certain other executives in order to further enhance alignment with shareholders. The share ownership guidelines require the CEO to own shares of Company stock with a market value between three and four times the CEO’s base salary. The other NEOs are required to own shares with a market value between one and three times their base salaries, depending on their position. The guidelines give executives up to five years to reach their respective level of share ownership. Shares owned directly by the executive, unvested RSUs, shares held in a Section 401(k) or deferred compensation account, and 50% of any appreciation on unexercised vested options are counted toward the guidelines.

 

Other Benefits

 

The Company has entered into Change in Control Employment Agreements with each of the NEOs, as well as certain other executives of the Company, the terms of which are discussed on pages 22 through 28 of this proxy statement. The Board has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of these executives despite the possibility, threat, or occurrence of a change in control of the Company. These agreements are intended to diminish the inevitable distraction of the executive due to the uncertainties and risks created by a threatened or pending change in control and to provide the executive with compensation arrangements upon a change in control that provide the executive with financial security and which are competitive with those of other comparably situated companies.

 

In order to allow recipients to participate in a change in control along with shareholders, upon a change in control of the Company (as defined in the agreements), all outstanding RSUs that have been held for at least 6 months will become immediately and unconditionally vested, and the restrictions with respect to such RSUs shall lapse. All outstanding stock options and SOSARs will become immediately exercisable upon a change in control of the Company (as defined in the agreements).

 

The Company has a Supplemental Executive Retirement Plan (“SERP”) consisting of two benefits for the NEOs and certain other executives who have been selected by the Compensation Committee for participation. The first benefit, known as the “Restoration Pension,” provides an additional pension benefit based on the participant’s pension benefit earned under the terms of the Pension Plan, which is intended to restore that portion of the Pension Plan’s benefit that cannot be paid from that Plan due to legal limitations on the compensation and total benefits payable thereunder. Participants may receive the Restoration Pension in a single sum or in any form permitted under the Pension Plan, as elected by the participant at the time he or she first becomes a participant. The second benefit, known as the “FAC Pension,” pays a monthly pension benefit equal to a designated percentage of the participant’s final average compensation (as defined below), offset by the actuarially equivalent value of the participant’s benefits under the Pension Plan and certain Company-sponsored nonqualified defined benefit pension arrangements, including (if applicable) the Restoration Pension. The designated percentage is 2% multiplied by the participant’s years of credited service under the Pension Plan, but not in excess of 55%. The FAC Pension is payable following the participant’s retirement at or after age 62 in the form of a joint and 75% survivor annuity with the participant’s spouse or, if so requested by the participant and approved by the Company’s Compensation Committee, as a single sum. The FAC Pension can also be paid on an early retirement basis as

early as age 55, but reduced by 2.5% for each year by which the early benefit commencement precedes the participant’s attainment of age 62. A survivor benefit is also payable under the FAC Pension to the participant’s surviving spouse if the participant dies before his or her benefit commencement date. Final average compensation means the annualized average of the participant’s eligible compensation for the sixty (60) calendar months immediately preceding his or her retirement, which generally includes salary as listed on the Summary Compensation Table plus paid bonus.

 

The Company has a Supplemental Management Pension Plan (“SMPP”) consisting of two benefits. The first benefit is known as the MIP Adjustment Supplement. In prior years, the terms of the Company’s Management Incentive Plan, which was adopted as of January 1, 1994, and amended as of January 1, 2000 (the “Former MIP”) permitted a participant to defer a portion of his or her MIP bonus. Such deferred MIP bonus is not included in determining the participant’s final average compensation under the Pension Plan. However, for eligible executives a pension supplement (the “MIP Adjustment Supplement”) is paid from the Company’s Supplemental Management Pension Plan. The MIP Adjustment Supplement is, generally speaking, equal to the difference between the participant’s Pension Plan benefit and his or her Pension Plan benefit if it had been determined by taking into account a deferred MIP bonus. Executives who participate in the Company’s SERP, described above, are not eligible for the MIP Adjustment Supplement. The second benefit, known as the Early Retirement Supplement, is available to certain management and executive employees, who are not eligible for the FAC Pension under the SERP, who retire from employment with the Company on or after age 55 but prior to age 65, normal retirement age under the Company’s tax-qualified Pension Plan. The Pension Plan permits a participant who retires early to receive a reduced monthly early retirement pension that begins immediately following retirement, or to postpone commencement of the pension until a later date, but not later than normal retirement age. If the participant agrees to postpone commencement of his or her Pension Plan pension until at least 36 months following early retirement (or, if earlier, until his or her normal retirement date following attainment of age 65) (the “Deferred Pension Plan Commencement Date”), then the Early Retirement Supplement will pay a supplemental benefit during the postponement period. The Early Retirement Supplement is equal to the monthly amount of the Pension Plan pension (or the sum of the Pension Plan pension and the Restoration Pension under the SERP, if applicable) payable on the Deferred Pension Plan Commencement Date in the form of a single life annuity. The benefit begins on the first day of the month on or next following early retirement and continues for 36 months (or until normal retirement date) when the deferred Pension Plan pension begins to be paid. There is a limited benefit payable for the surviving spouse if the participant dies before the end of the 36-month payment period.

 

The Company’s NEOs and certain other executives are eligible for limited executive perquisites. These perquisites include annual physicals and dining and country club dues and are offered in order to be minimally competitive with the market and to continue to attract and retain highly qualified executive talent.

 

Deductibility of Executive Compensation

 

Certain awards made under the Company’s 2005 Long-Term Incentive Plan and the 2005 Management Incentive Plan will qualify as performance-based compensation that will be exempt from the federal income tax $1 million deduction limitation imposed under Section 162(m) of the Internal Revenue Code. However, in order to design compensation programs that address the Company’s needs, the Company has not established a policy that mandates that all compensation must be exempt from the Section 162(m) deduction limitation. The Company expects that any amounts to be paid under the 2007 MIP as well as the new LTIP program will be exempt from the Section 162(m) deduction limitation as performance-based compensation. For 2006, certain amounts of compensation paid by the Company to the NEOs were not deductible by reason of Section 162(m) because certain amounts received as base salary and other cash payments, from the vesting of RSUs, and from the payment of the LTIP did not qualify as performance-based compensation and exceeded $1 million.

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis set forth on pages 12 through 16 of this proxy statement (the “Compensation Discussion and Analysis”) with the management of the Company.

 

Based on the review and discussions described above, the Compensation Committee has recommended to the Company’s Board of Directors that the Company’s Compensation Discussion and Analysis be included in the Company’s proxy statement for the 2007 Annual Meeting of Shareholders.

 

The information disclosed in the Company’s Report of the Compensation Committee shall not be deemed to be “soliciting material,” or to be “filed” with the SEC or subject to Regulation 14A or 14C or to the liabilities of Section 18 of the Exchange Act.

 

Kathleen A. Dahlberg (Chair)

Nicholas DeBenedictis

Ronald J. Naples

Richard L. Smoot

 

 

The following table sets forth certain information concerning compensation of the Chief Executive Officer of the Company, the Chief Financial Officer of the Company and the Company’s three most highly compensated executive officers in 2006 other than the Chief Executive Officer and the Chief Financial Officer.

 

 

 

The amount for Mr. Glatfelter represents above-market interest earned on deferred compensation. See Nonqualified Deferred Compensation on page 22 of this proxy statement. Mr. Glatfelter’s deferred compensation is credited quarterly with interest based on the prime rate at Morgan Guaranty Trust Company of New York. Above market interest was calculated by subtracting the interest Mr. Glatfelter’s deferred compensation would have earned in 2006 if the rate of interest was equal to 120% of the applicable 2006 long-term federal rate with compounding from the actual interest earnings credited to such deferred compensation in 2006.

 

 

 

The “other” amount for Mr. Glatfelter is an annual $25 payment for membership in Glatfelter’s Quarter Century Club. This Club consists of Glatfelter employees and retirees that have been continuously employed by the Company for 25 or more years. The “other” amount for Mr. van Roden was a monthly stipend he received in lieu of medical coverage under Glatfelter’s Salaried Medical Plan. The amounts included in the “Perquisites” column represent country and dining club dues paid by the Company on the officer’s behalf.

 

 

 

The following table sets forth information concerning grants of plan-based awards in 2006:

 

 

 

 

The following table sets forth information concerning outstanding equity awards as of December 31, 2006:

 

 

 

The following table sets forth information concerning options exercised and stock vested during fiscal 2006:

 

 

 

The following table sets forth information concerning pension benefits of the NEOs:

 

 

As of December 31, 2006 Messrs. Jacunski, van Roden and Yanavitch were not eligible for the FAC Pension and therefore were entitled to receive a pension determined under the Pension Plan, together with, as applicable, the Restoration Pension and the Early Retirement Supplement, which are described below. Pension plan interests vest upon the first to occur of five years of services or the employee reaching 55 years of age. As of December 31, 2006, Mr. van Roden was vested in the Pension Plan because he had already reached age 55. However, as of December 31, 2006, Mr. Jacunski was 41 years of age and had not yet fulfilled the five year vesting requirement under the Company’s pension plans.

 

What employee retirement plans has the Company established for Directors and Executive Officers?

 

 

Qualified Pension Plan. Executive officers and employee Directors who also are eligible salaried employees of the Company participate in the P. H. Glatfelter Company Retirement Plan for Salaried Employees (the “Pension Plan”). This is a tax-qualified defined benefitpension plan that pays a normal retirement pension beginning at age 65 based on a percentage of the participant’s final average compensation multiplied by his or her years of benefit service. For participants as of January 1, 2007, this percentage is 1.4% times final average compensation times years of benefit service to a maximum of 25. For years of benefit service in excess of 25 years, the percentage multiplier is 0.5%. Final average compensation means the average of the participant’s eligible compensation for the five consecutive calendar years during the ten years preceding the year of retirement that yields the highest average. Annual compensation for purposes of the Pension Plan generally includes salary as listed on the Summary Compensation Table plus paid bonus. It does not include annual compensation in excess of IRS limits ($225,000 for 2007) or a Management Incentive Plan bonus that the participant elects to defer.

 

The Pension Plan provides for early retirement benefits for participants who retire at or after age 55 and prior to age 65. The amount of the monthly early retirement pension is reduced on account of its early commencement, at the rate of 2.5% per year. Early retirees at or after age 62 with 30 or more years of benefit service can receive an unreduced early retirement pension.

 

The foregoing benefit formula based on final average compensation does not apply to new hires on and after January 1, 2007. Such new hires will participate in the Pension Plan under a new “cash balance” formula. None of the listed executives participate under the new benefit formula.

 

Supplemental Executive Retirement Plan. The Company has a Supplemental Executive Retirement Plan (“SERP”) consisting of two benefits, either or both of which are available to those management and executive employees who have been selected by the Company’s Compensation Committee for participation therein. The first benefit, known as the “Restoration Pension,” provides an additional pension benefit based on the participant’s pension benefit earned under the terms of the Pension Plan, which is intended to restore that portion of the Pension Plan’s benefit that cannot be paid from that Plan due to legal limitations on the compensation and total benefits payable thereunder. Participants may receive the Restoration Pension in a single sum or in any form permitted under the Pension Plan, as elected by the participant at the time he or she first becomes a participant.

The second benefit, known as the “FAC Pension,” pays a monthly pension benefit equal to a designated percentage of the participant’s final average compensation (as defined below), offset by the actuarially equivalent value of the participant’s benefits under the Pension Plan and certain Company-sponsored nonqualified defined benefit pension arrangements, including (if applicable) the Restoration Pension. The designated percentage is 2% multiplied by the participant’s years of credited service under the Pension Plan, but not in excess of 55%. The FAC Pension is payable following the participant’s retirement at or after age 62 in the form of a joint and 75% survivor annuity with the participant’s spouse or, if so requested by the participant and approved by the Company’s Compensation Committee, as a single sum. The FAC Pension can also be paid on an early retirement basis as early as age 55, but reduced by 2.5% for each year by which the early benefit commencement precedes the participant’s attainment of age 62. A survivor benefit is also payable under the FAC Pension to the participant’s surviving spouse if the participant dies before his or her benefit commencement date. Final average compensation means the annualized average of the participant’s eligible compensation for the sixty (60) calendar months immediately preceding his or her retirement, which generally includes salary as listed on the Summary Compensation Table plus paid bonus.

 

The SERP is a nonqualified deferred compensation plan that must conform to the requirements of section 409A of the Internal Revenue Code. It is anticipated that changes may be made to the SERP to address section 409A following the issuance of final IRS guidance. Distribution of a SERP benefit payable on account of retirement or termination of employment by an employee who is a “key employee” under IRS rules must, under section 409A, be delayed until six months following retirement or termination.

 

The Compensation Committee may, with respect to both the FAC Pension or the Restoration Pension, cause the forfeiture of these benefits if the recipient should, without the prior consent of the Compensation Committee or its delegate, become an employee, officer or director of a competitor of the Company, or use or disclose Company confidential information (as defined in the SERP).

 

The SERP also contains special provisions in the event of a change in control (as defined in the SERP), including the fixing of the designated percentage under the FAC Pension at 55% (which is the maximum percentage), the elimination of the Compensation Committee’s authority to forfeit to participant’s benefit as described above, and the contribution of amounts to fund accrued SERP benefits.

 

Supplemental Management Pension Plan. The Company has a Supplemental Management Pension Plan (“SMPP”) consisting of two benefits. The first benefit is known as the MIP Adjustment Supplement. In prior years, the terms of the Company’s Management Incentive Plan, which was adopted as of January 1, 1994, and amended as of January 1, 2000 (the “Former MIP”) permitted a participant to defer a portion of his or her MIP bonus. Such deferred MIP bonus is not included in determining the participant’s final average compensation under the Pension Plan. However, for eligible executives a pension supplement (the “MIP Adjustment Supplement”) is paid from the Company’s Supplemental Management Pension Plan. The MIP Adjustment Supplement is, generally speaking, equal to the difference between the participant’s Pension Plan benefit and his or her Pension Plan benefit if it had been determined by taking into account a deferred MIP bonus. Executives who participate in the Company’s SERP, described above, are not eligible for the MIP Adjustment Supplement

 

The MIP Adjustment Supplement is a nonqualified deferred compensation arrangement that must conform to the requirements of section 409A of the Internal Revenue Code. It is anticipated that changes will be made in how the MIP Adjustment Supplement is paid to address section 409A following the issuance of final IRS guidance. Payments on account of retirement or termination of employment to a participant who is a “key employee” under IRS rules must, under section 409A, be delayed until six months following retirement or termination.

 

The second benefit, known as the Early Retirement Supplement, is available to certain management and executive employees, who are not eligible for the FAC Pension under the SERP, who retire from employment with the Company on or after age 55 but prior to age 65, normal retirement age under the Company’s tax-qualified Pension Plan. The Pension Plan permits a participant who retires early to receive a reduced monthly early retirement pension that begins immediately following retirement, or to postpone commencement of the pension until a later date, but not later than normal retirement age. If the participant agrees to postpone commencement of his or her Pension Plan pension until at least 36 months following early retirement (or, if earlier, until his or her normal retirement date following attainment of age 65) (the “Deferred Pension Plan Commencement Date”), then the Early Retirement Supplement will pay a supplemental benefit during the postponement period. The Early Retirement Supplement is equal to the monthly amount of the Pension Plan pension (or the sum of the Pension Plan pension and the Restoration Pension under the SERP, if applicable) payable on the Deferred Pension Plan Commencement Date in the form of a single life annuity. The benefit begins on the first day of the month on or next following early retirement and continues for 36 months (or until normal retirement date) when the deferred Pension Plan pension begins to be paid. There is a limited benefit payable for the surviving spouse if the participant dies before the end of the 36-month payment period.

 

The Early Retirement Supplement is a non-qualified deferred compensation arrangement that must conform to the requirements of section 409A of the Internal Revenue Code. It is anticipated that changes will be made to the

Early Retirement Supplement to address section 409A following the issuance of final IRS regulations. Payments on account of early retirement to a participant who is a “key employee” under IRS rules must, under section 409A, be delayed until six months following retirement or termination.

 

The Compensation Committee may, with respect to both the MIP Adjustment Supplement and the Early Retirement Supplement, cause the forfeiture of these benefits if the recipient should, without the prior consent of the Compensation Committee or its delegate, become an employee, officer or director of a competitor of the Company, or use or disclose Company confidential information (as defined in the SMPP).

 

 

The following table sets forth information concerning nonqualified deferred compensation of the NEOs:

 

 

 

The Nonqualified Deferred Compensation table above provides information about deferral elections under the P.H. Glatfelter Company Management Incentive Plans, effective January 1, 1982, as amended (the “1982 MIP”). Pursuant to the deferred compensation component of the 1982 MIP, certain executive officers were entitled to defer receipt of any portion of the incentive awards made under the 1982 MIP and irrevocably elect a time for future payment in accordance with deferral terms and options established by the Compensation Committee. Mr. Glatfelter, who deferred payment of an award he received under the MIP for the 1985 plan year until 2016, is the only NEO who has a deferred award under the 1982 MIP. Under the 1982 MIP, the amount of deferred awards is adjusted by crediting the cumulative deferred awards with interest at the end of each calendar quarter. Pursuant to the 1982 MIP, for each calendar quarter, Mr. Glatfelter’s deferred award is credited with interest earned for the quarter at an interest rate equal to the prime rate on the last business day of the quarter at the Morgan Guaranty Trust Company of New York If Mr. Glatfelter’s deferred award is paid during a quarter, interest on the accumulated award will be accrued at the rate prevailing at the end of the previous quarter. Mr. Glatfelter’s deferred award will be paid within 30 days of the date stipulated on his election form. The payment of Mr. Glatfelter’s deferred award may be accelerated if necessary, upon the approval of the Board’s Compensation Committee. However, if Mr. Glatfelter separates from the Company, the deferred award will be paid as stipulated on his election form. If Mr. Glatfelter dies before all awards are paid out, the unpaid amounts will be paid in a lump sum to his designated beneficiary.

 

Has the Company entered into any employment agreements with any of the named executive officers or with any material consequence?

 

Other than the Change in Control Employment Agreements described below, the Company currently does not have employment agreements with any of the NEOs.

 

What Change in Control Employment Agreements has the Company executed?

 

The Company has entered into Change in Control Employment Agreements with each of Messrs. Glatfelter, Jacunski, Parrini and Yanavitch along with three other executives. Prior to his leaving the employ of the Company on December 31, 2006, Mr. van Roden was a party to a Change in Control Employment Agreement with the Company. Under the agreements, each employee will become entitled to additional payments and benefits if his employment is terminated under certain conditions within two years following a change in control (as defined in the agreements) of the Company. The Change in Control Employment Agreements are described in detail beginning on page 25 of this proxy statement.

 

As described on page 22 of this proxy statement, the NEOs do not have employment agreements with the Company. The information below describes and quantifies compensation that would become payable under existing arrangements in the event of termination of such NEO’s employment under several different circumstances. The amounts shown assume that such termination was effective as of December 31, 2006, and thus include amounts earned through such time and are estimates of the amounts that would be paid to the NEOs upon their termination. The actual amounts to be paid can only be determined at the time of such NEO’s separation from the Company. The description below does not include Mr. van Roden because he retired from the Company on December 31, 2006.

 

John van Roden.  In connection with Mr. van Roden’s retirement from the company on December 31, 2006, he will begin to receive pension benefits from the Early Retirement Supplement component of the SMPP in an amount equal to $1,664.71 per month (adjusted for the required six-month commencement delay under section 409A of the Internal Revenue Code). Once this benefit has expired at the end of 2009, Mr. van Roden will continue to receive an actuarially equivalent benefit amount from the qualified pension plan and the Restoration component of the SERP in the payment forms he elects. Mr. van Roden also received certain benefits that are provided on a non-discriminatory basis to salaried employees generally upon termination of employment.

 

Termination Not in Connection with a Change in Control

 

Severance. Outside items described below, payments and benefits provided on a non-discriminatory basis to salaried employees generally and the change in control context, discussed below, the Compensation Committee or the independent Directors of the Board may authorize additional severance benefits, although they are not obligated to do so. In the past, the Company has agreed to provide additional severance benefits to departing executive officers in order to enter into definitive termination agreements on terms desirable to the Company.

 

Pension Benefits. A general description of each pension plan in which the NEOs participate, the years of service credited and the present value of each NEO’s accumulated pension benefit are included on page 20 of this proxy statement. In addition to the Pension Plan, Messrs. Glatfelter and Parrini participate in the SERP and Messrs. Jacunski and Yanavitch participate in the SMPP. Neither the SERP or the SMPP are available on a non-discriminatory basis to salaried employees generally.

 

SMPP. In the event of termination under any circumstance on December 31, 2006, neither Mr. Jacunski nor Mr. Yanavitch would be entitled to an Early Retirement Supplement under the SMPP because they would both have been under the age of 55 at the time of termination. Neither Mr. Jacunski nor Mr. Yanavitch has accrued any benefit under the MIP Adjustment Supplement.

 

SERP. The table below sets forth the various monthly payments that Messrs. Glatfelter and Parrini (or, in certain circumstances, their spouses) would be entitled to receive for their lifetimes upon termination, as of December 31, 2006, under several different circumstances.

 

TERMINATION PAYMENTS UNDER SERP

 

 

If a SERP participant becomes an employee, officer or competitor of the Company or uses or discloses confidential information of the Company (except as required by the SERP participant’s duties as an employee of the Company), then all benefits under the SERP are forfeited.

 

Deferred Compensation. As permitted by the Former MIP, Mr. Glatfelter has deferred his receipt of the payment of an award he previously earned under the MIP until 2016. The last column of the Nonqualified Deferred Compensation table on page 22 of this proxy statement reports Mr. Glatfelter’s aggregate balance at December 31, 2006. Mr. Glatfelter, or his beneficiary in the event of his death, is entitled to receive the amount in his account in the event of his termination. None of the other NEOs have deferred compensation.

 

2005 Management Incentive Plan. The awards made to NEOs in 2006 under the 2005 Management Incentive Plan were subject to a performance period that ended on December 31, 2006. If the NEOs’ employment had terminated on December 31, 2006 and the performance goals to which the 2006 awards were subject had been achieved, then the NEOs would have been entitled to the payment of their full awards under the 2005 Management Incentive Plan. However, the Compensation Committee determined that the performance goals for the 2006 awards were not achieved, so no awards were payable. In the event that an NEO’s employment terminates during a performance period set for an award granted under the 2005 Management Incentive Plan, his award will be forfeited except such award will be prorated to reflect the period of service in the event the termination is a result of his retirement, disability or death.

 

Stock Options. With regard to the outstanding stock options held by Messrs. Glatfelter and Parrini, if Mr. Glatfelter or Parrini retires prior to the expiration of the stock options, those options exercisable on the date of his retirement will remain exercisable until the first to occur of the third anniversary of his retirement or the expiration of the stock options. In the event that Mr. Glatfelter or Parrini dies after retirement, options exercisable on the date of his death will remain exercisable by his legal representative until the first to occur of first anniversary of the date of his death or the expiration of such options. Based on a $15.50 closing price of the Company’s common stock on December 29, 2006 (the last trading day of 2006), Mr. Glatfelter and Mr. Parrini would have realized a value of $248,718 and $47,405 had they each retired on December 31, 2006 and immediately exercised all of their in-the-money options.

 

Change in Control

 

Set forth in the table below are the amounts of compensation payable to each NEO upon termination by the Company for cause, termination by the NEO without good reason, termination by the NEO for good reason, termination by the Company other than for cause, death or disability, and termination in the event of disability or death of the NEO. The amounts set forth in the table below assume a change in control as of December 31, 2006, and termination of each executive upon the change in control.

 

 

Change in Control Employment Agreements. As described above, the Company has entered into Change in Control Employment Agreements with each of Messrs. Glatfelter, Jacunski, Parrini and Yanavitch. Under the agreements, each employee’s employment with the Company will continue for two years from the date of a change in control. During such period, the employee shall continue in the position he held prior to the change in control and shall receive compensation and benefits from the Company at least equal to those paid to him prior to the change in control. In the event of a termination following a change in control, the following benefits would be provided to the NEOs:

 

Termination for Good Reason; Termination By the Company Other than for Cause, Disability or Death.  If, within two years following a change in control, the employee’s employment is terminated by the Company other than for cause, death or disability, or is terminated by the employee for good reason, he will receive his then current base salary through the date of termination and accrued but unpaid vacation, plus the following severance benefits: