Hasbro, Inc.
HASBRO INC (Form: DEF 14A, Received: 04/07/2014 16:43:09)
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SCHEDULE 14A INFORMATION

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

EXCHANGE ACT OF 1934 (AMENDMENT NO.                       )

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x Definitive Proxy Statement

 

¨ Definitive Additional Materials

 

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HASBRO, INC.

(Name of Registrant as Specified In Its Charter)

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“Our updated proxy statement design underscores our continued commitment to give you the

information that you need in a format that is easy to follow.”

Dear Fellow Shareholders,

I’m pleased to invite you to join me, our Board of Directors, senior management team and your fellow shareholders at the Company’s 2014 Annual Meeting to be held at our headquarters in Pawtucket, Rhode Island on Thursday, May 22, 2014 at 11:00 AM ET. The attached Notice of Annual Meeting of Shareholders and Proxy Statement will provide you with the information regarding the business to be conducted.

At our Annual Shareholder meeting last year, shareholders representing approximately 64% of the votes cast were in favor of our executive compensation program. While this represented majority support for our compensation program, these results were below what the Board considers satisfactory. In response, the Company reached out to and offered to speak with our largest investors, including firms representing approximately 93% of the shares held by our top 25 institutional investors and approximately 55% of our outstanding shares as of year-end 2013, to gain a better understanding of our shareholders’ views. A combination of our Compensation Committee Chair, members of senior management and I have spoken with twelve of our largest institutional shareholders, representing 41 million shares, or about 42% of the institutional voting authority as of year-end. We found these discussions extremely informative and valuable, and we are very appreciative of the time that our investors took to speak with us.

In response, we undertook several initiatives, which are described in this Proxy Statement on page 27. A key initiative that I would like to highlight is our commitment to simplify and more effectively explain the matters to be addressed at our Annual Meeting. Our updated proxy statement design underscores our continued commitment to give you the information that you need in a format that is easy to follow. You will see several improvements in how we present information to you about our Board of Director nominees, corporate governance practices and executive compensation programs. To begin with, we now have included a Proxy Statement Highlights section starting on page i that provides highlights of the detailed information included elsewhere in this Proxy Statement. We have also further enhanced our Compensation Discussion and Analysis section, providing you with more information regarding the decisions the Compensation Committee made with respect to our executive compensation programs and how those decisions are linked to performance and shareholder value. We hope you find these changes beneficial.

Your vote is very important. Whether or not you plan to attend the Annual Meeting in person, we encourage you to vote promptly. You may vote by telephone or over the Internet, or by completing, signing, dating and returning the enclosed proxy card or voting instruction card if you requested to receive the printed proxy materials.

As stewards of your Company, the Board is keenly focused on the successful execution of our Branded-Play Strategy, the delivery of long-term profitable growth and enhanced total shareholder return. Thank you for the trust that you have placed in Hasbro and for your investment in our business.

April 7, 2014

 

LOGO

Alfred J. Verrecchia

Chairman of the Board


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HASBRO, INC.

NOTICE OF 2014 ANNUAL MEETING OF SHAREHOLDERS

 

Time:   11:00 a.m. local time
Date:   Thursday, May 22, 2014
Place:  

Hasbro, Inc. Corporate Offices

1027 Newport Avenue

Pawtucket, Rhode Island 02861

Purpose:  

•    Elect fourteen directors.

 

•    Conduct an advisory vote on the compensation of the Company’s named executive officers.

 

•    Approve the 2014 Senior Management Annual Performance Plan (the “2014 Performance Plan”).

 

•    Ratify the selection of KPMG LLP as the Company’s independent registered public accounting firm for the 2014 fiscal year.

 

•    Transact such other business as may properly come before the meeting and any adjournment or postponement of the meeting.

Other Important Information:  

•    The Company’s Board of Directors recommends that you vote your shares “FOR” each of the nominees for director, “FOR” advisory approval of the Company’s compensation for its named executive officers, “ FOR ” approval of the 2014 Performance Plan, and “FOR” the ratification of the selection of KPMG LLP as the Company’s independent registered public accounting firm for fiscal 2014.

 

•    Shareholders of record of the Company’s common stock at the close of business on March 26, 2014 may vote at the meeting.

 

•    You are cordially invited to attend the meeting to vote your shares in person, to hear from our senior management, and to ask questions. If you are not able to attend the meeting in person, you may vote by Internet, by telephone or by mail. See the Proxy Statement for specific instructions. Please vote your shares.

 

•    On or about April 7, 2014 we will begin mailing a Notice of Internet Availability of Hasbro’s Proxy Materials to shareholders informing them that this Proxy Statement, our 2013 Annual Report to Shareholders and voting instructions are available online. As is more fully described in that Notice, all shareholders may choose to access our proxy materials on the Internet or may request to receive paper copies of the proxy materials.

By Order of the Board of Directors

Barbara Finigan

Senior Vice President, Chief Legal Officer and Corporate Secretary

Dated: April 7, 2014


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PROXY STATEMENT HIGHLIGHTS

     i   

QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING

     1   

ELECTION OF DIRECTORS (PROPOSAL NO. 1)

     4   

GOVERNANCE OF THE COMPANY

     10   

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     17   

COMPENSATION COMMITTEE REPORT

     18   

COMPENSATION DISCUSSION AND ANALYSIS

     19   

Executive Summary

     19   

Hasbro’s Transformation into a Global Branded-Play Company

     19   

Overview of 2013 Company Performance

     21   

Shareholder Outreach

     23   

Frequently Asked Questions

     24   

Actions Taken Based on Shareholder Feedback and Engagement

     27   

Description of 2012 Amended and Restated Employment Agreement with Brian Goldner

     27   

2013 Named Executive Officers

     30   

2013 Compensation Philosophies and Objectives

     30   

Overview of 2013 Executive Compensation Program Elements and Pay for Performance

     31   

Alignment Between Pay and Performance in the Compensation Plans

     31   

Reported and Realized Compensation for Mr. Goldner

     33   

Key Compensation Actions for 2013

     34   

Other Key Compensation Program Features

     36   

Designing the Executive Compensation Program at Hasbro

     37   

Primary Elements of 2013 Executive Compensation

     38   

Market Compensation Checks

     45   

Risk Assessment

     46   

EXECUTIVE COMPENSATION

     47   

Summary Compensation Table

     47   

Grants of Plan-Based Awards

     49   

Outstanding Equity Awards at Fiscal Year-End

     50   

Options Exercises and Stock Vested

     51   

Pension Benefits

     52   

Non-qualified Deferred Compensation

     54   

Potential Payments Upon Termination or Change in Control; Employment Agreements

     55   

SHAREHOLDER ADVISORY VOTE ON COMPENSATION FOR NAMED EXECUTIVE OFFICERS (PROPOSAL NO. 2)

     62   

COMPENSATION OF DIRECTORS

     63   

PROPOSAL TO APPROVE THE 2014 SENIOR MANAGEMENT ANNUAL PERFORMANCE PLAN (PROPOSAL NO. 3)

     67   

EQUITY COMPENSATION PLANS

     70   

VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

     71   

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     74   

PROPOSAL TO RATIFY THE SELECTION OF KPMG LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE 2014 FISCAL YEAR (PROPOSAL NO. 4)

     75   


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REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

     76   

ADDITIONAL INFORMATION REGARDING INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     78   

OTHER BUSINESS

     79   

IMPORTANT NOTICE REGARDING DELIVERY OF SHAREHOLDER DOCUMENTS

     79   

COST AND MANNER OF SOLICITATION

     79   

APPENDICES

  

APPENDIX A – HASBRO, INC. STANDARDS FOR DIRECTOR INDEPENDENCE

     A-1   

APPENDIX B – 2014 SENIOR MANAGEMENT ANNUAL PERFORMANCE PLAN

     B-1   

APPENDIX C – 2012 MERCER BENCHMARK DATABASE - EXECUTIVE

     C-1   

APPENDIX D – TOWERS WATSON 2012 EXECUTIVE COMPENSATION DATABASE

     D-1   


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PROXY STATEMENT HIGHLIGHTS

This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information you should consider and you should read the entire Proxy Statement before voting. For more complete information regarding the Company’s 2013 performance, please review the Company’s Annual Report on Form 10-K for the year ended December 29, 2013.

Annual Meeting of Shareholders

 

Date:   Thursday, May 22, 2014
Time:   11:00 a.m. local time
Place:  

Hasbro, Inc. Corporate Offices

1027 Newport Avenue

Pawtucket, Rhode Island 02861

Record date:   March 26, 2014

Meeting Agenda and Voting Recommendations

 

Agenda Item   Board Vote Recommendation   Page Reference for More Information
Proposal 1: Election of Fourteen Director Nominees   FOR each director nominee   4
Proposal 2: Advisory Approval of the Compensation of the Company’s Named Executive Officers   FOR   62
Proposal 3: Approval of the 2014 Senior Management Annual Performance Plan   FOR   67
Proposal 4: Ratification of KPMG as Independent Registered Public Accounting Firm for 2014   FOR   75

 

 

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Board Nominees

 

Name   Age     Director
Since
    Principal Occupation   Independent
Director
  Committee
Memberships

Basil L. Anderson

    68        2002      Former Vice Chairman of Staples, Inc.   ü   Compensation, Nominating, Governance and Social Responsibility

Alan R. Batkin

    69        1992      Chairman and Chief Executive Officer of Converse Associates, Inc.   ü   Audit, Finance

Frank J. Biondi, Jr.

    69        2002      Senior Managing Director of WaterView Advisors LLC   ü   Compensation, Nominating, Governance and Social Responsibility

Kenneth A. Bronfin

    54        2008      Senior Managing Director of Hearst Ventures   ü   Finance (Chair), Compensation, Executive

John M. Connors, Jr.

    71        2004      Chairman Emeritus of Hill Holliday   ü   Compensation (Chair), Executive, Nominating, Governance and Social Responsibility

Michael W.O. Garrett

    71        2005      Retired Executive Vice President of Nestlé S.A.   ü   Audit, Finance

Lisa Gersh

    55        2010      Formerly Chief Executive Officer of Martha Stewart Living Omnimedia, Inc.   ü   Audit, Nominating, Governance and Social Responsibility

Brian D. Goldner

    50        2008      President and Chief Executive Officer of Hasbro, Inc.     Executive

Jack M. Greenberg

    71        2003      Chairman of The Western Union Company and InnerWorkings, Inc.   ü   Nominating, Governance and Social Responsibility (Chair), Finance, Executive

Alan G. Hassenfeld

    65        1978      Retired Chairman and Chief Executive Officer of Hasbro, Inc.   ü   Executive (Chair), Finance

Tracy A. Leinbach

    54        2008      Retired Executive Vice President and Chief Financial Officer of Ryder Systems, Inc.   ü   Audit (Chair), Finance, Executive

Edward M. Philip

    48        2002      Chief Operating Officer of Partners in Health   ü   Compensation, Nominating, Governance and Social Responsibility

Richard S. Stoddart

    51        2014      Chief Executive Officer of Leo Burnett North America   ü   Joined Board of Directors in March 2014

Alfred J. Verrecchia

    71        1992      Chairman of the Board of Hasbro, Inc.   ü   Executive

 

 

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Corporate Governance Highlights

Hasbro is committed to strong corporate governance, ethical conduct, sustainability and the accountability of our Board and our senior management team to the Company’s shareholders.

 

Highlights of our efforts in these areas include:

Our Board is composed of a significant majority of independent directors;

We have an Independent Presiding Director;

Our entire Board is elected annually;

We do not have a shareholder rights plan;

We have adopted a Clawback Policy;

We have a longstanding commitment to Corporate Sustainability;

In 2012 we adopted a policy prohibiting the pledging or hedging of Company stock on a prospective basis;

Long-term incentive compensation granted on and after April 2013 is subject to a double-trigger change in control provision;

We have a written Code of Conduct and Corporate Governance Principles; and

We have share ownership policies applicable to our Board members, our executive officers and designated other members of management and a new share retention policy.

2013 Shareholder Outreach.     At our 2013 Annual Shareholders Meeting, the Company’s shareholders were presented with an advisory vote asking for approval of the Company’s 2012 compensation program for its Named Executive Officers, commonly known as the “Say on Pay” proposal. Our 2011 and 2012 Say on Pay proposals were overwhelmingly supported by shareholders with a favorable vote of approximately 94% of votes cast each year. At our 2013 Annual Meeting, approximately 64% of the votes cast were voted in favor of our executive compensation program as disclosed in our 2013 Proxy Statement. While representing majority support for our Named Executive Officer compensation, these results were well below what we consider satisfactory. Our Compensation Committee and our full Board of Directors carefully consider the outcome of shareholder votes on the Company’s executive compensation programs in reviewing and establishing future programs and in determining whether changes should be made to our executive compensation programs.

Following our 2013 Say on Pay result, the Company reached out to and offered to speak with its largest investors, including firms representing approximately 93% of shares held by our top 25 institutional investors and approximately 55% of our outstanding shares as of year-end 2013. A combination of our Compensation Committee Chair, our Board Chairman and members of senior management have spoken with twelve of our largest institutional shareholders, representing 41 million shares or about 42% of the institutional voting authority as of year-end.

Additionally, our Compensation Committee Chair and members of our senior management spoke with representatives from the proxy advisory service firm Institutional Shareholder Services, Inc. (ISS) and our Board Chairman, Compensation Committee Chair and members of our senior management spoke with representatives from the proxy advisory service firm Glass Lewis & Co., LLC (Glass Lewis) to discuss our compensation programs and philosophies, our 2013 shareholder outreach program and what we have done or plan to do based on the feedback that we received from our investors. We also gave these advisory firms the opportunity to ask questions and offer their viewpoint on our executive compensation programs.

The Company found these discussions extremely informative and valuable, and we are very appreciative of the time that our investors and the advisory firms took to speak with us. Through these engagements, the Company learned that shareholders were looking for additional explanation and clarification relating to the Amended and Restated Employment Agreement with Brian Goldner, the Company’s Chief Executive Officer, which was entered into in October 2012. Specifically, they wanted to understand why the Compensation Committee structured the compensation package the way that it did and the Committee’s thinking behind the various components of the agreement. The frequently asked questions from these engagements, and the Company’s responses to those questions, are outlined beginning on page 24 of this Proxy Statement. The Compensation Committee has also taken specific actions in response to this shareholder feedback, which are outlined on page 27.

 

 

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Executive Compensation Highlights

 

Hasbro’s Transformation into a Global Branded-Play Company.     Hasbro’s senior management team, led by our Chief Executive Officer Brian Goldner, has been and continues to be critical to our transformation from a traditional toy and game manufacturer into a global branded-play organization through the successful execution of our branded-play strategy. Since 2000, the Company has conceptualized and implemented its branded-play strategy, imagining and re-imagining core Hasbro brands globally, identifying Hasbro’s Franchise Brands (TRANSFORMERS, NERF, MY LITTLE PONY, MAGIC: THE GATHERING, LITTLEST PET SHOP, MONOPOLY and PLAY-DOH) and developing new ways to express Hasbro’s brands through entertainment, digital media and lifestyle licensing.

Hasbro has successfully executed brands such as TRANSFORMERS, G.I. JOE and BATTLESHIP as major motion pictures, expanded into television by forming Hasbro Studios and entered into a joint venture with Discovery Communications to run the Hub Network, a children’s and family cable television network, in the U.S. Today, Hasbro television programming airs in more than 180 territories globally.

Finally, Hasbro has succeeded in building a global brand organization, establishing teams to grow its brands in markets around the world. This includes opening offices in key emerging markets, including Russia, China and Brazil, since 2008. At that time, emerging markets revenue was approximately $150 million and by year-end 2013, emerging markets revenue had grown at a 5-year compound annual growth rate of 30% to $575 million and represented 14% of Hasbro’s total revenues. The timeline on page 20 of this Proxy Statement highlights significant milestones that the Company has achieved in its transformative journey into a global branded-play organization.

2013 Business Highlights.

 

 

15% revenue growth for our Franchise Brands as a group, with six of the seven brands growing;

 

 

Grew Girls category revenues grew 26% to reach a record $1 billion in revenues for the first time in the Company’s history;

 

 

Executed our business plan globally by leveraging our investments in new and emerging markets, resulting in 5% growth in our International segment and 25% growth year-over-year in emerging markets;

 

 

Grew the Games category 10%, including growth in the category even absent the contribution of our games Franchise Brands MAGIC: THE GATHERING and MONOPOLY;

 

 

Delivered the 13th consecutive year of growth in underlying earnings per share, with our full-year 2013 earnings per diluted share increasing from $2.81 in 2012, to $2.83 in 2013, (such EPS excluding the charges and benefits set forth in the diluted earnings per share chart on page 22 of this Proxy Statement);

 

 

Strengthened our mobile gaming expertise and capabilities with the purchase of a 70% majority interest in mobile game developer Backflip Studios;

 

 

Furthered relationships with certain of our key partners, including expanding our relationship with The Walt Disney Company for the MARVEL and STAR WARS franchises;

 

 

Executed the first full year of the multi-year cost-savings initiative designed to deliver $100 million in underlying annual cost savings by the end of 2015;

 

 

Delivered a one-year total shareholder return of 57%, a three-year average total shareholder return of 9% annually, and a five-year average total shareholder return of 17% annually; and

 

 

Returned $258.6 million to our shareholders, in the form of $156.1 million in dividends (the quarterly dividend historically paid annually in February was accelerated and paid in December 2012 and not included in this total) and the repurchase of $102.5 million of our stock.

Reported and Realized Compensation for Mr. Goldner.     At Hasbro, pay for performance is critical. A key compensation philosophy of the Company is that a large majority of an executive’s overall compensation opportunity should be at risk and based upon the performance of the Company in meeting its financial objectives and upon delivering total return to the Company’s shareholders. The Company believes that the primary responsibility of the senior management team is to drive the financial and business performance of the Company and create value for the Company’s shareholders.

 

 

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The following table presents the reported and realized compensation for the Company’s Chief Executive Officer over the prior three years. The table illustrates that the reported compensation often exceeds the actual, realized compensation for the executive, and this divergence can become greater as the percentage of the executive’s compensation composed of performance-based elements increases. A detailed discussion on Reported and Realized Compensation can be found beginning on page 33 of this Proxy Statement.

CEO Reported vs. Realized Pay

 

LOGO

 

* Indexed Total Shareholder Return (TSR) tracks an assumed investment of $100 at the end of 2010 in the Company’s Common Stock, assuming full reinvestment of dividends and no payment of brokerage or other commissions or fees.

Key Compensation Actions for 2013.     Each year, the Compensation Committee reviews the Company’s incentive plans and their underlying goals and targets. For 2013, the Committee took the following steps to maintain the strong linkage between pay and performance across the Company’s incentive plans. These items are described in more detail beginning on page 34 of this Proxy Statement.

 

 

Challenging Performance Objectives for the 2013 Contingent Stock Performance Awards.     The Compensation Committee established challenging three-year performance objectives for the 2013 Contingent Stock Performance Awards, modifying the performance targets to require that a minimum of 90% of targeted cumulative earnings per share be achieved for payout, regardless of revenue achievement. The Compensation Committee also modified the EPS and Revenue metric weightings for the Company’s contingent stock performance awards. For the 2013 contingent stock performance awards, the Company’s achievement against its EPS metric is weighted 60% and the Company’s achievement against the Revenues metric is weighted 40% for purposes of earning shares under the award. These metrics were previously weighted evenly.

 

 

No Payment of Shares Under the 2011 Contingent Stock Performance Awards.     No payment of shares under the contingent stock performance awards granted in 2011 were made since the Company did not achieve at least 90% of the challenging three-year cumulative net revenue and earnings per share targets to earn payouts under the awards. This is the second year in a row that no payouts have been made under the contingent stock performance awards.

 

 

Enhanced Rigor Relating to the 2013 Bonus Determinations under the Company’s 2009 Senior Management Annual Performance Plan .     As part of establishing the annual cash incentive awards, the Compensation Committee established a more rigorous process for exercising negative discretion in making participant bonus calculations working within the requirements of Code Section 162(m).

 

 

Revised Peer Group.     In 2013 the Compensation Committee assessed the criteria used and companies included in the core peer group in order to determine whether the companies included were appropriate due to the Company’s transformation from a traditional toy and game manufacturer into a global branded-play organization with a robust portfolio of brands. The Compensation Committee approved certain changes to the peer group that were effective for Mr. Goldner’s pay for performance comparison in 2013.

 

 

Engaged in Extensive Shareholder Outreach Program.     Following our 2013 Say on Pay result, where approximately 64% of votes cast were voted in favor of our executive compensation program, as disclosed in our 2013 Proxy Statement, the Company reached out to and offered to speak with its largest investors, including institutional investors representing approximately 93% of shares held by our top 25 institutional investors and approximately 55% of our outstanding shares as of year-end 2013. A combination of the Company’s Compensation Committee Chair, Board Chairman and members of senior management have spoken with twelve of our largest institutional shareholders, representing 41 million shares or about 42% of the institutional voting authority as of year-end. We also spoke with representatives from the proxy advisory service firms ISS and Glass Lewis to

 

 

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discuss our compensation programs and philosophies, our 2013 shareholder outreach program, what we have done or plan to do based upon the feedback we received from investors and their questions. Based on feedback received in these discussions, the Company has taken or will take certain actions that are described on page 27 of this Proxy Statement.

Please see the Compensation Discussion and Analysis and Executive Compensation sections beginning on page 19 of this Proxy Statement for a detailed description of our executive compensation programs, philosophy and design.

 

 

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QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING

 

Q:   Why are these materials being made available to me?

 

 

A:   The Board of Directors (the “Board”) of Hasbro, Inc. (the “Company” or “Hasbro”) is making these proxy materials available to you on the Internet, or sending printed proxy materials to you in certain situations, including upon your request, beginning on or about April 7, 2014, in connection with Hasbro’s 2014 Annual Meeting of Shareholders (the “Meeting”), and the Board’s solicitation of proxies in connection with the Meeting. The Meeting will take place at 11:00 a.m. local time on Thursday, May 22, 2014 at Hasbro’s corporate offices, 1027 Newport Avenue, Pawtucket, Rhode Island 02861. The information included in this Proxy Statement relates to the proposals to be voted on at the Meeting, the voting process, the compensation of Hasbro’s named executive officers and Hasbro’s directors, and certain other information. Hasbro’s 2013 Annual Report to Shareholders is also available to shareholders on the Internet and a printed copy will be mailed to shareholders upon their request.

 

Q:   What proposals will be voted on at the Meeting?

 

 

A:   There are four proposals scheduled to be voted on at the Meeting:

 

   

Election of fourteen directors.

 

   

An advisory vote on the compensation of the Company’s named executive officers.

 

   

Approval of the 2014 Senior Management Annual Performance Plan (the “2014 Performance Plan”).

 

   

Ratification of KPMG LLP as the Company’s independent registered public accounting firm for fiscal 2014.

 

Q:   Why did I receive a Notice of the Internet Availability of Hasbro’s Proxy Materials, instead of a full set of printed proxy materials?

 

 

A:   Rules adopted by the Securities and Exchange Commission allow us to provide access to our proxy materials over the Internet instead of mailing a full set of such materials to every shareholder. We have sent a Notice of Internet Availability of Hasbro’s Proxy Materials (the “Notice”) to our shareholders who have not requested to receive a full set of the printed proxy materials. Because of certain legal requirements, shareholders holding their shares through the Hasbro 401(k) Retirement Savings Plan were still mailed a full set of proxy materials this year. Our other shareholders may access our proxy materials over the Internet using the directions set forth in the Notice. In addition, by following the instructions in the Notice, a shareholder may request that a full set of printed proxy materials be sent to them.

 

     We have chosen to send the Notice to shareholders, instead of automatically sending a full set of printed copies to all shareholders, to reduce the impact of printing our proxy materials on the environment and to save on the costs of printing and mailing incurred by the Company.
Q:   How do I access Hasbro’s proxy materials online?

 

 

A:   The Notice provides instructions for accessing the proxy materials for the Meeting over the Internet, and includes the Internet address where those materials are available. Hasbro’s Proxy Statement for the Meeting and 2013 Annual Report to Shareholders can be viewed on Hasbro’s website at http://investor.hasbro.com/annual-proxy.cfm.

 

Q:   How do I request a paper copy of the proxy materials?

 

 

A:   Paper copies of Hasbro’s proxy materials will be made available at no cost to you, but they will only be sent to you if you request them. To request a paper copy of the proxy materials follow the instructions on the Notice that you received. You will be able to submit your request for copies of the proxy materials by sending an email to the email address set forth in the Notice, by going to the Internet address set forth in the Notice or by calling the phone number provided in the Notice.

 

Q:   What shares owned by me can be voted?

 

 

A:   All shares of the Company’s common stock, par value $.50 per share (“Common Stock”) owned by you as of the close of business on March 26, 2014, the record date , may be voted by you. These shares include those (1) held directly in your name as the shareholder of record , including shares purchased through Hasbro’s Dividend Reinvestment and Cash Stock Purchase Program and (2) held for you as the beneficial owner through a broker, bank or other nominee.

 

Q:   What is the difference between holding shares as a shareholder of record and as a beneficial owner?

 

 

A:   Most Hasbro shareholders hold their shares through a broker, bank or other nominee rather than directly in their own name as the shareholder of record. As summarized below, there are some distinctions between shares held of record and those owned beneficially.

Shareholder of Record

If your shares are registered directly in your name with Hasbro’s Transfer Agent, Computershare Trust Company, N.A. (“Computershare”), you are considered, with respect to those shares, the shareholder of record . As the shareholder of record , you have the right to grant your voting proxy directly to Hasbro or to vote in person at the Meeting.

Beneficial Owner

If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in street name and your broker or nominee is considered, with respect to those shares, the shareholder of record. As the

 

 

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beneficial owner, you have the right to direct your broker or nominee on how to vote and are also invited to attend the Meeting. However, since you are not the shareholder of record , you may not vote these shares in person at the Meeting unless you receive a proxy from your broker or nominee. Your broker or nominee has provided voting instructions for you to use. If you wish to attend the Meeting and vote in person, please contact your broker or nominee to obtain a legal proxy or follow the instructions on the Notice or voting instruction card that you received.

Effect of Not Casting Your Vote

If you hold your shares in street name in a brokerage account, it is critical that you cast your vote if you want it to count in the election of Directors (Proposal No. 1 in this Proxy Statement), in the shareholder advisory vote on compensation of the Company’s named executive officers (Proposal No. 2), and in the approval of the 2014 Performance Plan (Proposal No. 3). In the past, if you held your shares in street name and you did not indicate how you wanted your shares voted in the election of Directors, your broker was allowed to vote those shares on your behalf in the election of Directors as they felt appropriate. Regulatory changes removed the ability of your broker to vote your uninstructed shares in the election of Directors on a discretionary basis, and brokers do not have any discretionary ability to vote shares on the election of Directors, the advisory vote with respect to the compensation of the Company’s named executive officers or on the vote to approve the 2014 Performance Plan. Thus, if you hold your shares in street name and you do not instruct your broker how to vote in the election of Directors, the advisory vote on the compensation of the Company’s named executive officers or the vote on the 2014 Performance Plan, no votes will be cast on your behalf on those matters. Your broker will, however, continue to have discretion to vote any uninstructed shares on the ratification of the appointment of the Company’s independent registered public accounting firm (Proposal No. 4).

If you are a shareholder of record and you do not cast your vote, no votes will be cast on your behalf on any of the items of business at the Meeting.

 

Q:   How can I attend the Meeting?

 

 

A:   You may attend the Meeting if you are listed as a shareholder of record as of the close of business on March 26, 2014 and bring proof of your identification. If you hold your shares through a broker or other nominee, you will need to provide proof of your share ownership by bringing either a copy of a brokerage statement showing your share ownership as of March 26, 2014, or a legal proxy if you wish to vote your shares in person at the Meeting. In addition to the items mentioned above, you should bring proof of your identification.

 

Q:   How can I vote my shares in person at the Meeting?

 

 

A:   Shares held directly in your name as the shareholder of record may be voted in person at the Meeting. Please bring proof of your identification to the meeting. Shares beneficially owned may be voted by you if you receive and present at the Meeting a proxy from your broker or nominee, together with
  proof of identification. Even if you plan to attend the Meeting, we recommend that you also vote in one of the ways described below so that your vote will be counted if you later decide not to attend the Meeting or are otherwise unable to attend.

 

Q:   How can I vote my shares without attending the Meeting?

 

 

A:   Whether you hold shares directly as the shareholder of record or beneficially in street name, you may direct your vote without attending the Meeting. You may vote by granting a proxy or, for shares held in street name, by submitting voting instructions to your broker or nominee. In most instances, you will be able to do this over the Internet, by telephone or by mail. Please refer to the summary instructions below, the instructions included on the Notice, and if you request printed proxy materials, the instructions included on your proxy card or, for shares held in street name, the voting instruction card provided by your broker or nominee.

 

     By Internet — If you have Internet access, you may submit your proxy from any location by following the Internet voting instructions on the Notice you received or by following the Internet voting instructions on the proxy card or voting instruction card sent to you.

 

     By Telephone — You may submit your proxy by following the telephone voting instructions on the proxy card or voting instruction card sent to you.

 

     By Mail — You may do this by marking, dating and signing your proxy card or, for shares held in street name, the voting instruction card provided to you by your broker or nominee, and mailing it in the enclosed, self-addressed, postage prepaid envelope. No postage is required if mailed in the United States. Please note that for Hasbro shareholders, other than those shareholders holding their shares through the Hasbro 401(k) Retirement Savings Plan who are all being mailed a printed set of proxy materials, you will only be mailed a printed set of the proxy materials, including a printed proxy card or printed voting instruction card, if you request that such printed materials be sent to you. You may request a printed set of proxy materials by following the instructions in the Notice.

 

     Please note that you cannot vote by marking up the Notice of Internet Availability of the Proxy Materials and mailing that Notice back. Any votes returned in that manner will not be counted.

 

Q:   How are votes counted?

 

 

A:   Each share of Common Stock entitles its holder to one vote on all matters to come before the Meeting, including the election of Directors. In the election of Directors, for each of the nominees you may vote “FOR” such nominee or your vote may be “WITHHELD” with respect to such nominee. For proposals two, three and four, you may vote “FOR”, “AGAINST” or “ABSTAIN”. If you “ABSTAIN”, it has the same effect as a vote “AGAINST” the proposal.

 

    

If you properly sign and return your proxy card or complete your proxy via the Internet or telephone, your shares will be voted as you direct. If you sign and submit your proxy card or

 

 

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  voting instruction card with no instructions, your shares will be voted in accordance with the recommendations of the Board.

 

     If you are a shareholder of record and do not either vote via the Internet, via telephone, return a signed proxy card or vote in person at the Meeting, your shares will not be voted.

 

     If you are a beneficial shareholder and do not vote via the Internet, telephone, in person at the Meeting or by returning a signed voting instruction card, your shares may only be voted in situations where brokers have discretionary voting authority over the shares. Discretionary voting authority is only permitted on the proposal for the ratification of the selection of KPMG as the Company’s independent registered public accounting firm for 2014.

 

Q:   Can I change my vote or revoke my proxy?

 

 

A:   You may change your proxy instructions at any time prior to the vote at the Meeting. For shares held directly in your name, you may accomplish this by granting another proxy that is properly signed and bears a later date, by sending a properly signed written notice to the Secretary of the Company or by attending the Meeting and voting in person. To revoke a proxy previously submitted by telephone or through the Internet, you may simply vote again at a later date, using the same procedures, in which case your later submitted vote will be recorded and your earlier vote revoked. Attendance at the Meeting will not cause your previously granted proxy to be revoked unless you specifically so request. For shares held beneficially by you, you may change your vote by submitting new voting instructions to your broker or nominee.

 

Q:   What does it mean if I receive more than one Notice or more than one proxy or voting instruction card?

 

 

A:   It means your shares are registered differently or are held in more than one account. Please provide voting instructions for all Notices or proxy and voting instruction cards you receive.

 

Q:   Where can I find the voting results of the Meeting?

 

 

A:   We will announce preliminary voting results at the Meeting. We will publish final voting results in a Current Report on Form 8-K within a few days following the Meeting.

 

Q:   What is the quorum for the Meeting?

 

 

A:   Holders of record of the Common Stock at the close of business on March 26, 2014 are entitled to vote at the Meeting or any adjournments thereof. As of that date there were 130,458,933 shares of Common Stock outstanding and entitled to vote and a majority of the outstanding shares will constitute a quorum for the transaction of business at the Meeting. Abstentions and broker non-votes are counted as present at the Meeting for purposes of determining whether there is a quorum at the Meeting. A broker non-vote occurs when a broker holding shares for a customer does not vote on a particular proposal because the broker has not received
  voting instructions on the matter from its customer and is barred by stock exchange rules from exercising discretionary authority to vote on the matter.

 

Q:   What happens if I have previously consented to electronic delivery of the Proxy Statement and other annual meeting materials?

 

 

A:   If you have previously consented to electronic delivery of the annual meeting materials you will receive an email notice with instructions on how to access the Proxy Statement, notice of meeting and annual report on the Company’s website, and the proxy card for registered shareholders and voting instruction card for beneficial or “street name” shareholders, on the voting website. The notice will also inform you how to vote your proxy over the Internet. You will receive this email notice at approximately the same time paper copies of the Notice, or annual meeting materials are mailed to shareholders who have not consented to receive materials electronically. Your consent to receive the annual meeting materials electronically will remain in effect until you specify otherwise.

 

Q:   If I am a shareholder of record how do I consent to receive my annual meeting materials electronically?

 

 

A:   Shareholders of record who choose to vote their shares via the Internet will be asked to choose a current and future delivery preference prior to voting their shares. After entering the access information requested by the electronic voting site, click “Submit” and then respond as to whether you would like to receive current proxy material electronically or by mail. There will be a link to your current meeting materials so that you can view them electronically. If you already have access to the materials, choose that option and click the “Continue” button. On the following screen, choose whether you would like to receive future proxy materials by e-mail (and enter and verify your e-mail address), by mail or make no change or no preference and click “Continue.” During the year, shareholders of record may sign up to receive their future annual meeting materials electronically over the Internet by going to the website www.computershare.com/investor. Shareholders of record with multiple Hasbro accounts will need to consent to electronic delivery for each account separately.
 

 

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ELECTION OF DIRECTORS (Proposal No. 1)

Fourteen directors are to be elected at the Meeting. All of the directors elected at the Meeting will serve until the 2015 Annual Meeting of Shareholders (the “2015 Meeting”), and until their successors are duly elected and qualified, or until their earlier death, resignation or removal.

The Board has recommended as nominees for election as directors, to serve until the 2015 Meeting, the persons named below. All of the nominees are currently directors of the Company. The proxies cannot be voted for more than fourteen directors at the Meeting.

Unless otherwise specified in your voting instructions, the shares voted pursuant thereto will be cast for the persons named below as nominees for election as directors. If, for any reason, any of the nominees named below should be unable to serve as a director, it is intended that such proxy will be voted for the election, in his or her place, of a substituted nominee who would be recommended by the Board. The Board, however, has no reason to believe that any nominee named below will be unable to serve as a director.

In considering candidates for election to the Board, the Board, the Nominating, Governance and Social Responsibility Committee of the Board, and the Company consider a number of factors, including employment and other experience, qualifications, attributes, skills, expertise and involvement in areas that are of importance to the Company’s business, business ethics and professional reputation, other Board service, business, financial and strategic judgment, and the desire to have a Board that represents a diverse mix of backgrounds, perspectives and expertise. Each of the nominees for election to the Board at the meeting has served in senior positions at complex organizations and has demonstrated a successful track record of strategic, business and financial planning, execution and operating skills in these positions. In addition, each of the nominees for election to the Board has proven experience in management and leadership development and an understanding of operating and corporate governance issues for a large multinational company.

The following information set forth below as to each director nominee includes: (i) his or her age; (ii) all positions and offices with the Company; (iii) principal occupation or employment during the past five years; (iv) current directorships of publicly-held companies or investment companies; (v) other previous directorships of publicly-held companies or investment companies during the past five years; (vi) period of service as a director of the Company; and (vii) particular experience, qualifications, attributes or skills, beyond those described above, which led the Company’s Board to conclude that the nominee should serve as a director of the Company. Except as otherwise indicated, each person has had the same principal occupation or employment during the past five years.

Nominees for Election As Directors

 

LOGO  

Basil L. Anderson

Age: 68

 

Basil L. Anderson served as Vice Chairman of Staples, Inc. (office supply company) from September 2001 until March 2006. Prior thereto, he was Executive Vice President — Finance and Chief Financial Officer of Campbell Soup Company (consumer products company) since 1996. Mr. Anderson also previously served as Chief Financial Officer of Scott Paper Company from 1993 to 1996. Mr. Anderson is a director of Becton, Dickinson and Company, Moody’s Corporation and Staples, Inc. He previously served on the Board of CRA International, Inc. from 2004 until January 2010. Mr. Anderson has been a director of the Company since 2002.

 

The Board has nominated Mr. Anderson for election as a director because of his more than 30 years of business experience, including years of experience as an operating executive, a chief financial officer and as a board member of major multinational public companies. In the Board’s view Mr. Anderson possesses strategic, business, financial planning and operations expertise; corporate finance expertise; particular knowledge, expertise and perspective regarding financial reporting and accounting issues for multinational public companies; experience from service on four public company audit committees; expertise in corporate governance and board and committee best practices; and international business expertise.

 

 

 

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LOGO  

Alan R. Batkin

Age: 69

 

Alan R. Batkin is Chairman and Chief Executive Officer of Converse Associates, Inc. (a strategic advisory firm). From 2007 to 2012, he was the Vice Chairman of Eton Park Capital Management, L.P. (global, multi-disciplinary investment firm). Prior thereto, he was the Vice Chairman of Kissinger Associates, Inc. (strategic consulting firm) from 1990 until 2006. He is a director of Cantel Medical Corp., Pattern Energy Group, Inc. and Omnicom Group, Inc. Mr. Batkin served on the Board of Overseas Shipholding Group, Inc. from 1999 to 2012. Mr. Batkin has been a director of the Company since 1992.

 

The Board has nominated Mr. Batkin for election as a director because of his more than 40 years of business experience and financial expertise spanning his work in public accounting as a CPA, investment banking and international strategic consulting. Mr. Batkin has extensive experience advising multinational companies on global business and political issues, and he has served as a director for numerous public companies. The Board believes Mr. Batkin possesses expertise in corporate finance and asset management; expertise in strategic planning and international business operations; particular knowledge, expertise and perspective regarding financial reporting and accounting matters for multinational public companies; and expertise in corporate governance and board and committee best practices.

 

 

 

LOGO  

Frank J. Biondi, Jr.

Age: 69

 

Frank J. Biondi, Jr. is Senior Managing Director of WaterView Advisors LLC (private equity fund specializing in media), serving in this role since 1999. Mr. Biondi is a director of Amgen, Inc., Cablevision Systems Corporation, Seagate Technology PLC and RealD Inc. Mr. Biondi previously served on the board of directors of Yahoo! Inc. from 2008 until 2010. Mr. Biondi has been a director of the Company since 2002.

 

The Board has nominated Mr. Biondi for election as a director because of his more than 40 years of business

experience, including years of experience as an operating executive and as a chief executive officer of a number of television, film, media and other diversified entertainment companies, including Universal Studios, Viacom Inc., Coca-Cola Television and Home Box Office. Most recently, Mr. Biondi has spent fourteen years serving as the senior managing director of an investment advisory firm specializing in television, entertainment and media. Mr. Biondi has also served on the boards of over 15 public companies during his career. The Board believes Mr. Biondi possesses particular knowledge, expertise and perspective regarding the television, entertainment and media industries; corporate finance and strategic planning expertise; as well as expertise in corporate governance and board and committee best practices.

 

 

 

LOGO  

Kenneth A. Bronfin

Age: 54

 

Kenneth A. Bronfin is Senior Managing Director of Hearst Ventures (the strategic investment arm of diversified media company Hearst Corporation), serving in this role since 2013. Prior thereto, he was President of Hearst Interactive Media since 2002. Prior thereto, he was Deputy Group Head of Hearst Interactive Media since 1996. From 2002 until 2006, Mr. Bronfin served on the Board of iVillage Inc. Mr. Bronfin has been a director of the Company since 2008.

 

The Board has nominated Mr. Bronfin for election as a director because of his extensive expertise and experience in operational and executive roles in the media and digital services sectors. Mr. Bronfin’s experience includes serving in a number of executive positions where he was in charge of leading interactive media and digital businesses and where he led new business ventures, strategic investments and acquisitions in the digital content and media sectors. Mr. Bronfin also has experience serving on a number of private and public company boards of directors. The Board believes Mr. Bronfin possesses particular knowledge, expertise and experience in the media and digital services businesses, including international media; advertising and marketing, and consumer trends in media and digital technology; as well as expertise in strategic planning and corporate finance.

 

 

 

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LOGO  

John M. Connors, Jr.

Age: 71

 

John M. Connors, Jr. was a founding partner of Hill Holliday Connors Cosmopulos Inc., a full-service marketing, advertising and communications company based in Boston, Massachusetts. He served as Chairman, CEO and President for many years before selling the company in 1998 to the Interpublic Group (IPG). He continued to serve as Chairman, CEO and President of the company following the sale until 2003 and as Chairman until 2006, and he currently serves as Chairman Emeritus. From 2004 to 2013, Mr. Connors served on the Board of Covidien PLC. He has been a director of the Company since 2004.

 

The Board has nominated Mr. Connors for election as a director because of his more than 40 years of business experience, which includes co-founding and developing one of the top advertising and marketing communications firms in the United States and advising many of the top branded companies in the world. Mr. Connors has also served on the boards of dozens of entities, including public companies, private companies, hospitals and colleges. The Board believes that Mr. Connors possesses particular knowledge, expertise and perspectives regarding the marketing, advertising and communications fields; brand management, brand building and brand research and development; and expertise in corporate governance and board and committee best practices.

 

 

 

LOGO  

Michael W.O. Garrett

Age: 71

 

Michael W.O. Garrett served in a number of positions with Nestlé S.A. (international food and beverage company), most recently as Executive Vice President of Nestlé S.A. responsible for Asia, Africa, the Middle East and Oceania until 2005. He serves as a board member of the Nestlé Company in India and non-executive director on the boards of Gottex Fund Management Holdings Ltd. and the Bobst Group in Switzerland. From 2004 to 2013 Mr. Garrett served on the Board of Prudential PLC, UK. Mr. Garrett has been a director of the Company since 2005.

 

The Board has nominated Mr. Garrett for election as a director because of his more than 40 years of experience with Nestlé S.A., which involved service in operating and executive positions of increasing responsibility, including management of large international operations and responsibility for developing and managing businesses in new and emerging markets in many global regions, including Asia Pacific, Africa and the Middle East. Mr. Garrett also has extensive experience serving on the boards of large multinational companies. The Board believes Mr. Garrett possesses particular knowledge, expertise and perspectives regarding international business operations and expansion, including operations in new and emerging markets; corporate finance and international operating and tax matters; organizational issues involving large, multinational consumer-focused companies; strategic planning expertise; and expertise in board and committee best practices.

 

 

 

LOGO  

Lisa Gersh

Age: 55

 

Lisa Gersh served as President and Chief Executive Officer of Martha Stewart Living Omnimedia, Inc. (integrated media and merchandising company) until 2013. Prior thereto, she served as President and Chief Operating Officer of Martha Stewart Living Omnimedia, Inc. from 2011 to 2012. She served as President, Strategic Initiatives at NBC News, an operating subsidiary of NBC Universal (media company) from 2007 until January 2011. Ms. Gersh also served as General Managing Director of the Weather Channel companies for NBC Universal from 2007 until 2009. Prior thereto, she was a co-founder and the President and Chief Operating Officer of Oxygen Media (media

company) from 1998 until 2007, when it was acquired by NBC News. Ms. Gersh served as a director of Martha Stewart Living Omnimedia, Inc. from 2011 to 2013 and served on the board of directors of The Knot, Inc. (now XO Group Inc.) from 2005 until 2010. Ms. Gersh has been a director of the Company since 2010.

 

The Board has nominated Ms. Gersh for election as a director because of her extensive experience in the media and entertainment industries, including television, digital entertainment and publishing. These roles involved operating and executive positions with multiple leading media companies, including her most recent role as President and Chief Executive Officer of Martha Stewart Living Omnimedia and her role in leading NBC Universal’s acquisition of the Weather Channel companies as the executive in charge of the investment. The Board believes Ms. Gersh possesses particular knowledge, expertise and perspectives regarding the media and entertainment industries, including the cable television and digital industries; marketing and branding expertise; and expertise in media trends and strategic planning.

 

 

 

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LOGO  

Brian D. Goldner

Age: 50

 

Brian D. Goldner has served as the President and Chief Executive Officer of Hasbro, Inc. since 2008. Prior thereto, Mr. Goldner served as the Chief Operating Officer of Hasbro from 2006 to 2008 and as President, U.S. Toys Segment from 2003 to 2006. Prior to joining Hasbro in 2000, Mr. Goldner held a number of management positions in the family entertainment and advertising industries, including as Executive Vice President and Chief Operating Officer of Bandai America, Worldwide Director in charge of the Los Angeles Office of J. Walter Thompson and as a Vice President and Account Director of Leo Burnett Advertising. Mr. Goldner serves on the Board of Molson

Coors Brewing Company. Mr. Goldner has been a director of the Company since 2008.

 

The Board has nominated Mr. Goldner for election as a director because of his success in senior leadership roles at Hasbro, culminating in his appointment as the Company’s Chief Executive Officer in 2008, and his extensive experience and expertise in branded-play entertainment industries and expertise in marketing, brand development and brand building. Mr. Goldner is the chief architect of the Company’s branded-play strategy and brand blueprint and has led the Company’s transformation from a traditional toy and game manufacturer into a global branded-play organization. Since 2000, under Mr. Goldner’s leadership, the Company has conceptualized and implemented its branded-play strategy, imagining and re-imagining core Hasbro brands globally, identifying Hasbro’s Franchise Brands and developing new ways to express Hasbro’s brands through entertainment, digital media and lifestyle licensing. Mr. Goldner has been a key driver behind the Company’s use of immersive brand-driven entertainment experiences, including motion pictures and television based on the Company’s brands, to develop brand recognition and build the Company’s business. Mr. Goldner also led the Company’s significant global expansion into new and emerging markets. The Board believes Mr. Goldner possesses particular knowledge, expertise and experiences regarding strategic and operational planning and execution in the global branded-play entertainment industry, including building global brands and in delivering immersive branded-play offerings; in global branded entertainment industry trends and challenges; and expertise in marketing and product and brand development and delivery in the entertainment and consumer products spaces.

 

Mr. Goldner also serves as an officer and/or director of a number of the Company’s subsidiaries at the request and convenience of the Company.

 

 

 

LOGO  

Jack M. Greenberg

Age: 71

 

Jack M. Greenberg has served as the Chairman of The Western Union Company (funds transfer company) since 2006 and the Chairman of InnerWorkings, Inc. (global provider of managed print and promotional solutions) since 2010. Prior thereto, Mr. Greenberg served as Chief Executive Officer of McDonald’s Corporation (restaurant franchiser) from August 1998 until his retirement in December 2002. He served as Chairman of the Board of McDonald’s Corporation from May 1999 until December 2002. Mr. Greenberg is a director of Allstate Corporation, Quintiles Transnational Holdings Inc. and Manpower, Inc. and a director and Chairman of the Board of

InnerWorkings, Inc. and The Western Union Company. Mr. Greenberg previously served on the board of directors of Abbott Laboratories from 2001 until 2007 and First Data Corporation from 2002 until 2006. Mr. Greenberg has been a director of the Company since 2003.

The Board has nominated Mr. Greenberg for election as a director because of his more than 40 years of business experience, including service as a partner and director of tax for an accounting firm, and his years of operating and executive experience with McDonald’s Corporation involving roles of increasing responsibility and business and financial oversight. Mr. Greenberg’s career with McDonald’s commenced with his service as chief financial officer, and then culminated as chairman and chief executive officer of McDonald’s. Mr. Greenberg has also served on the boards of numerous public companies and philanthropic organizations. The Board believes Mr. Greenberg possesses particular knowledge, expertise and experience in corporate finance and tax expertise; executive management of a multinational company; expertise in operating and international issues for multinational corporations; strategic planning expertise; expertise in financial reporting and accounting issues for large multinational corporations; and expertise in corporate governance and board and committee best practices.

 

 

 

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LOGO  

Alan G. Hassenfeld

Age: 65

 

Alan G. Hassenfeld served as Chairman of the Board of Hasbro, Inc. from 1989 to 2008. Prior to May 2003, Mr. Hassenfeld served as Chairman of the Board and Chief Executive Officer of Hasbro since 1999. Prior thereto, he was Chairman of the Board, President and Chief Executive Officer of Hasbro since 1989. Mr. Hassenfeld serves on the Board of salesforce.com, inc. and served on the Board of Global Cornerstone Holdings Ltd. from 2011 until 2013. Mr. Hassenfeld is also co-chairman of the Governing Body of the International Council of Toy Industries CARE Process. Mr. Hassenfeld has been a director of the Company since 1978.

 

The Board has nominated Mr. Hassenfeld for election as a director because of his more than 40 years of experience in the toy, game and family entertainment industry, including his extensive service in senior leadership roles at Hasbro, culminating in his service as the Company’s Chairman of the Board and Chief Executive Officer. Throughout his career at Hasbro, Mr. Hassenfeld held a number of positions of increasing responsibility in marketing and sales for the Company’s domestic and international operations, including responsibilities overseeing global markets. He became Vice President of International Operations in 1972 and later served as Vice President of Marketing and Sales and then as Executive Vice President, prior to being named President of the Company in 1984 and President and Chief Executive Officer in 1989. The Board believes Mr. Hassenfeld possesses particular knowledge, expertise and experience regarding strategic and operational planning and execution in the toy, game and family entertainment industries; expertise in industry trends and challenges, global markets, and international business operations; expertise in issues of corporate social responsibility and sustainability; and experience in the competitive and financial positioning of the Company and its business.

 

 

 

LOGO  

Tracy A. Leinbach

Age: 54

 

Tracy A. Leinbach served as the Executive Vice President and Chief Financial Officer for Ryder System, Inc. (a global logistics and transportation and supply chain solutions provider) from 2003 until 2006. Prior thereto, Ms. Leinbach served as Executive Vice President, Fleet Management Solutions for Ryder since 2001. She is a director of Forward Air Corporation. Ms. Leinbach has been a director of the Company since 2008.

 

The Board has nominated Ms. Leinbach for election as a director because of her extensive business experience in

corporate finance and global operations, auditing and accounting. Ms. Leinbach held a number of positions involving increasing global operating and global financial management, responsibility and oversight, as well as global supply chain management, with Ryder, spanning a career with Ryder of over 21 years. Her time with Ryder included service as controller and chief financial officer at many of Ryder’s subsidiaries and divisions. Ms. Leinbach’s career with Ryder culminated in her service as Executive Vice President and Chief Financial Officer. Prior to her career with Ryder, Ms. Leinbach worked for Price Waterhouse in public accounting and was a CPA. The Board believes Ms. Leinbach possesses particular knowledge, expertise and perspectives in corporate finance; operations, sales and logistics; and in strategic planning and risk management; expertise in issues regarding the management of a multinational corporation; and expertise regarding financial reporting and accounting issues for large public companies. The Board has determined that Ms. Leinbach qualifies as an Audit Committee Financial Expert due to her prior experience, including as the Chief Financial Officer of a public company (Ryder System, Inc.).

 

 

 

LOGO  

Edward M. Philip

Age: 48

 

Edward M. Philip has served as the Chief Operating Officer of Partners in Health (a non-profit healthcare organization) since January 2013. In addition, Mr. Philip is a Special Partner at Highland Consumer Fund (consumer oriented private equity fund), serving in this role since 2013. He served as Managing General Partner at Highland Consumer Fund from 2006 to 2013. Prior thereto, Mr. Philip served as President and Chief Executive Officer of Decision Matrix Group, Inc. (research and consulting firm) from May 2004 to November 2005. Prior thereto, he was Senior Vice President of Terra Networks, S.A. (global Internet company) from October 2000 to January 2004.

In 1995, Mr. Philip joined Lycos, Inc. (an Internet service provider and search company) as one of its founding members. During his time with Lycos, Mr. Philip held the positions of President, Chief Operating Officer and Chief Financial Officer at different times. Prior to joining Lycos, Mr. Philip spent time as the Vice President of Finance for the Walt Disney Company, and prior thereto Mr. Philip spent a number of years in investment banking. He is a director of BRP Inc. Mr. Philip has been a director of the Company since 2002.

The Board has nominated Mr. Philip for election as a director because of his more than 25 years of business experience, including many years of experience as both an operating executive and chief financial officer of multinational corporations, and his experience in strategic, business and financial planning in consumer-based and technology-based industries and in overseeing management teams of such companies. The Board believes Mr. Philip possesses particular knowledge, expertise and perspectives regarding corporate finance; internet and technology based industries and the use of the internet and digital media for building businesses; expertise in consumer trends and in the family entertainment industry; financial reporting and accounting matters for large multinational public companies; as well as expertise in the operation and management of a multinational corporation.

 

 

 

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LOGO

 

Richard S. Stoddart

Age: 51

 

Richard S. Stoddart is the Chief Executive Officer of Leo Burnett North America, serving in his role since 2013. Mr. Stoddart served as President of Leo Burnett North America from 2005 to 2013. Prior thereto, he was Manager of Marketing Communications of Ford Motor Company from 2001 to 2005. Mr. Stoddart has been a director of the Company since March 2014.

 

The Board appointed Mr. Stoddart in March 2014 and has nominated Mr. Stoddart for re-election as a director at

the Annual Meeting because of his extensive experience in the advertising, marketing and communications industries, including in television, digital and social media and in print. As the Chief Executive Officer of one of the largest advertising agencies in North America, Mr. Stoddart is recognized for his leadership in the development and integration of shopper, digital, social and mobile capabilities as part of a company’s overall marketing and brand strategy. The Board believes Mr. Stoddart possesses particular knowledge, expertise and perspectives regarding branding and brand building, marketing strategy and marketing communications, including in traditional advertising, digital advertising and social media; expertise in media planning, launching branded content and products; and expertise in media trends and strategic planning.

 

 

 

LOGO  

Alfred J. Verrecchia

Age: 71

 

Alfred J. Verrecchia is the Chairman of the Board of Hasbro, Inc., where he has served in this role since 2008. Mr. Verrecchia served as President and Chief Executive Officer of Hasbro from 2003 to 2008. Prior thereto, he was President and Chief Operating Officer of Hasbro from 2001 to 2003. Mr. Verrecchia is a director and Chairman of the Board of Iron Mountain Incorporated. Mr. Verrecchia previously served on the board of directors of CVS Caremark Corporation from 2004 to 2007 and of FGX International Holdings Limited from 2009 until 2010. Mr. Verrecchia has been a director of the Company since 1992.

 

The Board has nominated Mr. Verrecchia for election as a director because of his more than 40 years of experience in the toy, game and family entertainment industries, including successful service in a broad range of senior leadership roles at Hasbro, culminating in his service as the Company’s Chief Executive Officer from 2003 until 2008. Mr. Verrecchia started his career at Hasbro in 1965 in the Company’s finance department. During his career with the Company he took on roles of increasing financial and operating responsibility, serving eventually as Senior Vice President of Finance, then Chief Financial Officer, then Chief Operating Officer and ultimately as President and Chief Executive Officer. Mr. Verrecchia was a key architect of the Company’s turnaround strategy in 2000, which focused on leveraging the Company’s core brands, reducing costs and lessening the Company’s reliance on its licensed business. He has extensive experience in the operation of our business and the industries in which we compete. The Board believes Mr. Verrecchia possesses particular knowledge, expertise and perspectives regarding strategic and operational planning and execution in the toy, game, family entertainment and branded-play industries; expertise in executive management; expertise in corporate finance, financial reporting and accounting; and expertise in the competitive and financial positioning of the Company and its business.

 

 

Vote Required.     The affirmative vote of a majority of those shares of Common Stock present (in person or by proxy) and entitled to vote at the Meeting on the election of directors is required to elect each director nominee. As such, a withhold vote is effectively a vote against a director. In contrast, broker non-votes are not counted as present and entitled to vote on the proposal for purposes of determining if the proposal receives an affirmative vote of a majority of the shares present and entitled to vote.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE ELECTION OF EACH OF THE FOURTEEN DIRECTOR NOMINEES NAMED ABOVE.

 

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GOVERNANCE OF THE COMPANY

Hasbro is committed to strong corporate governance, ethical conduct, sustainability and the accountability of our Board and our senior management team to the Company’s shareholders.

 

Highlights of our efforts in these areas include:

Our Board is composed of a significant majority of independent directors;

We have an Independent Presiding Director;

Our entire Board is elected annually;

We do not have a shareholder rights plan;

We have adopted a Clawback Policy;

We have a longstanding commitment to Corporate Sustainability;

In 2012 we adopted a policy prohibiting the pledging or hedging of Company stock on a prospective basis;

We have a written Code of Conduct and Corporate Governance Principles; and

We have share ownership policies applicable to our Board members, our executive officers and other members of management and a new share retention policy.

Code of Conduct

 

Hasbro has a Code of Conduct which is applicable to all of the Company’s officers, other employees and directors, including the Company’s Chief Executive Officer, Chief Financial Officer and Controller. The Code of Conduct addresses such issues as conflicts of interest, protection of confidential Company information, financial integrity, compliance with laws, rules and regulations, insider trading and proper public disclosure. Compliance with the Code of Conduct is mandatory for all Company officers, other employees and directors. Any violation of the Code of Conduct can subject the person at issue to a range of sanctions, including dismissal.

The Code of Conduct is available on Hasbro’s website at www.hasbro.com, under “Corporate — Investors — Corporate Governance.” Although the Company generally does not intend to provide waivers of, or amendments to, the Code of Conduct for its Chief Executive Officer, Chief Financial Officer, Controller, or any other officers, directors or employees, information concerning any waiver of, or amendment to, the Code of Conduct for the Chief Executive Officer, Chief Financial Officer, Controller, or any other executive officer or director of the Company, will be promptly disclosed on the Company’s website in the location where the Code of Conduct is posted.

Corporate Governance Principles

 

Hasbro has adopted a set of Corporate Governance Principles which address qualifications for members of the Board of Directors, director responsibilities, director access to management and independent advisors, director compensation and many other matters related to the governance of the Company. The Corporate Governance Principles are available on Hasbro’s website at www.hasbro.com, under “Corporate — Investors — Corporate Governance.”

Director Independence

 

Hasbro’s Board has adopted Standards for Director Independence (the “Independence Standards”) in accordance with The NASDAQ Stock Market’s corporate governance listing standards. The Independence Standards specify criteria used by the Board in making determinations with respect to the independence of its members and include strict guidelines for directors and their immediate family members with respect to past employment or affiliation with the Company or its independent auditor. The Independence Standards are available on Hasbro’s website at www.hasbro.com, under “Corporate — Investors — Corporate Governance.” A copy of the Independence Standards is also attached as Appendix A to this Proxy Statement.

The Independence Standards restrict commercial relationships between directors and the Company and include the consideration of other relationships with the Company, including charitable relationships, in making independence determinations. The Board has determined in accordance with our Independence Standards, that each of the following directors are independent and have no relationships which impact an independence determination under the Company’s Independence Standards: Basil L. Anderson, Alan R. Batkin, Frank J. Biondi, Jr., Kenneth A. Bronfin, John M. Connors, Jr., Michael W.O. Garrett, Lisa Gersh, Jack M. Greenberg, Alan G. Hassenfeld, Tracy A. Leinbach, Edward M. Philip, Richard S. Stoddart and Alfred J. Verrecchia. Of the Company’s directors who were determined to be independent, there were two directors who had a relationship which was considered by the Board in making the independence determinations.

 

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Alfred J. Verrecchia was formerly an employee and Chief Executive Officer of the Company. However, Mr. Verrecchia’s officer and employee relationship with the Company ended in December of 2008. The Board does not believe that the former employment relationship impacts Mr. Verrecchia’s independence.

Alan G. Hassenfeld was formerly an employee and Chief Executive Officer of the Company. However, Mr. Hassenfeld’s officer and employee relationship with the Company ended in December of 2005. Although Mr. Hassenfeld has a greater than 5% shareholding in the Company, which is detailed in the stock ownership tables in this Proxy Statement, that interest is only a minority interest in the total share ownership of the Company. The Board does not believe that the former employment relationship or equity interest impact Mr. Hassenfeld’s independence.

The only member of the Company’s Board who was determined not to be independent was Brian D. Goldner, the Company’s current President and Chief Executive Officer.

Share Retention Requirements

 

The Company has historically had share ownership guidelines which apply to all officers and employees at or above the Senior Vice President level and establish target share ownership levels which executives are expected to achieve over a five-year period and then maintain, absent extenuating circumstances. To further align executives’ interests with the long-term interests of shareholders, effective March 1, 2014, the Company adopted amendments to the share ownership policy, which include a requirement to retain a portion of any net shares realized from stock vesting or option exercises during the five-year period an executive has to achieve their stock ownership requirement until the executive’s ownership requirement level is satisfied. Until the applicable ownership level is achieved, the executive is required to retain an amount equal to at least 50% of the net shares received as a result of the exercise, vesting or payment of any equity awards granted to the executive following such executive becoming subject to the policy. Once the stock ownership requirement level is achieved, the executive is required to maintain the stock ownership level for as long as the executive is employed by the Company and is subject to the policy.

Equity Awards Granted in 2013 and Beyond Subject to Double Trigger Following a Change in Control

 

At the Company’s 2013 Annual Shareholder Meeting, shareholders approved amendments to the Company’s Restated 2003 Stock Incentive Performance Plan, as amended. This approval by our shareholders provided that all awards granted in 2013 and thereafter, including the equity awards granted to Mr. Goldner pursuant to his Amended and Restated Employment Agreement, will be subject to a double trigger change in control provision. This means that rather than vesting automatically upon a change in control, such awards will only vest following a change in control if the award recipient’s employment with the Company terminates under specified circumstances.

Clawback Policy

 

In 2012 the Company’s Board adopted a Clawback Policy. All equity and non-equity incentive plan compensation granted by the Company in 2013 and thereafter will be subject to this clawback policy. The policy provides that if an accounting restatement is required due to the Company’s material non-compliance with any accounting requirements, then all of the Company’s executive officers, regardless of whether they were at fault or not in the circumstances leading to the restatement, will be subject to forfeiting any excess in the incentive compensation they earned over the prior three years over what they would have earned if there had not been a material non-compliance in the financial statements.

Adoption of a Policy Prohibiting the Pledging or Hedging of Company Stock

 

In 2012 the Board also adopted a policy prohibiting any pledges or hedges of Company stock by directors, officers or other employees on a prospective basis. This policy is effective from the date of its adoption in October 2012. The Board believes this policy furthers the interest of shareholders by ensuring that directors, officers and employees have the same economic incentives as shareholders and that equity held by officers and employees will not be sold in situations beyond the control of the director, officer or employee.

Corporate Social Responsibility

 

Corporate social responsibility (CSR) unites Hasbro’s desire to play a part in building a joyful, safe and sustainable world for future generations with the Company’s passion for fulfilling the fundamental need for play. The Company focuses its CSR initiatives on three key areas: product safety, ethical sourcing and environmental sustainability. Another important element of the Company’s CSR efforts is its tradition of supporting children worldwide through a variety of philanthropic programs. Hasbro recently received several prestigious recognitions in this area, including being named by Ethisphere as a 2014 World’s Most Ethical Company ® ; ranking #7 on Corporate Responsibility Magazine’s 2013 “100 Best Corporate Citizens” list; Bloomberg News’ “The Civic 50” list recognized as one of America’s Most Community Minded Companies, ranking #2 Consumer Discretionary, #3 Mid Cap Company; and receiving the U.S. EPA’s Climate Leadership Award for Excellence in Greenhouse Gas Management (Goal Setting Certificate) in 2014.

 

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Board Meetings and Director Attendance at the Annual Meeting

 

During 2013, the Board held eight meetings. All directors attended at least 75% of the aggregate of (i) the Board meetings held during their tenure as directors during 2013 and (ii) the meetings of any committees held during their tenure as members of such committees during 2013. Although the Company does not have a formal policy requiring attendance of directors at the annual meeting of shareholders, the expectation of the Company and the Board is that all directors will attend the annual meeting of shareholders unless conflicts prevent them from attending. All members of the Board who were members as of the 2013 Annual Meeting of Shareholders attended the 2013 Annual Meeting of Shareholders.

Board Leadership Structure

 

The Chairman of the Company’s Board is elected by the Board on an annual basis. Currently, the positions of Chairman of the Board and Chief Executive Officer of the Company are held by separate individuals, with Mr. Goldner serving as Chief Executive Officer and Mr. Verrecchia serving as Chairman of the Board. The Board believes that over the last several years this structure has been an appropriate structure for the Company, as it allowed Mr. Goldner to focus on the Company’s strategy, business and operations, while enabling Mr. Verrecchia to assist with Board matters and serve as a liaison between the Board and the Company’s senior management, headed by Mr. Goldner. This structure also enabled Mr. Goldner, Mr. Verrecchia, and the other members of the Board to be well informed and to communicate effectively on issues, including with respect to risk oversight matters. However, the Board does not believe that a formal policy separating the two positions is necessary or desirable and the two positions may be held by the same individual in the future if circumstances were to make combining the two roles desirable to ensure an effective Board leadership structure.

The Chairman of the Board provides leadership to the Board by, among other things, working with the Chief Executive Officer, the Presiding Director and the Corporate Secretary to set Board calendars, determine agendas for Board meetings, ensure proper flow of information to Board members, facilitate effective operation of the Board and its Committees, help promote Board succession planning and the recruitment and orientation of new directors, address issues of director performance, assist in consideration and Board adoption of the Company’s strategic plan and annual operating plans, and help promote senior management succession planning. In addition, the Chairman assists the Company’s Chief Executive Officer by advising on Board-related issues.

Even though the role of Chairman and Chief Executive Officer for the Company is currently held by different individuals, the Company also has a Presiding Director who serves as the Company’s lead independent director. The Board believes that the role of Presiding Director is a useful one in promoting good Board governance and effective independent oversight. The Presiding Director’s principal duties include developing the agenda for, and moderating, executive sessions of the Board’s non-management directors, acting as the principal liaison between the non-management directors and the Chief Executive Officer and Chairman on issues that arise at the executive sessions or otherwise, serving as a conduit for third parties to contact the non-management directors as a group, and providing feedback with regard to proposed agendas for Board meetings.

Presiding Non-Management Director and Communicating with the Board

 

Executive sessions of the non-management members of the Company’s Board are presided over by the presiding director (the “Presiding Director”). Kenneth A. Bronfin currently serves as the Presiding Director, a position which is held by a non-management director selected by the other non-management directors. Interested parties may contact the Presiding Director with respect to governance matters by sending correspondence to c/o Presiding Director, Hasbro, Inc., P.O. Box 495, Pawtucket, Rhode Island 02861. Persons may also contact the Board as a whole with respect to governance matters through the Presiding Director in the manner set forth in the preceding sentence.

Board Committees

 

Audit Committee.     The Audit Committee of the Board, which currently consists of Tracy A. Leinbach (Chair), Alan R. Batkin, Michael W.O. Garret and Lisa Gersh, held thirteen meetings in 2013. The Audit Committee is responsible for the appointment, compensation and oversight of the Company’s independent auditor and assists the Board in fulfilling its responsibility to oversee management’s conduct of the Company’s financial reporting process, the financial reports provided by the Company, the Company’s systems of internal accounting and financial controls, and the quarterly review and annual independent audit of the Company’s financial statements. The current Audit Committee Charter adopted by the Board is available on the Company’s website at www.hasbro.com, under “Corporate — Investors — Corporate Governance — Committee Charters.”

The Board has determined that each member of the Audit Committee meets both the Company’s Independence Standards and the requirements for independence under The NASDAQ Stock Market’s corporate governance listing standards. The Board has determined that Tracy A. Leinbach qualifies as an Audit Committee Financial Expert, as such term is defined in the rules and regulations promulgated by the United States Securities and Exchange Commission.

 

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The Board does not have a policy setting rigid limits on the number of audit committees on which a member of the Company’s Audit Committee can serve. Instead, in cases where an Audit Committee member serves on more than three public company audit committees, the Board evaluates whether such simultaneous service would impair the service of such member on the Company’s Audit Committee.

Compensation Committee.     The Compensation Committee of the Board, which currently consists of John M. Connors, Jr. (Chair), Basil L. Anderson, Frank J. Biondi, Jr., Kenneth A. Bronfin and Edward M. Philip, held five meetings in 2013. The Compensation Committee is responsible for establishing and overseeing the compensation and benefits for the Company’s senior management, including all of the Company’s executive officers, is authorized to make grants and awards under the Company’s equity plan and shares responsibility for evaluation of the Company’s Chief Executive Officer with the Nominating, Governance and Social Responsibility Committee.

The current Compensation Committee Charter adopted by the Board is available on the Company’s website at www.hasbro.com, under “Corporate — Investors — Corporate Governance — Committee Charters.” The Board has determined that each member of the Compensation Committee meets both the Company’s Independence Standards and the requirements for independence under The NASDAQ Stock Market’s corporate governance listing standards. For a further description and discussion concerning the Compensation Committee, including its composition and its processes and procedures for determining the compensation of the Company’s executive officers, please see the Compensation Committee Report on page 18 of this Proxy Statement, and the Compensation Discussion and Analysis which begins immediately thereafter.

As is discussed in more detail on page 37 of this Proxy Statement, in reviewing the proposed fiscal 2013 compensation and retention program for the Company’s executive officers at the beginning of 2013, the Compensation Committee received input and recommendations from Compensation Advisory Partners LLC (“CAP”) who served as an outside compensation consultant for the Compensation Committee. For its work with respect to advising on the 2013 compensation program, CAP was retained by, and reported directly to, the members of the Committee. CAP advised the Committee with respect to the Committee’s review of the Company’s 2013 executive compensation programs and provided additional information as to whether the Company’s proposed 2013 executive compensation programs were competitive, fair to the Company and the executives, reflected appropriate pay for performance, provided appropriate retention to executives, and were effective in promoting the performance of the Company’s executives and achievement of the Company’s business and financial goals. CAP did not perform any other work for the Company in 2013 and in order to maintain CAP’s independence the Committee has established a policy that CAP will not provide any services directly to the Company and will only provide services directly to the Committee. CAP does not have any relationship with the Company which the Committee’s believes in any way adversely impacts CAP’s independence. The Committee’s review of CAP’s independence is discussed in more detail on page 37 of this Proxy Statement.

In addition to the work performed by CAP directly for the Committee with respect to the 2013 compensation program, Towers Watson & Co. (“Towers Watson”) was retained by the Company’s Human Resources and Compensation Departments to perform analysis on the Company’s proposed compensation and retention programs, including its equity plan, consulting and benefits administration services for the Company, including administration services for the Company’s health and group benefits programs and retirement plans, work in connection with the Company’s online total reward statements for employees and work providing compensation surveys and other compensation and benefits information. The services provided by Towers Watson to the Company are discussed in more detail on page 37 of this Proxy Statement.

Additionally, the Company’s Human Resources and Compensation Departments retained Mercer LLC to perform consulting services relating to the Company’s long-term incentive plan, retirement investments, retirement plans and health and welfare plans.

Executive Committee.     The Executive Committee of the Board, which currently consists of Alan G. Hassenfeld (Chair), Kenneth A. Bronfin, John M. Connors, Jr., Brian D. Goldner, Jack M. Greenberg, Tracy A. Leinbach and Alfred J. Verrecchia, did not meet in 2013. The Executive Committee acts on such matters as are specifically assigned to it from time to time by the Board and is vested with all of the powers that are held by the Board, except that by law the Executive Committee may not exercise any power of the Board relating to the adoption of amendments to the Company’s Articles of Incorporation or By-laws, adoption of a plan of merger or consolidation, the sale, lease or exchange of all or substantially all the property or assets of the Company or the voluntary dissolution of the Company. The current Executive Committee Charter adopted by the Board is available on the Company’s website at www.hasbro.com, under “Corporate — Investors — Corporate Governance — Committee Charters.”

Finance Committee.     The Finance Committee of the Board, which currently consists of Kenneth A. Bronfin (Chair), Alan R. Batkin, Michael W.O. Garrett, Jack M. Greenberg, Alan G. Hassenfeld and Tracy A. Leinbach, met four times in 2013. The Finance Committee assists the Board in overseeing the Company’s annual and long-term financial plans, capital structure, use of funds, investments, financial and risk management and proposed significant transactions. The current Finance Committee Charter adopted by the Board is available on the Company’s website at www.hasbro.com, under “Corporate — Investors — Corporate Governance — Committee Charters.” The Board has determined that each member of the Finance Committee meets both the Company’s Independence Standards and the requirements for independence under The NASDAQ Stock Market’s corporate governance listing standards.

 

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Nominating, Governance and Social Responsibility Committee.     The Nominating, Governance and Social Responsibility Committee of the Board (the “Nominating Committee”), which currently consists of Jack M. Greenberg (Chair), Basil L. Anderson, Frank J. Biondi, Jr., John M. Connors, Jr., Lisa Gersh and Edward M. Philip, met five times in 2013. The Nominating Committee identifies and evaluates individuals qualified to become Board members and makes recommendations to the full Board for possible additions to the Board and on the director nominees for election at the Company’s annual meeting. The Nominating Committee also oversees and makes recommendations regarding the governance of the Board and the committees thereof, including the Company’s governance principles, Board and Board committee evaluations and the Chair of the Nominating Committee shares with the Compensation Committee responsibility for evaluation of the Chief Executive Officer.

In addition, the Nominating Committee periodically reviews, and makes recommendations to the full Board with respect to, the compensation paid to non-employee directors for their service on the Company’s Board, including the structure and elements of non-employee director compensation. In structuring the Company’s director compensation, the Nominating Committee seeks to attract and retain talented directors who will contribute significantly to the Company, fairly compensate directors for their work on behalf of the Company and align the interests of directors with those of stockholders. As part of its review of director compensation, the Nominating Committee reviews external director compensation market studies to assure that director compensation is set at reasonable levels which are commensurate with those prevailing at other similar companies and that the structure of the Company’s non-employee director compensation programs is effective in attracting and retaining highly qualified directors. In 2006, the Company adopted director stock ownership guidelines which require that a director may not sell any shares of the Company’s Common Stock, including shares acquired as part of the yearly equity grant, until the director holds shares of common stock with a value equal to at least five times the current non-employee directors’ annual retainer (currently requiring holdings with a value of $425,000). Please see the Compensation of Directors section beginning on page 63 of this Proxy Statement for a full discussion of the Company’s compensation of its directors.

Further, the Nominating Committee oversees the Company’s codes of business conduct and ethics, and analyzes significant issues of corporate social responsibility and related corporate conduct, including product safety, environmental sustainability and climate change, human rights and ethical sourcing, responsible marketing, transparency, public policy matters, community relations and charitable contributions. The current Nominating, Governance and Social Responsibility Committee Charter adopted by the Board is available on the Company’s website at www.hasbro.com, under “Corporate — Investors — Corporate Governance — Committee Charters.” The Board has determined that each member of the Nominating Committee meets both the Company’s Independence Standards and the requirements for independence under The NASDAQ Stock Market’s corporate governance listing standards.

In making its nominations for election to the Board the Nominating Committee seeks candidates who meet the current challenges and needs of the Board. As part of this process the Committee considers a number of factors, including, among others, a candidate’s employment and other professional experience, past expertise and involvement in areas which are relevant to the Company’s business, business ethics and professional reputation, independence, other board experience, and the Company’s desire to have a Board that represents a diverse mix of backgrounds, perspectives and expertise. The Company does not have a formal policy for considering diversity in identifying and recommending nominees for election to the Board, but the Nominating Committee considers diversity of viewpoint, experience, education, skill, background and other qualities in its overall consideration of nominees qualified for election to the Board. The Nominating Committee will consider and evaluate nominees recommended by shareholders for election to the Board on the same basis as candidates from other sources if such nominations are made in accordance with the process set forth in the following pages under “Shareholder Proposals and Director Nominations.” The Nominating Committee uses multiple sources for identifying and evaluating nominees for director, including referrals from current directors, recommendations by shareholders and input from third-party executive search firms.

As of December 9, 2013 (the date that is 120 calendar days before the first anniversary of the release date of the proxy statement for the Company’s last Annual Meeting of Shareholders) the Nominating Committee had not received a recommended nominee for election to the Board in 2013 from an individual shareholder, or group of shareholders, who beneficially owned more than 5% of the Company’s Common Stock.

Role of the Board in Risk Oversight

 

The Board of Directors is actively involved in risk oversight for the Company. Although the Board as a whole has retained oversight over the Company’s risk assessment and risk management efforts, the efforts of the various committees of the Board are instrumental in this process. Each committee, generally through its Chair, then regularly reports back to the full Board on the conduct of the committee’s functions. The Board, as well as the individual Board committees, also regularly speak directly with key officers and employees of the Company involved in risk assessment and risk management. Set forth below is a description of the role of the various Board committees, and the full Board, in risk oversight for the Company.

The Audit Committee assists the Board in risk oversight for the Company by reviewing and discussing with management, internal auditors and the independent auditors the Company’s significant financial and other exposures, and guidelines and policies relating to enterprise risk assessment and risk management, including the Company’s procedures for monitoring and controlling such risks. In addition to exercising oversight over key financial and business risks, the Audit Committee oversees, on behalf of the Board, financial reporting, tax, and accounting matters, as well as the Company’s internal controls over financial reporting. The Audit Committee also plays a key role in oversight of the Company’s compliance with legal and regulatory requirements.

 

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The Finance Committee of the Board reviews and discusses with management the Company’s financial risk management activities and strategies, including with respect to foreign currency, credit risk, interest rate exposure, and the use of hedging and other techniques to manage these risks. As part of its review of the operating budget and strategic plan the Finance Committee also reviews major business risks to the Company and the Company’s efforts to manage those risks.

The Compensation Committee oversees the compensation programs for the Company’s executive officers. As part of that process the Compensation Committee ensures that the performance goals and metrics being used in the Company’s compensation plans and arrangements align the interests of executives with those of the Company and its shareholders and maximize executive and Company performance, while not creating incentives on the part of executives to take excessive or inappropriate risks.

The Nominating, Governance and Social Responsibility Committee has oversight over the Company’s governance policies and structures, management and director succession planning, corporate social responsibility, and issues related to health, safety and the environment, as well as risks and efforts to manage risks to the Company in those areas.

The full Board then regularly reviews the efforts of each of its committees and discusses, at the level of the full Board, the key strategic, financial, business, legal and other risks facing the Company, as well as the Company’s efforts to manage those risks.

Director Retirement Age

 

The Board has established a target retirement age of 72. Normally, a Director who has reached this age will serve out his or her current term and not stand for re-election at the end of that term. However, the Board recognizes that from time to time there may be unusual circumstances where exceptions need to be made to this general rule to retain needed continuity and expertise, or for other business reasons. The Company currently has Directors approaching the target retirement age and does expect there to be new Directors appointed to the Board as part of its Board succession planning. Mr. Stoddart was elected to the Board in March of 2014 as part of this process.

Additional Availability of Corporate Governance Materials

 

In addition to being accessible on the Company’s website, copies of the Company’s Code of Conduct, Corporate Governance Principles and the charters of the five committees of the Board of Directors are all available free of charge to any shareholder upon request to the Company’s Chief Legal Officer and Corporate Secretary, c/o Hasbro, Inc., 1011 Newport Avenue, P.O. Box 1059, Pawtucket, Rhode Island 02861.

Shareholder Proposals and Director Nominations

 

General Shareholder Proposals

Any proposal which a shareholder of the Company wishes to have considered for inclusion in the proxy statement and proxy relating to the Company’s 2015 Annual Meeting of Shareholders must be received by the Secretary of the Company at the Company’s executive offices no later than December 8, 2014 (the date that is 120 calendar days before the anniversary of the release date of the proxy statement relating to the 2014 Annual Meeting of Shareholders). The address of the Company’s executive offices is 1011 Newport Avenue, Pawtucket, Rhode Island 02861. Such proposals must also comply with the other requirements of the rules of the United States Securities and Exchange Commission relating to shareholder proposals.

With the exception of the submission of director nominations for consideration by the Nominating Committee, which must be submitted to the Company in the manner described below, any new business proposed by any shareholder to be taken up at the 2015 Annual Meeting, but not included in the proxy statement or proxy relating to that meeting, must be stated in writing and filed with the Secretary of the Company no later than 150 days prior to the date of the 2015 Annual Meeting. Except for shareholder proposals made pursuant to the preceding paragraph, the Company will retain discretion to vote proxies at the 2015 Annual Meeting with respect to proposals received prior to the date that is 150 days before the date of such meeting, provided (i) the Company includes in its 2015 Annual Meeting proxy statement advice on the nature of the proposal and how it intends to exercise its voting discretion and (ii) the proponent does not issue a proxy statement.

Director Nominations

The Company’s By-laws provide that shareholders may themselves nominate directors for consideration at an annual meeting provided they give written notice to the Secretary of the Company, such notice must be received at the principal executive office of the Company not less than 60 days nor more than 90 days prior to the one-year anniversary date of the immediately preceding annual meeting of shareholders and provide specified information regarding the proposed nominee and each shareholder proposing such nomination. Nominations made by shareholders in this manner are eligible to be presented by the shareholder to the meeting, but such nominees will not have been considered by the Nominating Committee as a nominee to be potentially supported by the Company.

 

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To be considered by the Nominating Committee, director nominations must be submitted to the Chief Legal Officer and Corporate Secretary of the Company at the Company’s executive offices, 1011 Newport Avenue, Pawtucket, Rhode Island 02861 at least 120 days prior to the one-year anniversary of the release to the Company’s shareholders of the proxy statement for the preceding year’s annual meeting. As such, director nominations to be considered for the Company’s 2015 Annual Meeting of Shareholders must be submitted no later than December 8, 2014. The Nominating Committee is only required to consider recommendations made by shareholders, or groups of shareholders, that have beneficially owned at least 1% of the Company’s Common Stock for at least one year prior to the date the shareholder(s) submit such candidate to the Nominating Committee and who undertake to continue to hold at least 1% of the Company’s Common Stock through the date of the next annual meeting. In addition, a nominating shareholder(s) may only submit one candidate to the Nominating Committee for consideration.

Submissions to the Nominating Committee should include (a) as to each person whom the shareholder proposes to nominate for election or re-election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Company that are owned beneficially or of record by the person, (iv any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder, and (v) confirmation that the candidate is independent under the Company’s Independence Standards and the rules of The NASDAQ Stock Market, or if the candidate is not independent under all such criteria, a description of the reasons why the candidate is not independent; and (b) as to the shareholder(s) giving the notice (i) the name and record address of such shareholder(s) and each participant in any group of which such shareholder is a member, (ii) the class or series and number of shares of capital stock of the Company that are owned beneficially or of record by such shareholder(s) and each participant in any group of which such shareholder is a member, (iii) if the nominating shareholder is not a record holder of the shares of capital stock of the Company, evidence of ownership as provided in Rule 14a-8(b)(2) under the Exchange Act, (iv) a description of all arrangements or understandings between such shareholder(s) and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such shareholder(s), and (v) any other information relating to such shareholder(s) that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder.

The Nominating Committee may require that any proposed nominee for election to the Board furnish such other information as may reasonably be required by the Nominating Committee to determine the eligibility of such proposed nominee to serve as director of the Company. The written notice from the nominating shareholder specifying a candidate to be considered as a nominee for election as a director must be accompanied by a written consent of each proposed nominee for director. In this written consent the nominee must consent to (i) being named as a nominee for director, (ii) serve as a director and represent all shareholders of the Company in accordance with applicable laws and the Company’s Articles of Incorporation, By-laws and other policies if such nominee is elected, (iii) comply with all rules, policies or requirements generally applicable to non-employee directors of the Company, and (iv) complete and sign customary information requests upon the request of the Company.

 

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CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

The Company has a policy that any transaction which would require disclosure under Item 404(a) of Regulation S-K of the rules and regulations of the United States Securities and Exchange Commission, with respect to a director or nominee for election as a director, must be reviewed and approved or ratified by the Company’s full Board, excluding any director interested in such transaction. All other related person transactions which would require disclosure under Item 404(a), including, without limitation, those involving executive officers of the Company, must be reviewed and approved or ratified by either the Company’s full Board or a committee of the Board which has been delegated with such duty. Any such related person transactions will only be approved or ratified if the Board, or the applicable committee of the Board, determines that such transaction will not impair the involved person’s service to, and exercise of judgment on behalf of, the Company, or otherwise create a conflict of interest which would be detrimental to the Company. This policy is contained in Section 20, entitled “Code of Conduct; Conflicts of Interest” of the Company’s Corporate Governance Principles.

Michael Verrecchia, son of Alfred J. Verrecchia, is employed by the Company as Director of Entertainment Retail Business Development. For fiscal 2013, Michael Verrecchia was paid an aggregate salary and bonus of $155,509.72.

 

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COMPENSATION COMMITTEE REPORT

The Compensation Committee (the “Compensation Committee” or the “Committee”) of the Company’s Board of Directors is responsible for establishing and overseeing the compensation programs for the Company’s executive officers, including all of the Company’s Named Executive Officers, and is authorized to make grants and awards under the Company’s equity compensation plans. The Committee operates under a written charter, which has been established by the Company’s Board and which is reviewed and evaluated by both the Committee and the Board on an annual basis. The current Compensation Committee charter is available on the Company’s website at www.hasbro.com, under “Corporate — Investors — Corporate Governance.”

The Committee is composed solely of persons who are both “Non-Employee Directors,” as defined in Rule 16b-3 of the rules and regulations of the United States Securities and Exchange Commission, and “outside directors,” as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). The Board has determined that each member of the Committee is independent under the Company’s Independence Standards and the requirements of The NASDAQ Stock Market’s corporate governance listing standards. The exercise of independent judgment in furtherance of the interests of the Company and its shareholders is a cornerstone of the Committee’s actions.

The following section of this Proxy Statement, entitled “Compensation Discussion and Analysis”, contains detailed discussion regarding the philosophy, policies, processes and compensation plans utilized by the Committee in establishing the compensation programs for the Company’s executive officers and in assuring that the Company’s compensation programs attract and retain top executive talent, align the interests of the executive team with those of the Company’s shareholders, create a powerful alignment between pay and performance and maximize the business results of the Company.

The Committee has reviewed and discussed with management the Compensation Discussion and Analysis that follows this report. Based on its review and discussions with management, the Committee recommended to the Company’s full Board and the Board has approved the inclusion of the Compensation Discussion and Analysis in this Proxy Statement for the Meeting and, by incorporation by reference, in the Company’s Annual Report on Form 10-K for the year ended December 29, 2013.

Report issued by John M. Connors, Jr. (Chair), Basil L. Anderson, Frank J. Biondi, Jr., Kenneth A. Bronfin and Edward M. Philip as the members of the Compensation Committee as of the 2013 fiscal year end.

 

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COMPENSATION DISCUSSION AND ANALYSIS

Executive Summary

 

Hasbro’s Transformation into a Global Branded-Play Company

Under the leadership of Hasbro’s Chief Executive Officer, Brian Goldner, and other members of Hasbro’s senior management team, the Company is continuing to transform itself from a traditional toy and game manufacturer into a global branded-play organization through the execution of its branded-play strategy. The cornerstone of the branded-play strategy is the Company’s Brand Blueprint, which is captured in the following graphic.

 

LOGO

Rather than looking to only produce toys and games, the Company now focuses on developing its brands, with an emphasis on its Franchise Brands (TRANSFORMERS, NERF, MY LITTLE PONY, MAGIC: THE GATHERING, LITTLEST PET SHOP, MONOPOLY and PLAY-DOH), across all aspects of the Brand Blueprint. This involves developing the essence of the brand, such as through characters and storylines, placing the brand at the center of the blueprint and building it out into innovative toys and games, immersive entertainment on all screens, digital media, including mobile gaming, and all aspects of lifestyle licensing. The objective is to create an entire brand experience that consumers can enjoy across the blueprint.

Accomplishments of Hasbro under Mr. Goldner’s Leadership

Since 2000 the Company has conceptualized and implemented its branded-play strategy, imagining and re-imagining core Hasbro brands globally, identifying Hasbro’s Franchise Brands and developing new ways to express Hasbro’s brands through entertainment, digital media and lifestyle licensing. Over the past 10 years, revenue from Hasbro’s Franchise Brands has grown at a 12% compound annual growth rate.

Hasbro has successfully executed brands such as TRANSFORMERS, G.I. JOE and BATTLESHIP as major motion pictures, orchestrating deals with leading motion picture studios. Since 2007, films based on Hasbro’s brands have earned close to $4 billion in global box-office revenues. Hasbro has also expanded into television by forming Hasbro Studios and entered into a joint venture with Discovery Communications to run the Hub Network, a children’s and family cable television network, in the U.S. Today, Hasbro television programming airs in more than 180 territories globally.

Finally, Hasbro has succeeded in building a global brand organization, establishing teams to grow its brands in markets around the world. This includes opening offices in key emerging markets, including Russia, China and Brazil, since 2008. At that time, emerging markets revenue was approximately $150 million and by year-end 2013, emerging markets revenue had grown at a 5-year compound annual growth rate of 30% to $575 million and represented 14% of Hasbro’s total revenues.

 

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The timeline below highlights significant milestones that the Company has achieved in its transformative journey into a global branded-play organization.

LOGO

The Compensation Committee and the Board of Directors believe that through the continued execution of the Company’s branded-play strategy, for which Mr. Goldner is the chief architect and plays a critical role, the Company is well positioned to deliver long-term profitable growth and enhanced total shareholder return.

 

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Overview of 2013 Company Performance

 

In 2013 we continued our development into a global branded-play company and achieved many of our strategic plan objectives. The following are among the Company’s key achievements in 2013:

 

 

Focused on development of our Franchise and key Partner Brands (key Partner brands including The Walt Disney Company, Marvel, Lucasfilm, Sesame Street and Rovio);

 

 

15% revenue growth for our Franchise Brands as a group, with six of the seven brands growing;

 

 

Grew Girls category revenues 26% to reach a record $1 billion in revenues for the first time in the Company’s history;

 

 

Executed our business plan globally by leveraging our investments in new and emerging markets, resulting in 5% growth in our International segment and 25% growth year-over-year in emerging markets;

 

 

Grew the Games category 10%, including growth in the category even absent the contribution of our games Franchise Brands MAGIC: THE GATHERING and MONOPOLY;

 

 

Delivered the 13th consecutive year of growth in underlying earnings per share, with our full-year 2013 earnings per diluted share increasing from $2.81 in 2012, to $2.83 in 2013, (such EPS excluding the charges and benefits set forth in the diluted earnings per share chart on page 22 of this Proxy Statement);

 

 

Strengthened our mobile gaming expertise and capabilities with the purchase of a 70% majority interest in mobile game developer Backflip Studios;

 

 

Furthered relationships with certain of our key partners, including expanding our relationship with The Walt Disney Company for the MARVEL and STAR WARS franchises; and

 

 

Executed the first full year of the multi-year cost-savings initiative designed to deliver $100 million in underlying annual cost savings by the end of 2015.

In addition, for the benefit of our shareholders in 2013 we:

 

 

Delivered a one-year total shareholder return of 57%, a three-year average total shareholder return of 9% annually, and a five-year average total shareholder return of 17% annually; and

 

 

Returned $258.6 million to our shareholders, in the form of $156.1 million in dividends (the quarterly dividend historically paid annually in February was accelerated and paid in December 2012 and not included in this total) and the repurchase of $102.5 million of our stock.

We believe that our ongoing efforts in 2013 to heighten our focus on our Franchise and key Partner Brands, continue our international expansion and grow our presence in emerging markets, as well as execute our branded-play strategy across all aspects of our global Brand Blueprint, through the offering of innovative toys and games, immersive entertainment experiences, digital media and lifestyle licensing products, position our Company for long-term success.

The one key internal objective for 2013 which we did not achieve was to grow our overall net revenues. The Company had set a goal of growing revenues in 2013 notwithstanding the difficult comparisons in the Boys category from the 2012 entertainment calendar. In 2012 the Boys category benefited from Marvel’s theatrical motion picture releases of THE AVENGERS and THE AMAZING SPIDER-MAN, posting strong gains globally compared to 2011, as well as from the sale of BEYBLADE products. In addition to facing these difficult comparisons in the Boys category, 2013 proved to be very challenging for our industry in certain established markets, including in the United States, Canada and Australia, and in many countries in Western Europe, in which economic and market conditions remained challenging. Sales of our products in those markets, most notably in the critical weeks leading up to the holidays at the end of the fourth quarter, fell short of our expectations and our targeted operating plan performance.

 

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Providing value and return to our shareholders is a cornerstone of our objectives. The following table illustrates Hasbro’s annualized 1-Year, 3-Year and 5-Year shareholder return for the period ending December 31, 2013.

Annualized 1-Year, 3-Year and 5-Year Total Shareholder Return

Ending 12/31/2013

LOGO

The following table shows our growth in underlying earnings per share over the past five years.

Diluted Earnings Per Share*

LOGO

 

  *   2013 diluted earnings per share excludes aggregate pre-tax charges of $145.4 million from restructuring and related pension costs, product-related expense and the settlement of an adverse arbitration award, partially offset by a $23.6 million favorable tax adjustment, which is also excluded. Diluted earnings per share exclude restructuring charges of $47.2 million pre-tax in 2012 and $14.4 million pre-tax in 2011. Diluted earnings per share exclude favorable tax benefits of $20.5 million, in both 2011 and 2010.

 

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The following table provides the Company’s annual dividend rate and the year-over-year increase in the dividend rate since 2004. In February 2014 we raised our quarterly dividend, payable in May 2014, 8% from $.40 to $.43 per share. That was our tenth dividend increase in eleven years, and since 2004, we have increased our quarterly dividend from $.06 to $.43 per share.

Annualized Dividends 2004-2014

LOGO

 

  *   2012 and 2013 annual dividend rates have been adjusted to move accelerated payment paid in 2012 to 2013.

 

  **   2014 annual dividend rate is projected.

Finally, the following table provides the aggregate amounts that we have returned to our shareholders since 2009, in the form of cash dividends and share repurchases.

Aggregate Value of Dividends and Share Repurchases in Millions of Dollars

 

LOGO

Shareholder Outreach.     At our 2013 Annual Shareholders Meeting, the Company’s shareholders were presented with an advisory vote asking for approval of the Company’s 2012 compensation program for its Named Executive Officers, commonly known as the “Say on Pay” proposal. Our 2011 and 2012 Say on Pay proposals were overwhelmingly supported by shareholders with a favorable vote of approximately 94% each year. At our 2013 Annual Meeting, approximately 64% of the votes cast were voted in favor of our executive compensation program as disclosed in our 2013 Proxy Statement. While representing majority support for our Named Executive Officer compensation, these results were well below what we consider satisfactory. Our Compensation Committee and our full Board of Directors carefully consider the outcome of shareholder votes on the Company’s executive compensation programs in reviewing and establishing future programs and in determining whether changes should be made to our executive compensation programs.

Following our 2013 Say on Pay result, the Company reached out to and offered to speak with its largest investors, including firms representing approximately 93% of shares held by our top 25 institutional investors and approximately 55% of our total outstanding shares as of year-end 2013. As of the date of this Proxy Statement, a combination of our Compensation Committee Chair, our Board

 

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Chairman and members of senior management have spoken with twelve of our largest institutional shareholders, representing 41 million shares or about 42% of the institutional voting authority as of year-end.

Additionally, our Compensation Committee Chair and members of our senior management spoke with representatives from the proxy advisory service firm Institutional Shareholder Services, Inc. (ISS) and our Board Chairman, Compensation Committee Chair and members of our senior management spoke with representatives from the proxy advisory service firm Glass Lewis & Co., LLC (Glass Lewis) to discuss our compensation programs and philosophies, our 2013 shareholder outreach program and what we have done or plan to do based on the feedback that we received from our investors. We also gave these advisory firms the opportunity to ask questions and offer their viewpoint on our executive compensation programs.

The Company found these discussions extremely informative and valuable, and we are very appreciative of the time that our investors and the advisory firms took to speak with us. Through these engagements, the Company learned that shareholders were looking for additional explanation and clarification relating to our Chief Executive Officer’s Amended and Restated Employment Agreement, which we entered into with Mr. Goldner in October 2012. Specifically, they wanted to understand why the Compensation Committee structured the compensation package the way that it did and the Committee’s thinking behind the various components of the agreement. The frequently asked questions from these engagements, and the Company’s responses to those questions, are outlined below. The Compensation Committee has also taken specific actions in response to this shareholder feedback, which are outlined beginning on page 27 of this Proxy Statement.

 

Q:   Why did the Board feel the compensation actions relating to Brian Goldner’s Amended and Restated Employment Agreement were necessary in 2012 as opposed to when Mr. Goldner’s previous contract would have expired in 2014?

 

A:   Hasbro’s Compensation Committee and Board of Directors believe that Mr. Goldner, who was instrumental in developing and implementing the Company’s branded-play strategy, is an extremely talented and effective Chief Executive Officer and that he plays a key role in continuing the successful ongoing transformation of Hasbro into a global branded-play organization. Mr. Goldner is one of a select group of executives who straddle the more traditional consumer products business and the world of entertainment, a skill set needed for the Company’s leadership. With the Company still early in the execution of its global branded-play strategy and Mr. Goldner being integral to the successful execution of the strategy, the Board believed retaining Mr. Goldner through the end of 2017 was in shareholders’ best interest. The Committee and the Board did not believe it was in shareholders’ best interests to wait until the impending expiration of Mr. Goldner’s prior agreement to thoughtfully design and implement an arrangement that would accomplish the objective of retaining him beyond the expiration date of that prior agreement. As such, the Committee and the Board began proactively designing the new agreement well ahead of the expiration of the prior agreement. The Compensation Committee, with the support of the full Board of Directors and the assistance of the Committee’s outside advisors, including Compensation Advisory Partners LLC (CAP), spent approximately one year reviewing and discussing potential alternatives for Mr. Goldner’s compensation that would accomplish the objectives that were set out, namely to:

 

   

ensure that Mr. Goldner only benefits if shareholders receive significant value, which is why the special restricted stock unit (RSU) award, granted in two tranches (the first tranche in 2013 and the second in 2014), is tied directly to absolute stock price appreciation, the metric that most directly impacts the return experienced by shareholders on their investment;

 

   

appropriately reward Mr. Goldner for true out-performance in delivering return to shareholders with respect to other companies in the market, which is why the total shareholder return (TSR) modifier was added to Mr. Goldner’s 2013 and 2014 contingent stock performance awards;

 

   

structure the agreement to incentivize Mr. Goldner to remain at Hasbro driving the branded-play evolution through the end of 2017, which the Board believes is a sufficient timeframe to have developed and executed the key elements of the Company’s global branded-play strategy; and

 

   

implement a number of compensation and governance best practices, including:

 

   

the elimination of the tax-gross up provisions contained in the prior agreements with Mr. Goldner with respect to excess parachute payments under Section 4999 and taxes and charges under Section 409A of the Internal Revenue Code;

 

   

the elimination of the auto-renewal feature contained in his prior agreements, pursuant to which the term of Mr. Goldner’s employment with the Company would continue to be automatically extended for additional one-year periods unless Mr. Goldner or the Company provided notice of non-renewal;

 

   

the elimination of a special bonus which was payable under the prior agreements one year following a Change in Control of the Company provided Mr. Goldner remained employed with the Company through that one-year anniversary;

 

   

subjecting all of Mr. Goldner’s incentive-based compensation, both cash and equity-based incentive compensation, granted on or after October 4, 2012 to the Company’s Clawback Policy and to future clawback policies that apply to senior management of the Company; and

 

   

providing for a more restrictive definition of a Change in Control than was provided in the prior agreements.

 

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Q:   Why did the Board feel that the special restricted stock unit (RSU) award was required to retain a sitting CEO?

 

A:   It is the Board’s responsibility to shareholders to ensure the Company has the right executive team in place to drive the Company’s strategy and deliver long-term growth and superior shareholder returns. Mr. Goldner is the chief architect of the Company’s global branded-play strategy and we believe shareholders would be best served with Mr. Goldner leading the Company to continue its execution of that strategy. In addition, the Compensation Committee and Board of Directors believed that it was critical to proactively retain Mr. Goldner through 2017 with a compensation package that rewards him, if and only if, the Company delivers significant shareholder value and, subject to certain termination scenarios discussed beginning on page 58 of this Proxy Statement, he remains continuously employed with the Company through December 31, 2017. The Board believes this is a sufficient timeframe to have developed and executed the key elements of the Company’s global branded-play strategy and measure the success of the strategy.

The special RSU award, granted in two tranches (the first tranche in 2013 and the second in 2014), with vesting contingent on both the achievement of stated stock price thresholds and Mr. Goldner remaining with the Company through the end of 2017 (a period of five years from the amended agreement date), are uniquely suited to serve the objectives of longer-term retention and pay for delivery of significant shareholder value established by the Committee and the Board. That is why the Compensation Committee and the Board thought that the RSU award was an appropriate addition to the Company’s annual compensation package.

 

Q:   Why was the special RSU award designed with absolute stock price thresholds rather than a relative performance metric?

 

A:   The Compensation Committee, with the support of the full Board of Directors and assistance of the Committee’s outside advisors spent approximately one year exploring numerous potential compensation designs for Mr. Goldner that would both accomplish the objectives it set out and align with the Committee’s pay for performance philosophy. One of the key objectives in this design was to align a significant amount of the Chief Executive Officer’s compensation with direct shareholder value creation, as defined by increases in market capitalization. The stock price thresholds are weighted equally with 25% of the special RSU award subject to the achievement of each threshold: $45, $52, $56 and $60 per share, respectively. The closing price of Hasbro’s common stock on October 4, 2012, the effective date of the agreement, was $37.46. The Compensation Committee and the Board deliberated extensively over the appropriate stock price hurdles and considered numerous factors, including:

 

   

Hasbro’s underlying financial and strategic plans;

 

   

the appropriate degree of stretch to justify earning the special award, which places Mr. Goldner’s compensation, if earned, in the top quartile of the core peer group established by the Committee; and

 

   

the market capitalization increase that would result, if the thresholds were achieved, and the appropriate extent to which Mr. Goldner should share in that increase, the goal being that Mr. Goldner should realize significant value for increasing shareholder value as measured by the increase in market capitalization, but Mr. Goldner would only earn a small fraction of what shareholders would realize.

For Mr. Goldner to realize the full value from the special RSU award, the $60 per share stock price threshold would need to be achieved. This achievement would result in the Company’s market cap increasing approximately 60% or $3 billion, from October 2012, when the amended agreement was entered. This market cap increase does not capture any of the incremental value created by dividends paid to shareholders in the intervening years.

 

Q:   How did the Compensation Committee determine the face value of the special RSU award?

 

A:   The total face value of the special RSU award at the time of entering into the employment agreement was $22 million, representing an incremental $4.4 million per year over the 5-year contract period. The Compensation Committee established the face value amount to deliver top quartile pay compared to the core peer group established by the Committee, but only if all of the aggressive stock price hurdles are achieved. For Mr. Goldner to realize the full value from his special RSU award, the $60 per share stock price threshold would need to be achieved, which would result in the Company’s market cap increasing approximately 60% or $3 billion, from October 2012, when the amended agreement was entered. This market cap increase does not capture any of the incremental value created by dividends paid to shareholders in the intervening years.

 

Q:   Why was a total shareholder return (TSR) modifier placed on Mr. Goldner’s 2013 and 2014 Contingent Stock Performance Awards?

 

A:  

A key objective in the design of Mr. Goldner’s compensation package was to deliver top quartile pay if, and only if, he delivered exceptional performance, as demonstrated by both achievement of the Company’s financial objectives through successful execution of the Company’s branded-play strategy, and delivery of superior shareholder returns. The use of a TSR modifier on Mr. Goldner’s 2013 and 2014 contingent stock performance awards was intended to provide balance between internal and external (relative) metrics. For Mr. Goldner to receive his target shares under the contingent stock performance awards, like all of our employees who receive contingent stock performance awards, the Company must achieve its three-year internal cumulative revenue and

 

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  cumulative earnings per share targets. If the Company does not achieve its threshold level of performance, even if TSR is exceptional, Mr. Goldner receives no shares. Conversely, if the Company performs exceptionally against its goals and the market does not recognize this performance on a relative basis, through outperformance of the Company total shareholder return as compared to the Standard & Poors 500 Index (S&P 500), Mr. Goldner will receive fewer shares. The Company believes its internal goal setting under the contingent stock performance plan is robust. This is demonstrated by the fact that our performance shares have not paid out in the last two three-year performance cycles (2010-2012 and 2011-2013).

For Mr. Goldner to realize the full potential of the underlying contingent stock performance award, true outperformance is required. Specifically, the Company must achieve its maximum revenue and earnings per share targets (as defined by at least 115% of target for cumulative revenue and at least 125% of target for cumulative EPS), plus relative TSR must be at or above the 75 th percentile of the S&P 500 for the three-year performance cycle. In fact, unless TSR is at least at the 65th percentile for the three-year period, Mr. Goldner receives no incremental payout on the performance shares. If TSR is below 25th percentile, the payout on Mr. Goldner’s core contingent stock performance awards will be reduced, regardless of how well the Company performed against its revenue and EPS targets. The chart below illustrates the TSR modifier methodology for Mr. Goldner’s 2013 and 2014 contingent stock performance awards.

“Modifier” on the Core Performance Contingent Stock Awards (PSA)

 

LOGO

 

  *   Internal metrics must be achieved for relative total shareholder return modifier to apply.

 

  **   If EPS < 90%, no award is payable even if revenue > 90%

 

Q:   Why does the TSR modifier add more potential upside versus potential downside?

 

A:   A key objective that was set out when structuring Mr. Goldner’s agreement was to design all of the elements of the compensation package to reward Mr. Goldner for the successful execution of the Company’s branded-play strategy going forward. The Committee believed that if the underlying internal metrics (three-year cumulative revenue and earnings per share) were achieved and the external market valued our performance, as well as our progress against realizing the branded-play strategy, then Mr. Goldner should share in incremental rewards through the modifier. However, if our internal achievement was strong and the external market was not fully recognizing the value of our transformation to a global branded-play organization, the Committee believed that Mr. Goldner should be penalized, but not in the same proportion, because the strategy was fully endorsed and approved by the Committee and the Board and by achieving the internal metrics, Mr. Goldner would in fact be delivering on the successful implementation of the strategy.

 

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Q:   Why did the Compensation Committee and the Board decide to use the S&P 500 as the benchmark on Mr. Goldner’s 2013 and 2014 Contingent Stock Performance Awards?

 

A:   The Compensation Committee, along with its outside compensation advisor, deliberated extensively on the appropriate benchmark and back-tested Hasbro’s stock performance as compared to several reference groups. Ultimately, the Compensation Committee and the Board determined the S&P 500 was the best comparator group for the following reasons:

 

   

there are no other toy and game companies of Hasbro’s scale and breadth absent Mattel, Inc., limiting the ability to establish an industry-specific peer group;

 

   

as the Company continues its evolution into a global branded-play organization, comparisons to toy and game companies becomes less relevant; and

 

   

the S&P 500 is a robust, well established, objective benchmark, and Hasbro is a member.

Actions Taken Based on Shareholder Feedback and Engagement

 

Pay for performance will remain a focus for Hasbro’s compensation programs, philosophy and design. We will continue to engage our shareholders in dialogue to gain further insights regarding their views on our executive compensation programs and philosophies. The Compensation Committee and the Board carefully consider the feedback they receive from investors on the Company’s executive compensation programs in reviewing and establishing future programs and in determining whether changes should be made to our compensation programs. The Compensation Committee, with the support of the full Board, continues to believe that the Amended and Restated Employment Agreement with Mr. Goldner is in the best interest of the Company’s shareholders and rewards Mr. Goldner if, and only if, he delivers significant shareholder value. As such, no changes to the terms of Mr. Goldner’s Amended and Restated Employment Agreement have been made. However, in response to the valuable shareholder feedback we have received on our executive compensation practices, the following actions have been or will be made by the Company:

 

 

Continued Shareholder Engagement .    The Company will continue to engage with shareholders on an ongoing basis to understand their diverse views and concerns as part of our overall decision-making process in the Company’s design of its executive compensation programs.

 

 

Enhanced Proxy Disclosure .    We have enhanced our disclosure in this Proxy Statement to provide shareholders with greater clarity around the Compensation Committee’s and the Board’s thinking behind Mr. Goldner’s Amended and Restated Employment Agreement and why the compensation package is structured the way that it is.

 

 

Enhanced Rigor Relating to the 2013 Bonus Determinations under the Company’s 2009 Senior Management Performance Plan .    As more fully described beginning on page 34 of this Proxy Statement, we have added additional rigor to the annual incentive decision-making process for the Named Executive Officers who participated in the 2009 Senior Management Annual Performance Plan, including Mr. Goldner. For 2013, we have linked the Chief Executive Officer’s 2013 non-equity incentive award to the 94% weighted achievement of the target corporate performance goals under the Company’s Performance Rewards Program.

Description of 2012 Amended and Restated Employment Agreement with Mr. Goldner

 

In recognition of Mr. Goldner’s critical role in continuing the transformation of Hasbro into a global branded-play organization and in executing Hasbro’s future business strategies, effective on October 4, 2012 the Company entered into an Amended and Restated Employment Agreement (the “Amended Employment Agreement”) with its President and Chief Executive Officer, Brian Goldner. The Amended Employment Agreement replaced the Amended and Restated Employment Agreement, dated March 26, 2010, and the Change in Control Employment Agreement, dated March 18, 2000, as amended (together referred to as the “Prior Agreements”) previously in place between Mr. Goldner and the Company.

Prior to the Amended Employment Agreement, Mr. Goldner’s employment term was scheduled to expire at the end of 2014. With only two years remaining in that term the Committee believed it was vital to ensure Mr. Goldner’s continued service to the Company. Hasbro’s Compensation Committee and Board of Directors believe that Mr. Goldner is an incredibly talented Chief Executive Officer and that he is critical in continuing the transformation of Hasbro into a global branded-play company. Mr. Goldner is one of a select group of executives who straddles the more traditional consumer products business and the world of entertainment. With the Company still early in the execution of its global branded-play strategy and Mr. Goldner being the principal architect and integral to the successful execution of the strategy, the Board believed retaining Mr. Goldner through the end of 2017 is in shareholders’ best interest. The Compensation Committee, with the support of the full Board of Directors and the assistance of the Committee’s outside advisors, spent approximately one year exploring numerous alternatives for Mr. Goldner’s compensation that would accomplish the objectives that were set out:

 

 

ensure that Mr. Goldner only benefits if shareholders realize significant value, which is why the special RSU award, granted in two tranches (the first tranche in 2013 and the second in 2014), is tied to absolute stock price appreciation;

 

 

reward Mr. Goldner for true out-performance in delivering shareholder value as compared to other companies, which is why the total shareholder return (TSR) modifier was added to Mr. Goldner’s 2013 and 2014 contingent stock performance awards;

 

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structure the agreement to incentivize Mr. Goldner to remain at Hasbro through 2017, which the Board believes is a sufficient timeframe to have developed and executed the key elements of the Company’s global branded-play strategy and measure the success of the strategy; and

 

 

implement a number of compensation and governance best practices, including:

 

   

the elimination of the tax-gross up provisions contained in the prior agreements with Mr. Goldner with respect to excess parachute payments under Section 4999 and taxes and charges under Section 409A of the Internal Revenue Code;

 

   

the elimination of the auto-renewal feature contained in the Prior Agreements, pursuant to which the term of Mr. Goldner’s employment with the Company would continue to be automatically extended for additional one-year periods unless Mr. Goldner or the Company provided notice of non-renewal;

 

   

the elimination of a special bonus which was payable under the prior agreements one year following a Change in Control of the Company provided Mr. Goldner remained employed with the Company through that one-year anniversary;

 

   

subjecting all of Mr. Goldner’s incentive-based compensation, both cash and equity-based incentive compensation, granted on or after October 4, 2012 to the Company’s Clawback Policy and to future clawback policies that apply to senior management of the Company; and

 

   

providing for a more restrictive definition of a Change in Control than was provided in the prior agreements.

Enhanced Pay for Performance Linkage and Retention

The Amended Employment Agreement also:

 

 

extends the term of Mr. Goldner’s scheduled employment with the Company for three years, from the previously scheduled expiration date of December 31, 2014 to the new expiration date of December 31, 2017; and

 

 

provides additional performance-based equity incentives designed to retain Mr. Goldner in the employ of the Company during this extended term and to strengthen the linkage between Mr. Goldner’s potential future compensation and Hasbro’s performance and delivery of shareholder value.

To further drive the linkage between the Company’s performance and Mr. Goldner’s compensation, and to provide an additional incentive for Mr. Goldner to remain employed with the Company through December 31, 2017, the Amended Employment Agreement provides for the grant to Mr. Goldner of an aggregate of 587,294 restricted stock units (referred to as the “Special RSU Grant”). The Special RSU Grant was made in two tranches, the first in April of 2013 and the second in February 2014. Both tranches of the Special RSU Grant were granted at the same time that the Company made its yearly equity awards to other equity-eligible employees.

Both tranches of the Special RSU Grant have two vesting components, each of which must be satisfied for Mr. Goldner to earn any shares under the award. The first vesting component is based entirely on achievement of specified Hasbro stock price thresholds, with each threshold being progressively higher. For Mr. Goldner to realize the full value from his Special RSU Grant, all four stock price thresholds must be achieved, which would result in the Company’s market cap increasing approximately 60% or $3 billion, from October 2012, when the amended agreement was entered. This market cap increase does not capture any of the incremental value created by dividends paid to shareholders in the intervening years. The stock price thresholds and the percentage of the shares subject to the Special RSU Grant attributable to achievement of each threshold are as follows:

 

Stock Price Threshold    Percentage of  Shares Earned

$45/share

   25%

$52/share

   25%

$56/share

   25%

$60/share

   25%

To achieve the stock price thresholds the average closing price of the Company’s stock must meet or exceed the threshold for a period of at least thirty consecutive trading days from April 24, 2013 through December 31, 2017. The second vesting component requires that, subject to certain termination scenarios which are discussed below, Mr. Goldner must remain continuously employed with the Company through December 31, 2017 to vest in any earned shares under the Special RSU Grant.

The Amended Employment Agreement provides that Mr. Goldner will participate in Hasbro’s other long-term incentive programs during the term of his employment and will have an annual long-term equity grant target level equal to five (5) times his annualized base salary for each year. For the last several years the annual equity grant to Mr. Goldner has been made in a combination of stock options and contingent stock performance awards, with the grant date value being divided roughly evenly between those two types of awards. The contingent stock performance awards have provided senior executives with the ability to earn shares of Hasbro’s stock based upon achievement of stated net revenues and earnings per share performance targets during the applicable three-year performance period for each contingent stock performance award.

 

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The Amended Employment Agreement provides that the contingent stock performance awards granted in each of 2013 and 2014 will have an additional relative total shareholder return performance multiplier. This additional performance multiplier enhances the linkage between the payout under those awards and the value generated for Hasbro’s shareholders by increasing, or decreasing, the number of shares which would otherwise be earned by Mr. Goldner under those awards based upon a comparison of Hasbro’s total shareholder return to the total shareholder return for the Standard & Poor’s 500 Index (“S&P 500”) over the three-year performance period applicable to each contingent stock performance award.

If the total shareholder return (computed as a function of changes in the stock price and the value of dividends earned on the stock) for Hasbro’s common shares is greater than or equal to the 75 th percentile of the S&P 500 over the applicable three-year performance period for one or both of these contingent stock performance awards, Mr. Goldner earns twice the number of shares he would otherwise have earned under such award. A total shareholder return between the 65 th and 75 th percentiles results in a payout of 1.5 times the number of shares which would otherwise be earned under the awards. If Hasbro’s total shareholder return is below the 25 th percentile of the S&P 500 over the applicable three-year performance period for the contingent stock performance awards, Mr. Goldner will only earn 75% of the number of shares he otherwise would have earned under such awards.

The multiplier based on relative total shareholder return for Hasbro’s stock as compared to the S&P 500 is applied after the underlying performance metrics for these contingent stock performance awards is calculated. For example, if the Company’s net revenues and earnings per share metrics for a given contingent stock performance award were not achieved, no shares would be earned under such award and the total shareholder return multiplier would not change that underlying result. The multiplier is only applied to the shares that are otherwise earned under the award based upon achievement of the Company’s underlying financial performance metrics.

Other Compensation

The Amended Employment Agreement provides that the Company increase Mr. Goldner’s annualized based salary from $1,200,000 to $1,300,000 beginning July 1, 2013, and in 2013 Mr. Goldner was eligible to receive a management incentive plan bonus based on a target of one hundred and fifty percent (150%) of his earned base salary. Thereafter Mr. Goldner’s base salary, management incentive bonus target and long-term incentive target will be reviewed in accordance with the Company’s compensation policies for senior executives and will be adjusted to the extent, if any, deemed appropriate by the Compensation Committee of the Company’s Board of Directors.

Post-Employment Restrictions

The Amended Employment Agreement contains certain post-employment restrictions on Mr. Goldner, including:

 

 

a two-year non-competition provision which prohibits Mr. Goldner from engaging, in any geographical area in which Hasbro is doing business at the time of the termination of his employment, in any business which is competitive with the business of Hasbro as it exists at the time of termination of Mr. Goldner’s employment; and

 

 

a two-year non-solicitation provision, providing that Mr. Goldner will not (a) solicit or recruit any employee of Hasbro to leave the Company or (b) solicit the business of any clients, customers or accounts of Hasbro.

If Mr. Goldner violates these restrictions and does not cure such violation, the Amended Employment Agreement provides that he will forfeit and pay to Hasbro the Net Proceeds (as defined in the Amended Employment Agreement) obtained with respect to any unvested stock options, restricted stock units, contingent stock performance awards or other equity that had been accelerated in connection with the termination of his employment by Hasbro without Cause (as defined in the Amended Employment Agreement) or by Mr. Goldner for Good Reason (as defined in the Amended Employment Agreement).

 

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2013 Named Executive Officers

 

The name and title of each of the Company’s Named Executive Officer for 2013 are as follows:

 

Name    Title
Brian D. Goldner    President and Chief Executive Officer
David D.R. Hargreaves    Executive Vice President and Chief Strategy Officer
Deborah M. Thomas    Executive Vice President and Chief Financial Officer
Duncan J. Billing    Executive Vice President and Chief Development Officer
John A. Frascotti    Executive Vice President and Chief Marketing Officer

2013 Compensation Philosophy and Objectives

 

Our executive team has been and continues to be critical to the successful execution of the Company’s branded-play strategy. In structuring the compensation of the Company’s executive officers, including the Named Executive Officers, the Company’s fundamental objectives are to:

 

 

attract, develop and retain talented executives who can contribute significantly to the achievement of the Company’s goals and deliver results which are in keeping with a leading global branded-play company;

 

 

align the interests of the Company’s executives with the medium and long-term goals of the Company and the Company’s shareholders and other stakeholders;

 

 

instill a pay-for-performance culture in which the substantial majority of the compensation opportunity for Named Executive Officers is composed of variable, performance-based compensation elements;

 

 

set the level of an executive’s compensation with consideration for the role of the executive and the executive’s contribution to the Company, as well as the external competition for the executive’s services;

 

 

reward superior performance by the Company and its business units as a whole, and to a lesser extent superior individual performance; and

 

 

accomplish these objectives effectively while managing the total cost of the Company’s executive compensation program.

Over the last several years Hasbro has been building and executing its Brand Blueprint across its business, which entails offering a wide range of innovative toys and games, immersive entertainment offerings, including television programming and motion pictures, digital engagement, and lifestyle licensing products, ranging from traditional to high-tech. As Hasbro has developed into a global branded-play organization, rather than a traditional toy and game manufacturer, the companies with which Hasbro competes for executive talent have broadened considerably and the skills and expertise required of Hasbro’s executives have greatly increased. As a result, the Company now competes with a broad range of consumer products, entertainment and branded portfolio companies in the hiring and retention of employees and executives. In the branded family entertainment and consumer products markets where the Company competes for talent, base compensation, variable incentive cash compensation, equity compensation and employee benefits are all significant components of a competitive and effective overall executive compensation and retention package.

The Company utilizes two overarching principles in structuring its executive compensation and retention program:

 

 

pay for performance is critical; and

 

 

the long-term success of the Company is dependent on attracting and retaining top talent, as well as having robust succession planning and talent ready to deploy into key executive positions.

First, pay for performance is critical, and a large majority of an executive’s overall compensation opportunity should be at risk and based upon the performance of the Company in meeting its financial objectives and upon delivering total return to the Company’s shareholders. The Company believes that the primary responsibility of the executive team is to drive the financial and business performance of the Company and create value for the Company’s shareholders and other stakeholders. As a result, if the Company fails to achieve some of its business and financial goals, and/or if the Company’s share price does not rise, the value realized from the executive’s compensation packages is significantly reduced. The Company implements this principle by using variable compensation elements, such as cash management incentive plan awards and equity awards, for the vast majority of the total compensation package granted to its Named Executive Officers.

The second overarching principle the Company uses in structuring its executive compensation packages is that it is critical to the long-term success of the Company that it be able to attract and retain top management talent that allows for robust succession planning and access to deployable, “ready now” talent. To accomplish its goals and deliver on its vision of becoming a global branded organization Hasbro must be able to attract, develop and retain world class executives. Our attraction and retention strategy is structured to align with our succession planning strategy, which the full Board reviews at least annually.

 

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The Committee structures the Company’s compensation program in a way it believes appropriately aligns pay with performance and maximizes future performance, without encouraging excessive risk taking or other behavior on the part of executive officers that is not in the Company’s best interests.

Succession planning and the development of talent are critical to achieving the Company’s objectives to execute its global branded-play strategy, deliver long-term profitable growth and enhanced shareholder return. The Board oversees management development and succession planning across senior management positions and has visibility to key top talent below the senior management team, including key development areas of focus for these individuals. The Board has also retained an outside executive talent assessment firm to assist in identifying and developing key executive talent within the Company and to assist in the development of a succession plan for each of the Company’s Named Executive Officers, which includes targeted needs assessment and action plan for each succession candidate. Additionally, the Company’s Chief Executive Officer regularly presents to the Board of Directors on the status of the succession plans for key members of the Company’s executive team, as well as progress against those plans.

Overview of 2013 Executive Compensation Program Elements and Pay for Performance

 

The table below summarizes the elements of the Company’s 2013 executive compensation program, and the objectives served by each element. The Company uses multiple metrics in our compensation program to provide a holistic view of performance, which we believe capture key business objectives. A detailed discussion of each element is contained in the following pages.

 

Type   Component   Objective
Performance-Based Compensation   Long-Term Incentive Awards  

•  Align the compensation of executives with the financial performance of the Company and the value delivered to shareholders over the longer term

 

•  Reward for increases in stock price over the longer-term

 

•  Provide strong retention value to retain executives in the service of the Company over the longer term and keep executives focused on the delivery of financial performance and increases in shareholder value

 

    Annual Cash Incentive Awards      

•  Align the compensation of executives with the annual financial performance of the Company and its achievement of annual revenue, operating margin and free cash flow objectives

 

•  Reward the executive for achievement of individual performance objectives for the year

 

Fixed Compensation       Base Salary  

•  Provide a competitive fixed payment to the executive for their service to the Company, set at a level that allows the Company to attract and retain top talent

 

    Benefits & Perquisites  

•  Provide benefits that are competitive and enable the Company to attract and retain top executive talent

 

Alignment Between Pay and Performance in the Compensation Plans

 

The vast majority of the total compensation opportunity for our Named Executive Officers, is performance based, including our entire long-term equity incentive compensation program and annual cash incentive program for our Chief Executive Officer and other Named Executive Officers. This performance based compensation can only be earned based upon achievement of the Company’s and the individual’s performance targets and objectives. We align pay with performance by using the following performance based elements as a substantial majority of the total compensation package for our Named Executive Officers:

 

 

variable performance-based cash incentive plan awards which are earned based on (i) achievement of annual net revenue, operating margin and free cash flow targets for the Company and (ii) achievement of individual performance objectives;

 

 

annual equity incentive plan compensation for our Chief Executive Officer is generally comprised of:

 

   

contingent stock performance awards, under which shares of the Company’s common stock are only earned if the Company achieves cumulative net revenue and earnings per share targets over a three-year performance period, and for 2013 and 2014, the contingent stock performance awards are also subject to a relative total shareholder return modifier; and

 

   

stock options, vesting over three years and granted with an exercise price equal to the fair market value on the date of grant, such that an executive only realizes value if the Company’s stock price appreciates;

 

 

annual equity incentive plan compensation for our other Named Executive Officers with the exception of Mr. Hargreaves is balanced between contingent stock performance awards (50% of target mix), stock options (25% of target mix) and time-based restricted stock units, cliff vesting after 3 years (25% of target mix).

 

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The charts below show the total target mix of compensation opportunity across fixed and variable components for our Chief Executive Officer in 2013, including and excluding the special RSU award. The vast majority of Mr. Goldner’s 2013 compensation was variable and tied to our performance in achieving our financial objectives and/or to the total return experienced by you, our shareholders.

 

LOGO

The total mix of compensation across fixed and variable components for each of our Named Executive Officers in 2013 is as follows:

 

Name   

Fixed Compensation

(Salary)

    

Variable

Equity Compensation

    

Variable

Non-Equity
Incentive
Compensation

    

Change in Pension
Value and NQDC
Earnings and

All Other

Compensation

 
Brian Goldner      4.5%        87.4%        6.6%        1.5%  
David Hargreaves      36.5%        0%        57.0%        6.5%  
Deborah Thomas      25.3%        51.5%        19.2%        4.1%  
Duncan Billing      23.0%        54.8%        18.4%        3.9%  
John Frascotti      23.1%        55.0%        18.5%        3.5%  

The Company believes that having the majority of compensation tied to short- and long-term performance-based elements fosters a performance-driven culture and best serves the interests of the Company and its shareholders, since the compensation of the Company’s executives is significantly dependent upon achievement of the Company’s financial goals and the creation of shareholder value. Each of these compensation elements is described in detail below. In structuring these elements the Company and the Committee review each element on an individual basis, as well as review them in totality as part of an overall target compensation package. This process includes reviewing tally sheets for each of the executive officers which set forth total target compensation for the officer, and within that total summarize the target level for each element and the portion of total target compensation comprised of the various compensation elements.

Given the predominance of variable, performance-based elements in the total executive compensation program for 2013, if we do not meet our financial objectives, and if we do not deliver share price appreciation to you, our shareholders, our executives’ realized compensation is reduced dramatically. This reduction is manifested through both reductions in the payouts under our cash management incentive plans and in a reduction in the realized compensation from awards under our equity compensation plans.

In 2013 we achieved an aggregate weighted payout performance of 94% of our corporate net revenue, operating margin and free cash flow performance targets under our cash annual management incentive plans. The shortfall from target performance is due primarily to the shortfall in meeting the Company’s aggressive revenue and free cash flow targets. The 94% weighted achievement of our performance targets in 2013 compared to a weighted achievement of our corporate performance targets of 90% for 2012 (adjusted down from 117% through the Compensation Committee’s negative discretion based on actual results compared to the performance goal objectives) and 68% for 2011.

Under our equity compensation plans approximately half of the target annual equity award opportunity for executive officers is granted in the form of contingent stock performance awards. These contingent stock performance awards provide the recipient with the ability to earn shares of our stock based upon the Company’s achievement of designated cumulative earnings per share and net revenue targets over the specified three-year performance periods tied to each award. For the contingent stock performance awards granted in both February 2010 and February 2011, which had a three-year performance period that ended in December 2012 and December 2013, respectively, the Company’s performance in both performance periods did not achieve the threshold performance required to earn a payout. As such, no recipient of the 2010 or 2011 contingent stock performance awards earned any shares under such awards. This is reflected in a significant reduction in the compensation realized by the Named Executive Officers for 2012 and 2013.

 

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The remainder of our target annual equity incentive compensation grants to our Chief Executive Officer is made in the form of stock options, which are granted with exercise prices equal to the fair market value of our stock on the date of grant, vest in equal annual installments over three years, and have seven-year terms. The realization of value from such options depends entirely on increases in our stock price following the date of grant of such options. Notwithstanding the Black-Scholes grant date values for these awards which are reported in the Summary Compensation Table, the Named Executive Officers will not realize any actual value from these awards unless the price of our stock appreciates following the date of grant.

With the exception of Mr. Hargreaves, for our other Named Executive Officers, the remainder of our target annual equity incentive compensation grants in is made in the form of 25% stock options and 25% time-based restricted stock units. The stock option awards for these executives are in accordance with the terms of the options granted to our Chief Executive Officer and described above. The restricted stock units generally cliff vest on the third anniversary of the date of grant, subject to the recipient’s continued employment with the Company through that date. They are designed to provide significant retention value by requiring three years of service with the Company in order to realize any value under the awards. The value of any such awards actually realized by the recipients will be based on their employment through the vesting date and the value of our stock on the vesting date. We believe that this balanced portfolio approach enables a focus on Company performance, share price appreciation and retention.

In connection with Mr. Hargreaves appointment as Executive Vice President and Chief Strategy Officer, effective as of February 6, 2013, he no longer participates in the Company’s equity compensation plans, and instead receives his variable incentive-based compensation through an enhanced annual cash incentive opportunity, the target of which is 125% of his base salary.

Reported and Realized Compensation for Mr. Goldner

 

The following table presents the reported and realized compensation for the Company’s Chief Executive Officer over the prior three years. The following section of this discussion explains in detail how realized compensation is computed for this purpose. The table illustrates that the reported compensation often exceeds the actual, realized compensation for the executive, and this divergence can become greater as the percentage of the executive’s compensation composed of performance-based elements increases. Additionally, Mr. Goldner’s 2013 reported compensation includes the first of two tranches of his special RSU award, which we are required to report in the Summary Compensation Table in 2013 despite the award being contingent on the achievement of stock price thresholds and Mr. Goldner remaining with the Company through the 5-year contract period. As such, the value of this award, although vesting is spread over five years, is all reported in the Summary Compensation Table in the year of the grant. The table also demonstrates that the value of compensation actually realized by an executive correlates with the performance of the Company in achieving financial goals and with total shareholder return. For example, the vast majority of Mr. Goldner’s 2013 realized compensation consists of stock option exercises, which directly links to the Company’s stock price appreciation. The stock option awards relating to these 2013 exercises were all granted to Mr. Goldner prior to him entering into the Amended and Restated Employment Agreement with the Company in October of 2012, and approximately half of these awards were granted to Mr. Goldner prior to him being appointed Hasbro’s Chief Executive Officer.

CEO Reported vs. Realized Pay

 

LOGO

 

* Indexed Total Shareholder Return (TSR) tracks an assumed investment of $100 at the end of 2010 in the Company’s Common Stock, assuming full reinvestment of dividends and no payment of brokerage or other commissions or fees.

There can be a significant difference between what is reported for a given year in the compensation tables that follow in this Compensation Discussion and Analysis as compensation to an executive officer and the value of what the executive actually realizes as compensation in that year or over time because we are required to include in such tables the value of equity awards and changes in pension values and nonqualified deferred compensation earnings for our Named Executive Officers at values which are impacted by accounting and actuarial assumptions. Realized compensation is not a substitute for reported compensation in evaluating our executive

 

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compensation programs, but we believe understanding realized compensation is important in understanding the impact of the performance components and stock price appreciation components of an award on the value of what an executive ultimately realizes or may receive.

Total Realized Compensation is computed by:

 

 

Taking the Total Compensation Amount reported in the Summary Compensation Table appearing on page 47 of this Proxy Statement, and making the following adjustments:

 

   

subtract the grant date accounting values of stock awards and option awards made during the year, as such amounts are reflected in the Stock Awards and Option Awards columns in the Summary Compensation Table for the applicable year;

 

   

add the value realized on the date of exercise from any actual option exercises by the executive in such year, as such amounts are reflected in the Option Exercises and Stock Vested table for the proxy statement covering that year;

 

   

add the value of any stock awards which were earned by the executive for the period ending in that year (such as contingent stock performance awards earned for the performance period ending in December of that year) or which vested in such year (to the extent the executive has access to such awards and they are not subject to a forced deferral), at the value such stock had on the date of vesting or the date it was earned; and

 

   

subtract the year over year change in pension value and nonqualified deferred compensation earnings, as such amounts are reflected in the Summary Compensation Table for that year under the heading Change in Pension Value and NQDC Earnings.

Key Compensation Actions for 2013

 

Each year, the Compensation Committee reviews the Company’s incentive plans and their underlying goals and targets. For 2013, the Committee took the following steps to maintain the strong linkage between pay and performance across the Company’s incentive plans:

Established Challenging Three-Year Performance Objectives for the 2013 Contingent Stock Performance Awards .    As part of its annual equity compensation programs, the Compensation Committee granted contingent stock performance awards in April 2013 with challenging three-year net revenue and earnings per share targets, which must be met for executives to earn shares under the awards. The three-year performance targets for our contingent stock performance awards are based on the Company’s long-term strategic plan (for the years 2014 and 2015) and the Company’s budget and operating plan (for 2013) and were approved by the Committee and our Board in the first quarter of 2013. The performance targets for 2013 were modified to require that a minimum of 90% of targeted cumulative EPS be achieved for any payout, regardless of revenue achievement. For example, if EPS is less than 90% of target and revenue is at 100% of target, no award is payable under the plan.

No Payment of Shares Under the Contingent Stock Performance Awards Granted in 2011 .    The three-year performance period for the contingent stock performance awards granted in February 2011 was completed at the end of December 2013. The Committee had set challenging three-year cumulative net revenue and earnings per share targets under those awards that required the Company to achieve at least 90% of the net revenue and earnings per share targets to earn any payout under the awards. The Company did not meet this threshold performance for the award cycle and as a result, recipients of the 2011 contingent stock performance awards did not receive any shares under this award. This is similar to what occurred with respect to the contingent performance share awards granted in 2010, which did not meet the 90% threshold performance and therefore award recipients did not receive any shares under these awards for that performance period.

Enhanced Rigor Relating to the 2013 Bonus Determinations under the Company’s 2009 Senior Management Annual Performance Plan .    As part of establishing the annual cash incentive awards, the Compensation Committee established a more rigorous process for exercising negative discretion in making participant bonus calculations working within the requirements of Code Section 162(m). The following process was used in determining the annual incentive payout for our Chief Executive Officer for 2013:

 

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Step 1 : The Committee calculated the total maximum funding allowable under the Senior Management Annual Incentive Performance Plan based upon the Company’s performance in meeting the designated financial targets. Under the terms of the plan, the maximum funding is defined as the lesser of 300% of salary or $4 million, before taking into consideration performance. For 2013, the maximum allowable incentive payment under Code Section 162(m) for Mr. Goldner was 281% of earned salary or $3.51 million, calculated as follows:

 

Performance Measure   2013
Performance
Target
  2013
Actual
Performance
   

2013

Performance as

a Percentage of

Target

   

Weighting under

Incentive Award

Opportunity

 

2013

Maximum

Payout

 
Total Net Revenues   $ 4.191 billion   $ 4.072 billion        97 %         40%     117 %  
Operating Margin   14.69%     13.21%        90 %         40%     108 %  
Free Cash Flow   $ 388.59 million   $  364.1 million        94 %         20%     56 %  
          Total 2013 Maximum Payout     281 %  

For 2013, in accordance with the plan terms, the actual performance results excluded the impact of the Company’s investment in Backflip Studios and certain restructuring activities specified by the Compensation Committee at the beginning of the year.

Step 2 : The Committee reviewed and discussed the financial and non-financial objectives set for Mr. Goldner for 2013 which included:

 

 

2013 overall performance against plan as measured by revenue growth, operating margin and cash flow;

 

 

Leading the growth of the global gaming business;

 

 

Continued focus on developing growth markets;

 

 

Continued execution of media initiatives across the globe; and

 

 

Development of key leaders and attaining strategic milestones against succession planning goals.

Step 3 : To determine how much negative discretion to apply from the maximum potential award of $3.51 million for Mr. Goldner, the Committee then used the following decision framework to determine Mr. Goldner’s final payout:

 

LOGO

The Company’s financial performance serves as the starting point for the award amount. The Committee then determines how Mr. Goldner performed relative to his individual objectives to determine, what, if any, adjustments should be made to the corporate factor to arrive at the payout amount, which can be adjusted down to 0% or up to 150% of target. The 2013 payout for the Company’s Chief Executive Officer was determined to be $1.8 million, which was 94% of his target award and directly tied to the 94% weighted payout against achievement of the target corporate performance goals under the Company’s Performance Rewards Program.

 

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Revised Peer Group.     In 2013 the Compensation Committee assessed the criteria used and companies included in the core peer group in order to determine whether the companies included were appropriate due to the Company’s transformation from a traditional toy and game manufacturer into a global branded-play organization with a robust portfolio of brands, and the Compensation Committee approved certain changes to the peer group. The changes recognize the size of Hasbro, its industry and that we are a company with a portfolio of recognizable brands. All but one of the 17 peers fall within 0.5 to 2x revenue of Hasbro based on fiscal year-end data available at the time that the peer group was finalized, which in most cases was 2012 data with the exception of market capitalization, which was as of August 2013. The Company’s revenue falls at the 40 th percentile and its market capitalization falls at the 25 th percentile. The updated peer group includes the following companies:

 

Viacom, Inc.   Jarden Corporation    Mattel, Inc.
   
The Clorox Company   Discovery Communications, Inc.    Electronic Arts Inc.
   
Activision Blizzard, Inc.   Spectrum Brands Holdings, Inc.    PVH Corp.
   
Energizer Holdings, Inc.   Lions Gate Entertainment Corp.    Hanesbrands Inc.
   
Newell Rubbermaid Inc   Brunswick Corporation    Polaris Industries Inc.
   
Tiffany & Co.   Church & Dwight Co., Inc.     

Modified the Payout Calculation Under the Company’s Contingent Stock Performance Awards.     The Company’s contingent stock performance awards provide the recipient with the potential to earn shares of the Company’s common stock based on the Company’s achievement of stated cumulative diluted earnings per share (“EPS”) and cumulative net revenue (“Revenue”) targets over a three-year period. In 2013, the Compensation Committee modified the EPS and Revenue metric weightings. For the 2013 contingent stock performance awards, the Company’s achievement against its EPS metric is weighted 60% and the Company’s achievement against the Revenues metric is weighted 40% for purposes of earning shares under the award. These metrics were previously weighted evenly. Additionally, the cumulative EPS threshold must be met for the cumulative Revenue metric to payout at all. Therefore, if the Company does not achieve at least the threshold cumulative EPS over the performance period, no shares will be earned under the awards, regardless of whether the targeted cumulative Revenues are achieved or exceeded. The Committee believes that these changes better align this long-term incentive award with the creation of shareholder value.

Engaged in an Extensive Shareholder Outreach Program.     Following our 2013 Say on Pay result, where approximately 64% of votes cast were voted in favor of our executive compensation program as disclosed in our 2013 Proxy Statement, the Company reached out to and offered to speak with its largest investors, including institutional investors representing approximately 93% of shares held by our top 25 institutional investors and approximately 55% of our total outstanding shares as of year-end 2013. As of the date of this Proxy Statement, a combination of the Company’s Compensation Committee Chair, Board Chairman and members of senior management have spoken with twelve of our largest institutional shareholders, representing 41 million shares or about 42% of the institutional voting authority as of year-end. We also spoke with representatives from the proxy advisory service firms ISS and Glass Lewis to discuss our compensation programs and philosophies, our 2013 shareholder outreach program, what we have done or plan to do based upon the feedback we received from investors and their questions. The Company found these engagements extremely informative and valuable, and we are very appreciative of the time that our investors and the advisory services took to speak with us. Based on feedback received in these discussions, the Company has taken or will take certain actions that are described on page 27 of this Proxy Statement.

Other Key Compensation Program Features

 

Hasbro also continues to employ several key features in our compensation programs and practices that reflect our strong compensation governance practices, including:

 

Key Compensation Program Features

Executive compensation program driven by strong pay-for-performance philosophy

New share retention policy for executives and share ownership guidelines

Policy Prohibiting Pledging and Hedging

Clawback Policy

Double Trigger Change in Control Provision for Equity Grants awarded on and after April 2013

Elimination of the tax gross-up provisions contained in the prior agreements with our Chief Executive Officer

Meaningful/Stretch Performance Goals

Annual review of compensation program to ensure Hasbro is incenting its executives to take an appropriate level of business risk, but not excessive risk

The Company’s Compensation Committee utilizes the services of an outside, independent compensation consultant, which has regular interactions with the Committee and its Chair both with management and during executive sessions

Limited perquisites

 

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Designing the Executive Compensation Program at Hasbro

 

Hasbro’s executive compensation program is structured with input, analysis, review and/or oversight from a number of sources. Those sources include:

 

 

The Compensation Committee;

 

 

The Company’s Human Resources and Compensation Departments;

 

 

The Committee’s and Company’s outside compensation consultants;

 

 

The Company’s Chief Executive Officer; and

 

 

Market studies and other comparative compensation information.

All final decisions regarding the compensation and retention programs for the Company’s executive officers, including the Named Executive Officers, are made by the Compensation Committee. The compensation and retention package for the Company’s Chief Executive Officer is also reviewed and approved by the full Board of Directors without Mr. Goldner being present.

In reviewing and establishing the proposed fiscal 2013 compensation and retention program for the Company’s executive officers, the Committee received input and recommendations from Compensation Advisory Partners LLC (“CAP”), who served as the Committee’s outside compensation consultant. CAP also worked extensively with the Committee to design the compensation elements contained in the Amended and Restated Employment Agreement between the Company and its Chief Executive Officer. CAP was retained by, and reported directly to, the members of the Committee. CAP advised the Committee with respect to the Committee’s review of the Company’s 2013 executive compensation programs and provided additional information as to whether the Company’s proposed 2013 executive compensation programs were competitive, fair to the Company and the executives, reflected strong alignment between pay and performance, provided appropriate retention to executives, and were effective in promoting the performance of the Company’s executives and achievement of the Company’s business and financial goals. CAP did not perform any other work for the Company in 2013 and in order to maintain CAP’s independence the Committee has established a policy that CAP will not provide any services directly to the Company and will only provide services directly to the Committee.

In February 2014, the Committee reviewed CAPs independence relative to the following factors: (i) CAP’s provision of other services to the Company, of which there are none; (ii) the amount of fees CAP receives from the Company as a percentage of CAP’s total revenue; (iii) the policies and procedures of CAP that are designed to prevent conflicts of interest; (iv) any business or personal relationship between Hasbro officers and directors and CAP or its compensation consultants, of which they aren’t any; (v) any Hasbro stock owned by CAP or its compensation consultants, of which there isn’t any; (vi) any business or personal relationship between our executive officers and CAP or any of its compensation consultants, of which there aren’t any; and (vii) any other factors that would be relevant to CAP’s independence from management. On the basis of such review, the Committee concluded that CAP is independent and no conflicts of interest exist or relationships that may impair CAP’s independence.

In addition to the work performed by CAP directly for the Committee with respect to the 2013 compensation program, Towers Watson & Co. (“Towers Watson”) was retained by the Company’s Human Resources and Compensation Departments to perform analysis on the Company’s proposed compensation and retention programs, including its equity plan. As part of this work, Towers Watson assisted the Company with the preparation of compensation information presented to the Committee at various times during 2013, including tally sheets showing each executive officer’s forward-looking target, and backward looking actual earned compensation, as well as certain of the compensation tables and other information included in the Company’s Proxy Statement. In addition to this work, in 2013 Towers Watson also performed (i) consulting and benefits administration services for the Company, including administration services for the Company’s health and group benefits programs and retirement plans, (ii) work in connection with the Company’s online total reward statements for employees and (iii) work providing compensation surveys and other compensation and benefits information.

Additionally, the Company’s Human Resources and Compensation Departments retained Mercer LLC to perform consulting services relating to the Company’s long-term incentive plan, retirement investments, retirement plans and health and welfare plans.

The Company’s Chief Executive Officer, Chief Human Resources Officer, Senior Vice President, Talent & Rewards and Chief Legal Officer each attend portions of the meetings of the Committee. However, the Committee also considers and discusses issues and the Company’s compensation programs without the presence of any officers or employees of the Company.

For the Named Executive Officers other than the Chief Executive Officer, as well as for the Company’s other executive officers, the Company’s Chief Executive Officer makes recommendations for each individual’s compensation package to the Committee. In making these recommendations the Chief Executive Officer considers the individual’s performance and past contributions to the Company, the potential future contribution of the individual to the Company and achievement of the Company’s business and financial goals, including the potential for the individual to make even greater contributions to the Company in the future than he or she has in the past, the risk that the individual may be lured away by a competitor, input from the Company’s Human Resources and Compensation Departments and market compensation data. The Committee then discusses these recommendations with the Chief Executive Officer, both with and without the presence of the Company’s Chief Human Resources Officer, the Company’s Senior Vice President, Talent & Rewards and

 

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outside compensation consultants. The Committee further reviews and discusses these recommendations in executive sessions, and as part of these discussions the Committee discusses the proposed compensation and retention programs with representatives of its outside compensation advisor.

For the Chief Executive Officer, the Committee directly determines the compensation package, receiving input, recommendations and market data as it deems appropriate from the Company’s Human Resources and Compensation Departments, the Committee’s outside compensation consultant, and the Company’s compensation consultant. Other than the Company’s Chief Human Resources Officer and Senior Vice President, Talent & Rewards, the Committee does not receive a recommendation as to the Chief Executive Officer’s compensation from any member of Company’s management or any other employees of the Company. In addition to being reviewed and approved by the Committee, the compensation package for the Company’s Chief Executive Officer is reviewed and approved by the full Board of Directors in executive session. The Committee does not delegate, to management or any other parties, its duties to review and approve the Company’s executive compensation programs, including the compensation programs for all of the Named Executive Officers.

Although the Company considers the tax treatment, including the requirements of Code Section 162(m), and the accounting treatment of various forms of compensation in determining the elements of its executive compensation program and, to the extent it is consistent with meeting the objectives of the Company’s executive compensation program, structures such compensation to maximize the ability of the Company to receive a tax deduction for such compensation, the Company feels strongly that maximizing the performance of the Company and its executives is more important than assuring that every element of compensation complies with the requirements for tax deductibility under Section 162(m). The Company selects performance goals under its variable compensation programs that are intended to be objective within the meaning of the Code, such as achieving certain net revenues, operating margin, free cash flow or earnings per share goals. However, in certain situations, such as with our targeted retention grants of restricted stock units, the Company may feel a particular goal, such as retaining a key talented individual, is very important to the Company, even though the form of compensation being used is not considered objective within the meaning of the Code or the associated compensation is otherwise not deductible under the requirements of Section 162(m). The Company reserves the right to compensate executives for achievement of such objectives, or to reflect other individual performance measures in an executive’s compensation, even if they do not comply with the requirements of Section 162(m).

Primary Elements of 2013 Executive Compensation

 

The executive compensation and retention program for fiscal year 2013 was composed of the following primary elements:

 

 

base salary;

 

 

cash management incentive awards;

 

 

equity awards; and

 

 

employee benefits; coupled with

 

 

share ownership guidelines.

The Company uses these five elements in the combination it believes (i) maximizes performance and business results, (ii) establishes a solid pay for performance compensation structure and (iii) appropriately divides the compensation of its executives among fixed and variable components. Some variable compensation is tied to achievement of yearly financial objectives. Other compensation, such as option grants vesting over multiple years and performance share awards with multi-year performance periods, are tied to the achievement of longer-term business and financial goals and the creation of longer-term shareholder value. The Company seeks to have the large majority of its overall executive compensation program comprised of variable performance-based elements, reflecting a commitment to pay for performance.

Base Salary

 

The salaries for all five of the Company’s Named Executive Officers in fiscal 2013 are included in the Summary Compensation Table on page 47 of this Proxy Statement. The Company’s philosophy is to only increase executive base salaries in the event of: (i) changes in responsibility, (ii) particular achievements or noteworthy contributions to the performance of the Company, (iii) concerns over executive retention or (iv) perceived lack of competitiveness with market compensation offered to executives with similar responsibilities, expertise and experience in other companies the Company considers to be comparable to and/or competitive with the Company.

Base salaries for new executive officers are initially set at a level the Company determines represents a competitive fixed reward to the executive. By “competitive” the Company means the reward is sufficient to (i) hire the executive in question, rather than lose that person to a competitive employment opportunity, (ii) retain the executive, and (iii) fairly compensate the executive for his or her responsibilities, skills and contributions to the Company. This is done by evaluating the responsibilities of the position being filled, the experience of the individual being hired and the competitive marketplace for comparable executive talent.

In the first quarter of 2013, Mr. Hargreaves transitioned from the role of Senior Vice President and Chief Operating Officer to Executive Vice President and Chief Strategy Officer. As a result of that change, Ms. Thomas, Mr. Billing and Mr. Frascotti each assumed additional

 

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responsibilities, and in July 2013 following a review of the Compensation Committee’s annual market check, the base salaries for Ms. Thomas, Mr. Billing and Mr. Frascotti, were increased to $542,000, $515,000 and $515,000, respectively. Mr. Goldner’s base salary was increased from $1.2 million to $1.3 million as of July 1, 2013 pursuant to the terms of his Amended and Restated Employment Agreement with the Company.

Management Incentive Awards

 

Summary of 2013 Management Incentive Awards

All of the Company’s employees participate in some form of annual incentive program. Approximately 31% of the Company’s employees, including all of the Named Executive Officers, received management incentive awards with respect to fiscal 2013. The management incentive award is performance based, with payout of these awards tied to the Company’s achievement of specific yearly net revenue, operating margin and free cash flow performance objectives, as well as individual performance for the year to the extent discussed below.

Management incentive awards for the Company’s executive officers for fiscal 2013 were determined under two programs, the 2009 Senior Management Annual Performance Plan (the “Annual Performance Plan”) and the 2012 Performance Rewards Program (the “PRP”). The Annual Performance Plan has been approved by the Company’s shareholders and is intended to allow for the deduction by the Company of the bonuses paid to “covered employees” as defined in Code Section 162(m). The PRP is not a shareholder approved plan. Despite certain differences in the two plans, both the Annual Performance Plan and the PRP use the same corporate performance criteria and targets. Under the Annual Performance Plan, awards are structured to provide a range of maximum permissible payouts corresponding to a range of Company performances against the performance targets, with the Committee reserving negative discretion to reduce any such award to any level below the achieved maximum payout as it deems appropriate. The actual achievement against targeted corporate financial performance and attainment of key non-financial goals are the primary factors used by the Committee in exercising this negative discretion under the Annual Performance Plan.

The Committee established the fiscal 2013 corporate and business unit performance goals for the Company under these two plans in the first quarter of fiscal 2013. These performance goals were based on the 2013 operating plan and budget approved by the Company’s Board. Setting performance goals involves both selecting the performance metrics that will be used to drive short-term business performance and establishing the performance targets for each of those metrics. The Committee used three performance metrics to measure corporate performance in 2013. The three corporate performance criteria, and their respective weights under the plans, were as follows: (i) total net revenues (40%), (ii) operating margin (40%) and (iii) free cash flow (20%). Free cash flow is defined as the Company’s cash flow from operations, minus capital expenditures. The Committee selected these three performance metrics to capture the most important aspects of the top and bottom line performance of the Company, in the form of revenues, profitability and cash generation. The Committee sets the relative weighting among the performance metrics in accordance with the relative importance of those metrics, in the Committee’s view, to the Company’s performance and the strength of the Company’s business.

The table set forth below provides the 2013 corporate total net revenues, operating margin and free cash flow performance targets established by the Committee at the beginning of the year, as well as the Company’s actual performance against those targets in 2013. The Company’s actual weighted performance in fiscal 2013 under the PRP corresponded to a 94% weighted achievement of the target corporate performance goals. When the performance goals were set at the beginning of 2013, the Committee provided that certain events which might occur during the performance period after the goals were set would not be taken into account in determining the Company’s performance against these targets. Such exclusions included events such as the impact of any acquisitions or dispositions consummated by the Company during the year which had a total acquisition or sale price, as applicable, of $100 million or more. For 2013, in accordance with the PRP’s terms, the calculation, excluded the impact of the Company’s investment in Backflip Studios, certain restructuring activities and the Company’s settlement of an adverse arbitration award. Similarly, the Committee provided that in assessing the Company’s performance, actual results would not be impacted by any major discrete restructuring activities undertaken by the Company after the goals were set which resulted in costs or charges to the Company of $10 million or more.

 

Performance Measure  

Weighting under

Incentive Award

Opportunity

    2013
Performance
Target
    2013
Actual
Performance
   

2013

Performance as

a Percentage of

Target

    2013
Payout
Percentage
 

2013

Weighted

Payout

 
Total Net Revenues     40%            $ 4.191 billion      $ 4.08 billion        97%           94%     37.6%    
Operating Margin     40%              14.69%        14.35%        98%           96%     38.4%    
Free Cash Flow     20%            $ 388.59 million      $ 364.10 million        94%           88%     17.6%    
                      Total 2013 Weighted Payout     94%    

The total weighted payout percentage of 94% against target (based on performance against the three corporate performance metrics ranging from 94% to 98%) reflects that leverage is applied to reduce awards to an increasingly disproportionate extent as performance falls further below target. If the Company achieves less than a threshold performance of 80% of target against a given metric, the payout for that metric is 0% under the PRP.

 

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The Committee sets the corporate and business unit performance goals under the PRP awards at levels it believes require strong performance for a target payout and superior performance for a greater than target payout. The corporate performance targets for fiscal 2013 represented the following changes over the Company’s actual 2012 performance under the PRP in order to achieve 100% of 2013 target performance, (i) an increase of $102 million in total net revenues over the 2012 net revenues of $4.089 billion, (ii) an operating margin increase of 0.32% compared to 2012 adjusted operating margin of 14.37%, and (iii) a decrease of $34.11 million in free cash flow over 2012’s free cash flow of $422.7 million. The lower 2013 cash flow performance target factored in anticipated royalty advance payments the Company would make in 2013, and was $81.35 million higher than the performance target set in 2012.

For Mr. Goldner, Mr. Hargreaves, Mr. Billing and Mr. Frascotti who participated in the Annual Performance Plan in 2013, the Compensation Committee established a more rigorous process for exercising negative discretion in making participant bonus calculations working within the requirements of Code Section 162(m). The framework is outlined beginning on page 34 of this Proxy Statement.

Among the business performance factors and personal objectives considered by the Committee in determining Mr. Goldner’s actual bonuses for 2013 were, in the negative, the underperformance of the Company in its goal to grow consolidated net revenues, which was driven by a decline in the Boys category and the Company’s lower than targeted revenues in certain developed markets during the fourth quarter. In partial mitigation of this negative factor were that the Company: (i) delivered the Company’s thirteenth consecutive year of delivering underlying earnings per share growth, absent certain charges and benefits described on page 22, (ii) grew revenue in the Company’s Franchise Brands 15% as compared to 2012, (iii) delivered 26% revenue growth in the Girls category, generating $1 billion in revenues for the first time in the Company’s history, (iv) continued the successful re-imagination and building of the games business, with year-over-year growth, (v) continued the successful development of the Company’s business in emerging markets, growing the emerging markets business 25% to $575 million in revenues, and (vi) and established and began implementation of a cost savings initiative designed to reduce underlying annual operating costs by $100 million by the end of 2015.

As with the other executive officers participating in the Annual Performance Plan for 2013, for each of Mr. Hargreaves, Mr. Billing and Mr. Frascotti, the Committee considered the recommendations of Mr. Goldner as one of the factors in making the management incentive bonus determinations. Mr. Goldner in his recommendations to the Committee, and the Committee in their determination, weighed the underperformance of the Company against its goal of growing consolidated net revenues, and the appropriateness of having Mr. Hargreaves’, Mr. Billing’s and Mr. Frascotti’s incentive bonuses for 2013 align with the management incentive awards for other members of the Company’s management team and other employees. In partial mitigation of this revenue underperformance, a positive adjustment for these Named Executive Officers were based on factors including:

Mr. Hargreaves:  (i) his contribution to the delivery of the Company’s thirteenth consecutive year of underlying earnings per share growth, absent certain charges and benefits described on page 22, (ii) his critical role in expanding the relationships with certain of our key partners, including extending the relationship with The Walt Disney Company for the MARVEL and STAR WARS franchises, and (iii) his integral role in successfully completing the Company’s purchase of a 70% majority interest in Backflip Studios, which significantly strengthened the Company’s mobile gaming expertise.

Mr. Billing: (i) his successful management of the Company’s global product development function, including the achievement of reductions in the time taken to develop and bring products to market globally and increases in product development and sourcing efficiencies, (ii) Mr. Billing’s integral role in implementation of the Company’s cost savings initiative designed to reduce underlying annual operating costs by $100 million by the end of 2015, (iii) Mr. Billing’s success in further building the Company’s digital product development capabilities, (iv) his role in bringing to market industry leading product innovation across the Company’s brands and in helping to re-imagine and grow the Company’s games business, and (v) Mr. Billing’s role in contributing to the Company’s development into a global branded-play company.

Mr. Frascotti: (i) his role in successfully executing the Company’s global brand blueprint strategy, resulting in revenue growth for the Franchise Brands of 15% in 2013, (ii) his contribution to the 26% revenue growth in the Girls category, growing revenues and reaching a record $1 billion in revenues for the first time in the Company’s history, (iii) his role in the re-imagination and growth of the Company’s games business, (iv) the tremendous success in driving the Company’s Wizards of the Coast business, including the MAGIC: THE GATHERING trading card game and MAGIC: THE GATHERING online, (v) his role in bringing to market industry leading product innovation, and (vi) Mr. Frascotti’s role in contributing to the Company’s development into a global branded-play company and the implementation of the Company’s franchise brand management structure.

In the case of each of Messrs. Goldner, Hargreaves, Billing and Frascotti the executive was paid an incentive bonus the Committee believed appropriately balanced the performance of the Company with the executive’s respective significant contributions to achieving other key objectives for the Company’s in 2013.

Due to the fact that the requirements of Code Section 162(m) do not, by their terms, apply to the compensation of Chief Financial Officers, Ms. Thomas participates in the PRP, rather than in the Annual Performance Plan. Under the PRP, Ms. Thomas’ fiscal 2013 management incentive award opportunity was set to provide for a payout of 70% of earned salary for target performance. A range of payouts as a percentage of target then corresponded to a range of performances against target both above and below 100%. Threshold performance for each given financial metric under the PRP is set at 80% of target performance for purposes of the achievement of that

 

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goal contributing to payout of the management incentive award. An 80% achievement of a performance goal under the PRP equates to a 60% payout against that goal. In addition to taking into account Company performance, the PRP also allows for a multiplier of up to 150% of the formula award in recognition of superior performance against individual performance objectives.

The 94% weighted payout against the corporate performance goals in 2013 would have corresponded with approximately 94% of the target payout for Ms. Thomas under the management incentive award for 2013, absent personal performance multipliers and adjustments. The corporate formula award under the PRP, prior to personal performance adjustments or discretionary awards, for Ms. Thomas, would have been $347,411. In determining the actual bonus for Ms. Thomas, as with the other executive officers, the Committee also considered the recommendations of Mr. Goldner. Ms. Thomas was paid a bonus of $400,000 for fiscal 2013 in recognition of: (i) her support of Mr. Goldner in the formation and implementation of corporate objectives, (ii) successful management of the Company’s expenses and cash flow, (iii) driving the Company’s global information technology enhancements, (iv) her role in the Company’s thirteenth consecutive year of delivering underlying earnings per share growth, absent certain charges and benefits described on page 22, (v) contributions to the ongoing return of significant cash to shareholders, through both the quarterly cash dividend and share repurchase programs, (vi) significant contributions to the development and implementation of a cost savings initiative designed to reduce the Company’s underlying annual operating costs by $100 million by the end of 2015, and (vii) successful management of the Company’s enterprise risk management (ERM) framework.

In all cases, the bonuses for performance under the Annual Performance Plan and the PRP for executive officers, including all of the Named Executive Officers, were reviewed and approved by the Committee. The bonus for Mr. Goldner was also reviewed and approved by the full Board.

The maximum awards for each of the Named Executive Officers for 2013, as well as the threshold and target awards for Named Executive Officers participating in the PRP Plan, are included in the Grants of Plan-Based Awards table that follows this discussion on page 49.

Long-Term Equity Awards

 

In determining the 2013 annual equity award targets the Committee reviewed the overall competitiveness of the total target direct compensation levels for the Named Executive Officers and considered the appropriate mix of that total target direct compensation which should be made in the form of equity awards to align pay with performance and total shareholder return. To a lesser extent the Committee and its outside advisor, CAP, consider the retention value and award opportunity represented by outstanding prior equity grants made to the executive officers in reviewing and establishing equity grants. In conjunction with the Company’s stock ownership guidelines, which are described below, the Committee is also reviewing each executive officer’s progress in achieving their targeted stock ownership level as a criterion in establishing appropriate target equity grant levels.

For fiscal 2013, the Committee approved target annual equity award values for each of the Company’s executive officers and other equity eligible employees. These targets were expressed as a percentage of each individual’s base salary. For the Named Executive Officers the annual target equity award values in 2013, as a percentage of their base salaries, were as follows:

 

Name    Equity Grant  Target Value as a Percentage of Salary
Brian Goldner    500%
David Hargreaves    0%
Deborah Thomas    175%
Duncan Billing    175%
John Frascotti    175%

Effective in 2013, Mr. Hargreaves no longer participates in the Company’s equity compensation plans, and instead receives his variable incentive based compensation through an enhanced annual cash incentive compensation opportunity. In recognition of their key contributions to the Company, and the role they are playing in the Company’s future business performance and development, in March of 2013 each of Ms. Thomas, Mr. Billing and Mr. Frascotti were promoted to Executive Vice President. For 2013 the target annual equity compensation grants were increased from 150% to 175% of their base salary. This increase in variable compensation will strengthen the alignment between pay and performance and provide an enhanced reward for these key executives only if the Company achieves its objectives.

In addition to its own analysis and the recommendations of CAP, the Committee considers the recommendations of Mr. Goldner when establishing the target equity award levels for each of the other Named Executive Officers. In all cases the final target equity award values were set at levels the Committee believed would compensate the individual for future achievement of the Company’s long-term financial goals and stock price appreciation in a manner commensurate with their duties and contributions to the long-term performance of the Company and its stock performance.

The overall target annual equity award pool value for the Company’s Chief Executive Officer as established by the Committee is generally divided equally between two award types, non-qualified stock options and performance share awards, such that approximately 50% of

 

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the total target equity award value would be represented by each type of award in the pool. This division of the targeted award value reflected the Committee’s belief that over the performance period the realization of equity award values should be divided between achievement of the Company’s longer-term internal financial targets and the Company’s stock price appreciation.

The overall target annual equity award pool value for Ms. Thomas, Mr. Billing and Mr. Frascotti, as established by the Committee, is generally divided between three award types, 50% of target value in performance share awards, 25% of target value in non-qualified stock options and 25% of target value in time-based restricted stock units. This portfolio of the targeted award value reflected the Committee’s belief that over the performance period the realization of equity award values should be balanced among achievement of the Company’s longer-term internal financial targets, the Company’s stock price appreciation and retention of key executive talent.

The Committee exercises some discretion in adjusting the specific per share option award, performance share award and time-based restricted stock unit award division for each Named Executive Officer, such that the ultimate awards may not be exactly even, in terms of the value of the portion attributable to options, performance shares and time-based restricted stock units. The target values for 2013 were based on the Company’s share price at the time the values are determined.

Performance Share Awards

For the approximate 50% of the annual equity award value in 2013, which was made in the form of stock performance awards, these awards provide the recipient with the potential to earn shares of the Company’s common stock based on the Company’s achievement of stated cumulative diluted earnings per share (“EPS”) and cumulative net revenue (“Revenue”) targets over a three-year period beginning January 2013 and ending December 2015 (the “Performance Period”). The cumulative net revenue and diluted earnings per share targets were taken from the Company’s long-term strategic plan (for the years 2014 and 2015) and the Company’s budget and operating plan (for 2013) as those plans had been approved by the Company’s Board of Directors.

The Company considers the specific target EPS and Revenue levels for ongoing performance periods to be confidential information which would harm the Company if it were disclosed, as they are based on confidential internal plans and forward-looking expectations concerning the Company’s performance over a multi-year period. The financial targets reflected in the Company’s budget and operating plan, and in the Company’s strategic plan, as well as the performance targets set forth in the contingent stock performance awards and in the management incentive awards, both of which are based on the Board approved plan levels, were all set at levels which the Committee and the Board determined will challenge the Company and its executive team in working to meet the objectives and will require solid performance from the Company, and in turn its executives, in order to achieve a threshold payout, and superior performance in managing the Company’s business to achieve a higher than target payout. The maximum payout under the contingent stock performance awards granted in 2013 for overachievement of the financial objectives is equal to 200% of the target number of shares. Threshold performance for both metrics must be achieved to earn a threshold payout of 50% of the target number of shares under those awards. Assuming the threshold target is met for each cumulative metric, the actual payout scales between 50% (threshold) to maximum (200%) with achievement of the target metric equating to a 100% payout for that metric.

For contingent stock performance awards granted in 2013, the Company’s achievement against its EPS metric is weighted 60% and the Company’s achievement against Revenues metric is weighted 40%. Previously the metrics were weighted equally. Ninety-percent (90%) achievement of each target was established as a threshold to that metric contributing to the ultimate award payout under the awards, however, for the 2013 contingent stock performance awards, the EPS metric threshold percentage must be achieved for the Revenue metric measure to payout at all. For example, eighty percent (80%) achievement of the EPS metric, which is below the threshold requirement of ninety percent (90%), despite the achievement of one hundred percent (100%) of the Revenue metric, would result in a payout of zero shares under the award.

Actual Performance Under the 2011 Contingent Stock Performance Awards

 

     Three-Year
Target
Performance
     Three-Year
Actual Performance
     % of Target  

Cumulative Revenues

   $ 14,478,000       $ 12,241,978         84.55

Cumulative EPS

   $ 10.77       $ 8.08         75

 

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The following table shows the target share payouts, as a percentage of the target number of shares covered by a stock performance award, corresponding with various combined levels of achievement against the EPS and Revenue targets for the contingent stock performance awards made in 2011.

Revenues Measure

 

EPS Measure  

Revenues

25% or more

over Target

 

Revenues of at

least 10%

over, but not

25% or more
over, Target

 

Revenues of at

least Target

but not 10%

or more over

Target

 

Revenues of at

least 95% of

Target but

less than

Target

 

Revenues of at

least 90% of

Target but

less than 95%

of Target

 

Revenues of

under 90% of

Target

EPS of 25% or more over Target

  200%        163%        150%        138%        125%        0%      

EPS at least 10% over, but not 25% or more over, Target

  163%        125%        113%        100%        88%        0%      

EPS of at least Target but not 10% or more over Target

  150%        113%        100%        88%        75%        0%      

EPS of at least 95% of Target but less than Target

  138%        100%        88%        75%        63%        0%      

EPS of at least 90% of Target but less than 95% of Target

  125%        88%        75%        63%        50%        0%      

EPS under 90% of Target

  0%        0%        0%        0%        0%        0%      

Because the Company’s performance against both the net revenue and earnings per share targets under the 2011 contingent stock performance awards was below the 90% thresholds necessary to earn any shares under the awards, absolutely no shares were earned by any of the recipients of the 2011 contingent stock performance awards. This is the second consecutive year that no shares have been awarded under the annual contingent stock performance awards. This is the case for the Named Executives Officers as well, including Mr. Goldner. In the Summary Compensation table appearing on page 47 of this Proxy Statement, Mr. Goldner is shown as having received contingent stock performance awards in 2011 with an aggregate grant date value of $2,233,459. However, the actual value realized by Mr. Goldner under these awards was $0, due to the Company’s aggressive performance targets, shortfall in meeting those targets, and direct pay for performance linkage in the contingent stock performance awards.

Stock Options

For the approximately 25% of the target equity award value made in the form of stock options, or 50% in the case of the Company’s Chief Executive Officer, the options vest in three equal cumulative annual installments on the first three anniversaries of the date of grant, subject to the optionee’s continued employment with the Company through such dates, and have seven-year terms.

The Company does not manage the timing of equity grants to attempt to give participants the benefit of material non-public information. Further, all option grants are made with an exercise price at or above the average of the high and low sales prices of the Company’s common stock on the date of grant.

Restricted Stock and Restricted Stock Units

The Company also uses restricted stock and restricted stock units as a reward and retention mechanism. The restricted stock units granted in 2013 to each of Ms. Thomas, Mr. Billing and Mr. Frascotti represented approximately 25% of their annual equity award value in 2013 and cliff vest on the third anniversary of the date of grant provided the recipient stays employed with the Company during the three-year vesting period. Pro-rata vesting is provided earlier only in the event of the death, disability, early retirement (with at least 10 years of credited service) or retirement at age 65 (with at least 5 years of credited service), of the recipients. All other terminations of employment result in termination of the awards. Ms. Thomas received a grant of 5,633 restricted stock units in 2013, and Mr. Billing and Mr. Frascotti each received a grant of 6,750 restricted stock units in 2013.

The Committee believes the equity compensation awards to the Company’s executive officers are appropriate to properly incentivize these officers to achieve maximum performance, to align their interests with those of the Company’s shareholders, and to promote retention of executives, while not incentivizing the executive officers to take undue risks or otherwise take actions which are contrary to the best interests of the Company.

The stock option, performance share awards and restricted stock unit grants to the Company’s Named Executive Officers in 2013 are reflected in the Grants of Plan-Based Awards table that follows this report. The grant date for the Company’s yearly stock performance awards and options in fiscal 2013 was April 24, 2013.

 

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In making the yearly equity grants the Committee specifically approves the grants for every member of the Company’s senior management team, which includes every executive officer. Other than the annual equity grants, off-cycle equity grants are made during the year generally only in the case of new hires or in connection with significant promotions or in the case of significant actions taken to increase the retention value of an equity compensation package. All of these off-cycle grants are also reviewed and approved by the Committee.

Stock Ownership Policy and Requirement to Retain Net Shares Until Ownership Requirement Level is Satisfied

 

The Company has historically had share ownership guidelines which apply to all employees at or above the Senior Vice President level. The share ownership guidelines establish target share ownership levels which executives are expected to achieve over a five-year period and then maintain, absent extenuating circumstances which are approved by the Company’s Human Resources Department, for as long as they remain with the Company. The target ownership levels are expressed as a percentage of the executives’ base salary and range from 50% of yearly base salary for certain Senior Vice Presidents to 500% of base salary for the Company’s Chief Executive Officer. The table below shows the stock ownership levels, as a percentage of base salary, which each of the Named Executive Officers are required to achieve and maintain under the stock ownership guidelines. Each of the Named Executive Officers has achieved their share ownership requirements.

 

Name    Stock Ownership Requirement
Brian Goldner    5 x Base Salary
David Hargreaves    3 x Base Salary
Deborah Thomas    2 x Base Salary
Duncan Billing    2 x Base Salary
John Frascotti    2 x Base Salary

An executive has five (5) years to achieve his or her stock ownership requirement level. To further align executive’ interests with the long-term interests of shareholders, effective March 1, 2014, the Company adopted amendments to the Hasbro, Inc. Executive Stock Ownership Policy (“Stock Ownership Policy”), which include a requirement to retain a portion of any net shares realized from stock vesting or option exercises during the five-year period the executive has to achieve their stock ownership requirement until the executive’s ownership requirement level is satisfied. Until the applicable ownership level is achieved, the executive is required to retain an amount equal to at least 50% of the net shares received as a result of the exercise, vesting or payment of any equity awards granted to the executive following such executive becoming subject to the Stock Ownership Policy. Once the stock ownership requirement level is achieved, the executive is required to maintain the stock ownership level for as long as the executive is employed by the Company and is subject to the Stock Ownership Policy.

Executive Benefits

 

In addition to receipt of salary, management incentive awards and equity compensation, the Company’s U.S. based officers also participate in certain employee benefit programs provided by the Company.

Beginning in 2008, the Company provides retirement benefits to its employees primarily through the 401(k) Retirement Savings Plan (the “401(k) Plan”) and the Supplemental Benefit Retirement Plan (the “Supplemental Plan”). The Company’s Pension Plan (the “Pension Plan”) and the pension portion of the Supplemental Plan were frozen effective December 31, 2007. The enhanced 401(k) Plan and the Supplemental Plan, provide for Company matching contributions, an annual Company contribution of 3% of aggregate salary and bonus and a transition contribution ranging from 1% to 9% for the years 2008 through 2012 for participants meeting certain age and service requirements. In lieu of the annual Company and transition contributions, Mr. Hargreaves receives certain retirement benefits discussed below. Other executive officers are eligible to participate in the 401(k) Plan and the Supplemental Plan on the same basis as all other U.S. Hasbro employees.

Executive officers hired prior to December 31, 2007, continue to participate in the Pension Plan and the pension portion of the Supplemental Plan, which are described starting on page 52 of this Proxy Statement, but, except as is discussed below for Mr. Hargreaves, will not accrue additional benefits thereunder after December 31, 2007.

The Supplemental Plan is intended to provide a competitive benefit for employees whose employer-provided pension benefits and retirement contributions would otherwise be limited. However, the Supplemental Plan is designed only to provide the benefit which the executive would have accrued under the Company’s Pension Plan and 401(k) Plan if the Code limits had not applied. It does not further enhance those benefits.

The amount of the Company’s contributions to the Named Executive Officers under both the 401(k) Plan and the Supplemental Plan (401(k)), are included in the “All Other Compensation” column of the Summary Compensation Table that follows this report.

In light of the significant reduction in projected retirement income resulting from the retirement program redesign, the Company elected to provide Mr. Hargreaves, who has been with the Company for 31 years, with a retirement benefit which effectively grandfathered for

 

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Mr. Hargreaves the Company’s retirement program as it was in effect prior to January 1, 2008. Mr. Hargreaves retirement benefit is described on page 54 of this Proxy Statement.

The executive officers of the Company are eligible for life insurance benefits on the terms applicable to the Company’s other employees. The Company’s executive officers participate in the same medical and dental benefit plans as are provided to the Company’s other employees.

Executive officers are also eligible to participate in the Company’s Nonqualified Deferred Compensation Plan (the “Deferred Compensation Plan”), which is available to all of the Company’s employees who are in band 40 (director level) or above and whose annual compensation is equal to or greater than $115,000. The Deferred Compensation Plan allows participants to defer compensation into various investment vehicles, the performance of which determines the return on compensation deferred under the plan. Potential investment choices include a fixed rate option, a choice that tracks the performance of the Company’s Common Stock, and other equity indices. Earnings on compensation deferred by the executive officers do not exceed the returns on the relevant investments earned by other non-executive officer employees deferring compensation into the applicable investment vehicles.

The Company reimburses designated executive officers for the cost of certain tax, legal and financial planning services they obtain from third parties provided that such costs are within the limits established by the Company. The 2013 annual limit on these costs for the Chief Executive Officer was $25,000, for the Chief Operating Officer was $7,500, and for the Chief Financial Officer was $5,000. In 2013 Mr. Goldner’s reimbursement exceeded the above limit due to reimbursement of certain costs associated with the negotiation of his amended and restated employment agreement, which was approved by the Compensation Committee. The cost to the Company for this reimbursement to the Named Executive Officers is included in the “All Other Compensation” column of the Summary Compensation Table.

Market Compensation Checks

 

In designing the fiscal 2013 executive compensation program, the Committee and the Company also reviewed certain market studies as a market check for the proposed executive officer: (i) base salaries, (ii) total target cash compensation (comprised of base salaries and target management incentive awards together) and (iii) total target direct compensation (comprised of base salaries, target management incentive awards and target equity awards, combined). Such market information is one element reviewed by the Committee, but the Committee does not simply set compensation levels at a certain benchmark level or within a certain benchmark range with respect to other companies. The Committee and its advisors consider the appropriate structure and levels of the compensation packages for the executive officers and use market check data only as one element of evaluating the reasonableness of those proposed packages.

For purposes of establishing a market check for base salaries, total target cash compensation and total target direct compensation for the Named Executive Officers, other than Mr. Goldner, in 2013 the Company and the Committee reviewed the 2012 US Mercer Benchmark Database — Executive, as well as Towers Watson’s 2012 Executive Compensation Databank. Both the Mercer and Towers Watson surveys are employed by the Company as a market check against other companies of similar size, in terms of their consolidated net revenues. Within these surveys the Committee and the Company focused on companies in the general industry category. The total sample of companies in the general industry category in each data set is then size adjusted to indicate pay levels for a company with approximately the level of annual revenues of Hasbro. There are hundreds of companies included in the Mercer and Towers Watson data sets. Appendix C to this Proxy Statement contains a listing of all of the companies included in the 2012 US Mercer Benchmark Database — Executive, and Appendix D contains a listing of all of the companies included in the Towers Watson 2012 Executive Compensation Databank.

For Mr. Goldner, the Committee conducted a pay for performance comparison in 2013. The Company’s core peer group, which was used in connection with this pay for performance comparison was updated in October 2013 as described on page 36 of this Proxy Statement. The updated peer group includes the following companies:

 

Viacom, Inc.    Jarden Corporation    Mattel, Inc.
   
The Clorox Company    Discovery Communications, Inc.    Electronic Arts Inc.
   
Activision Blizzard, Inc.    Spectrum Brands Holdings, Inc.    PVH Corp.
   
Energizer Holdings, Inc.    Lions Gate Entertainment Corp.    Hanesbrands Inc.
   
Newell Rubbermaid Inc    Brunswick Corporation    Polaris Industries Inc.
   
Tiffany & Co.    Church & Dwight Co., Inc.     

The Committee reviews the market data as part of assessing the appropriateness and reasonableness of the compensation levels and mix of compensation elements to ensure that the compensation program:

 

 

is appropriate and effective in furthering the goals of the Company;

 

 

provides adequate retention incentive for top performing executives;

 

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aligns pay with performance; and

 

 

fairly rewards executives for their performance and contribution to the achievement of the Company’s goals, rather than in having compensation packages align to a certain range of market data of the Company’s peers.

When reviewing the pay and performance comparison specific to Mr. Goldner, the Committee evaluates how Hasbro has performed as compared to the peer companies along multiple metrics, including both one-year and three-year earnings per share, and one-year and three-year total shareholder return (defined as stock price appreciation plus dividends, assuming reinvestment of dividends). The Committee uses this to help evaluate whether the Company is maintaining the appropriate link between relative performance of the Company, compared to other companies, and realized compensation for the Company’s Chief Executive Officer, as compared to Chief Executive Officers at such other companies.

According to market data reviewed by the Company the total target direct compensation (target management incentive award opportunities, base salary and target equity award value) for the Named Executive Officers for 2013, generally ranged between the 50 th and the 75 th percentiles of total target direct compensation at companies in the market surveys reviewed by the Company and the Committee, as such market data was adjusted primarily to reflect the Company’s revenue size.

Risk Assessment

 

As part of structuring the Company’s executive compensation programs, the Committee (A) evaluates the connection between such programs and the risk-taking incentives they engender, to ensure that the Company is incenting its executives to take an appropriate level of business risk, but not excessive risk, and (B) considers any changes in the Company’s risk profile and whether those changes should impact the compensation structure. To achieve this appropriate level of risk taking, and avoid excessive risk, the Committee structures the compensation program to (i) link the performance objectives under all incentive-based compensation to the strategic and operating plans of the Company which are approved by the full Board of Directors, with the Board ensuring that the goals set forth in such plans require significant performance to achieve, but are not so out of reach that they require excessively aggressive behavior to be met, (ii) provide for a balance of shorter-term objectives or exercise periods (such as the annual cash incentive plan objectives) and longer-term objectives or exercise periods (such as the three-year performance period under the contingent stock performance awards and seven-year option terms) to mitigate the risk that short-term performance would be driven at the expense of longer-term performance and shareholder value creation, and (iii) include stock ownership guidelines which require executives to maintain significant equity ownership during their entire career with the Company, thus linking personal financial results for the executives with the investment performance experienced by the Company’s shareholders. In addition to the analysis performed by the Committee, the Committee also had Compensation Advisory Partners LLC (CAP) perform a risk assessment of the Company’s executive compensation programs for 2013 and advise on the appropriateness of the levels of risk presented by those programs and the effectiveness of their design to mitigate risk. As a result of its analysis and the work performed by CAP, the Committee believes the Company’s compensation programs promote appropriate, but not excessive, risk taking and are designed to best further the interests of the Company while mitigating risk.

 

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EXECUTIVE COMPENSATION

The following table summarizes compensation paid by the Company for services rendered during fiscal 2013, fiscal 2012 and fiscal 2011 by any person serving as the Company’s Chief Executive Officer during any part of fiscal 2013, by any person serving as the Company’s Chief Financial Officer during any part of fiscal 2013, and by the three other most highly compensated executive officers of the Company in fiscal 2013 (to the extent that such person was an executive officer during the year in question).

Summary Compensation Table

 

Name and Principal  Position   Year     Salary(a)     Bonus     Stock
Awards(b)
    Option
Awards(b)
    Non-Equity
Incentive Plan
Compensation
(a)(c)
    Change in
Pension Value
and NQDC
Earnings(d)
    All Other
Compensation
(e)
    Total  

Brian Goldner(f)

    2013        $1,248,077        $  0        $21,562,343        $2,421,045        $1,800,000        $61,934        $347,327        $27,440,726   

President and Chief

    2012        1,200,000        0        3,350,509        2,640,821        2,000,000        174,041        318,914        9,684,285   

Executive Officer

    2011        1,200,000        0        2,233,459        2,134,709        1,500,000        95,144        389,270        7,552,582   

David D.R. Hargreaves(g)

    2013        800,000        0        0        0        1,250,000        27,991        113,426        2,191,417   

Executive Vice President and

    2012        800,000        0        893,474        704,220        1,000,000        1,207,529        98,000        4,703,223   

Chief Strategy Officer

    2011        800,000        0        744,486        711,570        750,000        1,547,459        147,100        4,700,615   

Deborah Thomas(h)

    2013        527,981        0        878,910        195,359        400,000        8,193        77,193        2,087,636   

Executive Vice President and

    2012        515,000        0        542,025        420,550        320,000        64,486        77,450        1,939,511   

Chief Financial Officer

    2011        511,154        0        519,161        385,077        245,000        26,705        82,115        1,769,212   

Duncan Billing(i)

    2013        499,423        0        955,901        234,104        400,000        13,886        70,148        2,173,462   

Executive Vice President and

    2012        485,000        0        542,025        420,550        280,000        204,934        89,400        2,021,909   

Chief Development Officer

    2011        485,000        0        566,693        375,445        260,000        92,431        98,400        1,877,969   

John Frascotti(j)

    2013        499,423        0        955,901        234,104        400,000        5,514        70,148        2,165,090   

Executive Vice President and

    2012        485,000        0        542,025        420,550        280,000        1,328        67,050        1,795,953   

Chief Marketing Officer

    2011        485,000        0        566,693        375,445        260,000        966        73,800        1,761,904   
(a) Includes amounts deferred pursuant to the Company’s 401(k) Plan and Non-qualified Deferred Compensation Plan (the “Deferred Compensation Plan”).

 

(b) Reflects the grant date fair value for stock and option awards to the Named Executive Officers. Please see note 13 to the financial statements included in the Company’s Annual Report on Form 10-K, for the year ended December 29, 2013, for a detailed discussion of assumptions used in valuing options and stock awards generally, and see footnote (f) to the following Grants of Plan-Based Awards table for a discussion of certain assumptions used in valuing equity awards made to the Named Executive Officers.

 

     In each of the years shown, these executives were granted non-qualified stock options and contingent stock performance awards. Each of Ms. Thomas, Mr. Billing and Mr. Frascotti were granted restricted stock units in 2011 and 2013. Mr. Goldner was granted restricted stock units in 2013.

 

     The grant date fair values included in the table for the contingent stock performance awards, and for Mr. Goldner, the 2013 tranche of his special RSU award, have been calculated based on the probable outcomes under such awards (assumed to be realization of the target values of such awards). If it were assumed that the maximum amount payable under each of the contingent stock performance awards were ultimately paid, which maximum is 200% of the target value (or 400% for Mr. Goldner) for contingent stock performance awards granted in 2013, then the grant date fair values included under the stock award column for each of the Named Executive Officers for performance shares in 2013, would have been as follows: Mr. Goldner $19,690,832, Ms. Thomas $1,226,008, Mr. Billing $1,274,536 and Mr. Frascotti $1,274,536. This is in addition to the grant date value of restricted stock units. In addition, for Mr. Goldner, if it were assumed that the maximum amount payable under his special RSU award was ultimately paid, which maximum is 100% of the units granted in 2013, then the grant date fair value included would have been the same as the target amount, or $16,639,635.

 

(c) For Messrs. Goldner, Hargreaves, Billing and Frascotti, these amounts consist entirely of the management incentive awards earned by such executives under the Company’s 2009 Senior Management Annual Performance Plan for the applicable year. For Ms. Thomas these amounts consist entirely of the management incentive awards earned by her under the Company’s Performance Rewards Plan for the applicable year.

 

(d) The amounts reflected in this table primarily consist of the change in pension value during fiscal 2013, fiscal 2012 and fiscal 2011 for each Named Executive Officer.

 

     The amounts reflected in this table also include the following amounts which were earned on balances under the Supplemental Plan and are considered above market, as the Company paid interest on account balances at a rate of 5.20%, when 120% of the applicable long-term rate was 2.78%:

 

     2013  

Brian Goldner

   $ 61,934   

David Hargreaves

   $ 27,991   

Deborah Thomas

   $ 8,193   

Duncan Billing

   $ 13,886   

John Frascotti

   $ 5,514   

 

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     Does not include the following aggregate amounts, in fiscal 2013, fiscal 2012 and fiscal 2011 respectively, which were earned by the executives on the balance of (i) compensation previously deferred by them under the Deferred Compensation Plan and (ii) amounts previously contributed by the Company to the executive’s account under the Supplemental Plan (401(k)):

 

     2013      2012      2011  
Brian Goldner    $ 323,543       $   182,034       $ 97,396   
David Hargreaves    $ 1,163,752       $ 523,943       $ 38,357   
Deborah Thomas    $ 67,877       $ 46,110       $ 13,277   
Duncan Billing    $ 107,730       $ 60,826       $ 4,202   
John Frascotti    $ 17,878       $ 11,942       $ 5,702   

 

     Earnings on compensation previously deferred by the executive officers and on the Company’s prior contributions to the Supplemental Plan do not exceed the market returns on the relevant investments which are earned by other participants selecting the same investment options.

 

     For fiscal 2013, all of the Named Executive Officers experienced a decrease in the present value of their pension benefits as compared to 2012. This was due to the increase in market interest rates used to calculate the present value of their benefits. The negative change in their pension benefits is not included in the table.

 

(e) Includes the following amounts, for fiscal 2013, fiscal 2012 and fiscal 2011 respectively, paid by the Company for each Named Executive Officer in connection with a program whereby certain financial planning, legal and tax preparation services provided to the individual are paid for by the Company:

 

     2013      2012      2011  
Brian Goldner    $      50,000       $     38,914       $   4,270   
David Hargreaves    $ 5,426       $ 5,000       $ 3,100   
Deborah Thomas    $ 875       $ 1,450       $ 0   
Duncan Billing    $ 0       $ 0       $ 0   
John Frascotti    $ 0       $ 0       $ 0   

 

     Includes the Company’s matching contribution to each individual’s savings account, the annual company contribution, as well as the annual transition contribution, if applicable, for each individual under the 401(k) Plan and the Supplemental Plan, such amounts as follows:

 

    2013     2012     2011  
Brian Goldner   $      292,327      $     275,000      $ 380,000   
David Hargreaves   $ 108,000      $ 93,000      $ 144,000   
Deborah Thomas   $ 76,318      $ 76,000      $ 82,115   
Duncan Billing   $ 70,148      $ 89,400      $ 98,400   
John Frascotti   $ 70,148      $ 67,050      $ 73,800   

 

     These amounts are in part contributed to the individual’s account in the 401(k) Plan and, to the extent in excess of certain Code maximums, deemed allocated to the individual’s account in the Supplemental Plan (401(k)).

 

     Includes $5,000 matching charitable contribution made in the name of Mr. Goldner for the applicable year.

 

(f) Mr. Goldner became President and Chief Executive Officer of the Company on May 22, 2008. Prior thereto, Mr. Goldner served as Chief Operating Officer of the Company.

 

(g) Mr. Hargreaves became Executive Vice President and Chief Strategy Officer on February 6, 2013. Prior thereto, Mr. Hargreaves served as Chief Operating Officer of the Company since May 22, 2008. Mr. Hargreaves also served as Chief Financial Officer of the Company until May of 2009. Prior to becoming Chief Operating Officer, Mr. Hargreaves served as Executive Vice President, Finance and Global Operations, and Chief Financial Officer.

 

(h) Ms. Thomas became Executive Vice President and Chief Financial Officer in March 2013. Prior thereto Ms. Thomas served as Senior Vice President and Chief Financial Officer since May 2009. Prior thereto Ms. Thomas was Senior Vice President and Head of Corporate Finance.

 

(i) Mr. Billing became Executive Vice President and Chief Development Officer in March 2013. Prior thereto Mr. Billing served as Global Chief Development Officer since 2008.

 

(j) Mr. Frascotti became Executive Vice President and Chief Marketing Officer in March 2013. Prior thereto Mr. Frascotti served as Global Chief Marketing Officer since 2008.

* * *

 

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The following table sets forth certain information regarding grants of plan-based awards for fiscal 2013 to the Named Executive Officers.

Grants of Plan-Based Awards

 

        Estimated Future Payouts Under
Non-Equity
Incentive Plan Awards(a)
    Estimated Future Payouts
Under Equity
Incentive Plan Awards
   

All
Other
Stock

Awards:

Number
of
Shares

   

All Other
Option

Awards:

Number of
Shares
Underlying
Options

    Exercise
Price of
Option
Awards
    Closing
Market
Price
on the
Date of
Grant
    Grant
Date Fair
Value of
Stock and
Option
Awards(f)
 
Name   Grant Date   Threshold     Target     Maximum     Threshold     Target     Maximum            

Brian Goldner

    2/4/2013(a)       $ 3,744,231                   
 

4/24/2013(b)

          35,253        70,506        282,024              $ 4,922,708   
 

4/24/2013(c)

          0        467,976        467,976                16,639,635   
 

4/24/2013(d)

                  317,306      $ 47.21      $ 47.28        2,421,045   

David Hargreaves

    2/4/2013(a)         2,400,000                   

Deborah Thomas

    2/4/2013(a)   $ 221,752        369,587        1,108,760                   
 

4/24/2013(b)

          6,493        12,986        25,972                613,004   
 

4/24/2013(e)

                5,633              265,906   
 

4/24/2013(d)

                  25,604        47.21        47.28        195,359   

Duncan Billing

    2/4/2013(a)         1,498,269                   
 

4/24/2013(b)

          6,750        13,500        27,000                637,268   
 

4/24/2013(e)

                6,750              318,634   
 

4/24/2013(d)

                  30,682        47.21        47.28        234,104   

John Frascotti

    2/4/2013(a)         1,498,269                   
 

4/24/2013(b)

          6,750        13,500        27,000                637,268   
 

4/24/2013(e)

                6,750              318,634   
   

4/24/2013(d)

                                                            30,682        47.21        47.28        234,104   
(a) For Mr. Goldner, Mr. Hargreaves, Mr. Billing and Mr. Frascotti these management incentive awards were made pursuant to the Company’s 2009 Senior Management Annual Performance Plan. For Ms. Thomas these management incentive plan awards were made pursuant to the Company’s 2014 Performance Rewards Plan.

 

(b) All of these contingent stock performance awards were granted pursuant to the Company’s Restated 2003 Stock Incentive Performance Plan (the “2003 Plan”). These awards provide the recipients with the ability to earn shares of the Company’s Common Stock based on the Company’s achievement of stated cumulative diluted earnings per share (“EPS”) and cumulative net revenue (“Revenues”) targets over a three-year period beginning January 2013 and ending December 2015 (the “Performance Period”). Each Stock Performance Award has a target number of shares of Common Stock associated with such award which may be earned by the recipient if the Company achieves the stated EPS and Revenues targets set for the Performance Period. For Mr. Goldner, in addition to the EPS and Revenues metrics, the award may be adjusted at the time of vesting depending on the Company’s total shareholder return as compared to Standard & Poor’s 500 Index for the Performance Period. The additional adjustment will vary from 75% to 200%. The grant date value of $69.8197 for Mr. Goldner’s award reflects this additional potential adjustment. Awards may be eligible for accelerated vesting in connection with a change in control or certain termination scenarios, as described more fully below under “Potential Payments Upon Termination or Change in Control — Effect of a Change in Control.”

 

(c) These restricted share units were granted pursuant to the 2003 Plan. The award provides Mr. Goldner with the ability to earn shares of the Company’s common stock based on the Company’s achievement of four stated stock price hurdles and, subject to limited termination scenarios described beginning on page 58 of this Proxy Statement, continued employment through December 31, 2017. At the completion of the service period, he will receive one quarter of the award for each stock price hurdle achieved after April 24, 2013. The four stock price hurdles are $45, $52, $56 and $60 which must be met for a period of at least thirty consecutive trading days using the average closing price over such period. The Company used a Monte Carlo simulation valuation model to determine the fair value of the award, resulting in an average grant date fair value for this award of $35.5566. Awards may be eligible for accelerated vesting in connection with a change in control or certain termination scenarios, as described more fully below under “Potential Payments Upon Termination or Change in Control; Employment Agreements”.

 

(d) All of these options were granted pursuant to the 2003 Plan. These options are non-qualified, were granted with an exercise price equal to the average of the high and low sales prices of the Company’s common stock on the date of grant, and vest in equal annual installments over the first three anniversaries of the date of grant. Awards may be eligible for accelerated vesting in connection with a change in control or certain termination scenarios, as described more fully below under “Potential Payments Upon Termination or Change in Control — Effect of a Change in Control.”

 

(e) All of these restricted share units were granted pursuant to the 2003 Plan. These units cliff vest on the third anniversary of the date of grant. Awards may be eligible for accelerated vesting in connection with a change-in-control or certain termination scenarios, as described more fully below under “Potential Payments Upon Termination or Change in Control; Employment Agreements”.

 

(f) The Grant Date Fair Values for options for the Named Executive Officers were determined using the standard application of the Black-Scholes option pricing methodology using the following weighted average assumptions: volatility 26.85%, dividend yield 3.39% and a risk free interest rate of 0.70% based on the options being outstanding for approximately five years. The Grant Date Fair Values do not take into account risk factors such as non-transferability and limits on exercisability. In assessing the Grant Date Fair Values indicated in the above table, it should be kept in mind that no matter what theoretical value is placed on an option on the date of grant, the ultimate value of the option is dependent on the market value of the Common Stock at a future date, and the extent if any, by which such market value exceeds the exercise price on the date of exercise. The grant date fair values for the contingent stock performance awards were based on the average of the high and low trading prices on the date of grant of these awards, which was $47.21 per share on April 24, 2013.

 

     Please see note 13 to the financial statements included in the Company’s Annual Report on Form 10-K, for the year ended December 29,2013, for a detailed discussion of the assumptions used in valuing these options and stock awards.

* * *

 

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The following table sets forth information for equity awards held by the named individuals as of the end of the Company’s 2013 fiscal year.

Outstanding Equity Awards at Fiscal Year-End

 

                                Stock Awards
    Option Awards     Number
of Shares
or Units
of Stock
That
Have Not
Vested
(#)
    Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)
   

Equity
Incentive

Plan Awards:
Number of
Unearned
Shares, Units or
Other Rights
That Have Not
Vested

(#)

 

Equity

Incentive Plan
Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested

($)(l)

Name   Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
    Equity
Incentive
Plan  Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
  Option
Exercise
Price
($)
    Option
Expiration
Date
         

Brian Goldner

                 
                0(d)       $                0    
                0(e)       0    
                70,506(f)       3,835,526    
                467,976(g)       25,457,894    
    164,609               $ 27.0950        2/12/2015           
    312,094               $ 31.625        2/3/2017           
    412,200        274,800 (h)      $ 38.395        3/25/2017           
    56,100        37,400 (h)      $ 41.14        6/30/2017           
    137,104        68,552 (i)      $ 45.66        2/8/2018           
    136,055        272,109 (j)      $ 36.135        2/7/2019           
           317,306 (k)      $ 47.21        4/23/2020           

David Hargreaves

                 
                0(d)       $                0    
                0(e)       0    
    45,701        22,851 (i)      $ 45.66        2/8/2018           
    36,282        72,562 (j)      $ 36.135        2/7/2019           

Deborah Thomas

                 
                0(d)       $               0    
                0(e)       0    
                12,986(f)       706,438    
              7,500 (a)    $ 408,000       
              4,000 (b)    $ 217,600       
              5,633 (c)    $ 306,435       
    34,791               $ 22.73        5/20/2016           
    24,732        12,366 (i)      $ 45.66        2/8/2018           
    21,667        43,333 (j)      $ 36.135        2/7/2019           
           25,604 (k)      $ 47.21        4/23/2020           

Duncan Billing

                 
                0(d)       $                0    
                0(e)       0    
                13,500(f)       734,400    
              7,500 (a)    $ 408,000       
              4,000 (b)    $ 217,600       
              6,750 (c)    $ 367,200       
    24,113        12,057 (i)      $ 45.66        2/8/2018           
           43,333 (j)      $ 36.135        2/7/2019           
           30,682 (k)      $ 47.21        4/23/2020           

John Frascotti

                 
                0(d)       $               0    
                0(e)       0    
                13,500(f)       734,400    
              7,500 (a)    $ 408,000       
              4,000 (b)    $ 217,600       
              6,750 (c)    $ 367,200       
    21,124               $ 22.73        5/20/2016           
    31,602               $ 31.625        2/3/2017           
    24,113        12,057 (i)      $ 45.66        2/8/2018           
    21,667        43,333 (j)      $ 36.135        2/7/2019           
             30,682 (k)      $ 47.21        4/23/2020                           
(a) Comprised of restricted stock units granted on July 29, 2010 which cliff vest on the five-year anniversary of the date of grant, provided the recipient continued employment with the Company through that date.

 

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(b) Comprised of restricted stock units granted on July 28, 2011 which cliff vest on the five-year anniversary of the date of grant, provided the recipient continued employment with the Company through that date.

 

(c) Comprised of restricted stock units granted on April 24, 2013 which cliff vest on the three-year anniversary of the date of grant provided the recipient continued employment with the Company through that date.

 

(d) These contingent stock performance awards granted in February 2011, are reflected at 0 shares. In February 2014 the Compensation Committee certified the Company’s financial results under these awards and no shares were earned under such awards.

 

(e) These contingent stock performance awards granted in February 2012, are reflected at 0 even though the performance period will not end until December 2014. Given the Company’s underperformance against certain of its performance targets under these awards in 2012 and 2013, the Company views it as unlikely that an shares will be earned under such awards in February 2015.

 

(f) These contingent stock performance awards granted in April 2013, are reflected at the target number of shares for such awards, even though the performance period will not end until December 2015 and there is no assurance that the target amounts, or even the threshold amounts, will be earned under these awards.

 

(g) These restricted share units granted in April 2013, are reflected at the target number of shares, even though the performance period will not end until December 2017 and vesting is contingent on meeting four stock price hurdles; therefore, there is no assurance that the target amounts, or even the threshold amounts, will be earned under these awards.

 

(h) One half of these options will vest on each March 26, 2014 and December 31, 2014, subject to the optionee’s continued employment with the Company through those dates.

 

(i) These options will vest on February 9, 2014, subject to the optionee’s continued employment with the Company through this date.

 

(j) One half of these options will vest on each of February 8, 2014 and February 8, 2015, subject to the optionee’s continued employment with the Company through those dates.

 

(k) One third of these options will vest on each April 24, 2014, April 24, 2015 and April 25, 2016, subject to the optionee’s continued employment with the company through those dates.

 

(l) Other than contingent stock performance awards granted in February 2011 and February 2012, these amounts were computed by multiplying the number of shares by the closing share price of $54.40 on December 27, 2013, the last trading day of the Company’s 2013 fiscal year.

* * *

The following table sets forth information concerning aggregate option exercises, vesting of restricted stock and stock earned pursuant to contingent stock performance awards during the 2013 fiscal year for the Named Executive Officers.

Option Exercises and Stock Vested

 

     Option Awards      Stock Awards  
Name    Number of
Shares
Acquired on
Exercise
(#)
     Value Realized
On Exercise
($)
    
         Shares
Acquired
on Vesting
(#)
     Value Realized
On Vesting
($)
 
Brian Goldner      776,908       $ 17,704,929         0       $ 0   
David Hargreaves      556,901       $ 13,368,464         0       $ 0   
Deborah Thomas      77,191       $ 1,403,817         0       $ 0   
Duncan Billing      68,969       $ 1,102,089         0       $ 0   
John Frascotti      57,946       $ 1,245,999         0       $ 0   

***

 

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The following table sets forth information regarding each of the Named Executive Officers’ years of credited service and accrued pension benefits with the Company under plans providing specified retirement payments and benefits, including tax-qualified defined benefit plans and supplemental executive retirement plans, but excluding tax-qualified defined contribution plans and non-qualified defined contribution plans. Information is provided as of the plans’ measurement dates used for financial reporting purposes for the Company’s 2013 fiscal year.

Pension Benefits

 

Name   Plan  Name  

Number of

Years of

Credited

Service

  

Present Value of

Accrued Benefit

Payable at Normal

Retirement

($)(a)

    

Payments

During The Last

Fiscal Year($)

Brian Goldner

 

Pension Plan

    8.0      $   138,348       $    0
 

Supplemental Plan

    8.0      $1,067,476       $    0

David Hargreaves

 

Pension Plan

  15.0      $   432,058       $    0
 

Supplemental Plan

  15.0      $1,458,893       $    0
 

Retirement Agreement

  31.0      $6,418,086       $    0

Deborah Thomas

 

Pension Plan

    9.0      $   146,070       $    0
 

Supplemental Plan

    9.0      $     82,591       $    0

Duncan Billing

 

Pension Plan

  16.0      $   338,377       $    0
 

Supplemental Plan

  16.0      $   564,511       $    0

John Frascotti(b)

 

Pension Plan

  N/A      N/A      N/A
(a) The “Present Value of Accrued Benefit” is the lump-sum value as of December 29, 2013 of the annual pension benefit earned as of December 29, 2013 payable under a plan for the executive’s life beginning on the date in which the Named Executive Officer may commence an unreduced pension under the respective plan, reflecting credited service and five-year average compensation as of the plan freeze date of December 31, 2007 for the Pension and Supplemental Plans, and current statutory benefit and pay limits as applicable. Certain assumptions were used to determine the lump-sum values and are outlined below. These assumptions are consistent with those used for financial statement purposes, except that the Named Executive Officer is assumed to continue to be employed until the assumed retirement age (i.e., there will be no assumed termination for any reason, including death or disability). The assumptions are as follows: (i) measurement date is December 29, 2013, (ii) it is assumed that 65% of participants will elect a lump sum payment and 35% will elect an annuity under the Pension Plan and the Supplemental Plan, and that Mr. Hargreaves will elect an annuity for any benefits provided under the Retirement Agreement, (iii) the discount rate is assumed to be 5.03% for the Pension Plan, 4.81% for the Supplemental Plan and 4.82% for the Retirement Agreement, (iv) the lump sum interest rate is assumed to be 5.03% for the Pension Plan and the Supplemental Plan, (v) for mortality (post-commencement) the RP-2000 mortality tables projected to the year 2029 using the Scale AA are used with separate rates for males and females for benefits paid as annuities and the IRS table promulgated in Revenue Ruling 2007-67 for benefits paid as lump sums, (vi) the earliest unreduced retirement age is age 65 for the plans prior to the January 1, 2000 amendment, and age 55 for the plans following such amendment and (vii) all values are estimates only; actual benefits will be based on data, pay and service at the time of retirement. Mr. Hargreaves is currently eligible for an unreduced retirement benefit.

 

(b) The Pension Plan was frozen prior to Mr. Frascotti joining the Company.

Description of Pension Plans

 

The Company sponsors the Hasbro, Inc. Pension Plan (the “Pension Plan”) and the Supplemental Benefit Plan (the “Supplemental Plan”) for substantially all of its U.S. employees. The Pension Plan provides funded, tax-qualified benefits subject to the limits on compensation and benefits applicable under the Internal Revenue Code. Except for John Frascotti, who joined the Company on January 21, 2008, after the Pension Plan benefits had been frozen, all of the Named Executive Officers participate in the Pension and Supplemental Plans. As a result of his service while in the U.K., Mr. Hargreaves accrued a benefit under the Company’s former U.K. Employee Benefits Plan (the “U.K. Plan”) and the Hasbro International Expatriate Pension Plan (the “Expatriate Plan”). As is discussed in the “Executive Benefits” section of the Compensation Discussion and Analysis, the Company entered into a Retirement Agreement with Mr. Hargreaves. The Retirement Agreement effectively replaces the benefit accrued under the Expatriate Plan while providing for continued pension accruals until Mr. Hargreaves’ retirement. The U.K. Plan was closed in 1994 and the accrued benefits under the U.K. Plan were transferred to Legal and General. The Company no longer has any obligation to pay those benefits. Mr. Hargreaves is, however, entitled to an annuity benefit from Legal and General relating back to the closed U.K. Plan. The Pension Plan, Supplemental Plan, Post-Employment Agreement, former U.K. Plan annuity benefit and Retirement Agreement are described in more detail below.

The Company does not have a policy of granting any additional years of benefit service beyond the definition of benefit service within the plans identified above. A year of benefit service is earned for each year in which an employee completes at least 1,000 hours of service for the Company.

Benefits earned under the Pension Plan, the Supplemental Plan (Pension) and the Expatriate Plan were frozen effective December 31, 2007. Effective January 1, 2008, the Company amended its 401(k) Plan to include an additional annual Company contribution targeted at 3% of an employee’s base salary and bonus, which is in addition to the pre-existing Company matching formula. In addition, for eligible employees meeting certain age and service requirements, there will be an additional annual transition contribution ranging from

 

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1% to 9% of the employees’ base salary and bonus during the years 2008 through 2012. Annual contributions in excess of IRS limits are provided on a nonqualified plan basis in the Supplemental Plan (401(k)). Mr. Hargreaves waived his right to participate in either of these new 401(k) Plan features.

Pension Plan

Effective January 1, 2000, the Company amended the Pension Plan as part of an overall redesign of its retirement programs. The January 1, 2000 amendments to the Pension Plan implemented a number of changes. Among the significant changes, the amendments to the Pension Plan provided for a lump sum benefit or an annual benefit, both determined primarily on the basis of average compensation and actual years of service (previously years of service in excess of 30 years were excluded). Another aspect of the amendments made the benefits under the Pension Plan portable after five years of service with the Company.

Until January 1, 2007, employees working for the Company at the time of the January 1, 2000 amendments received the greater of the benefit provided by the unamended plan and the benefit provided by the amended plan. For such employees retiring on or after January 1, 2007, to compute their benefits the Company determines what the employee’s benefits would have been under the Pension Plan, prior to the amendment, as of December 31, 2006. If the benefits under the Pension Plan, prior to the amendment, are higher than the benefits provided for such employee under the Pension Plan following the amendment, the employee’s pension benefits are computed by adding the benefits accrued under the unamended plan, as of December 31, 2006, to the benefits accrued under the plan, as amended, for periods of service after January 1, 2007. For employees joining the Company after January 1, 2000, benefits will only be computed with respect to the Pension Plan as amended. Mr. Goldner was hired after January 1, 2000 and, therefore, is covered only by the amended Pension Plan.

Prior to the January 1, 2000 amendment the annual annuity under the Pension Plan was computed as follows: (I) (A) 50% of the person’s five-year average compensation was reduced by (B) X% of the lesser of (i) the person’s three-year average compensation and (ii) the person’s social security covered compensation, and (II) the resulting amount was then multiplied by the ratio of years of benefit service (not to exceed 30) over 30. For purposes of computing benefits in this formula X equals: (i) 22.5 if the social security retirement age is 65, (ii) 21.0 if the social security retirement age is 66 and (iii) 19.5 if the social security retirement age is 67.

If benefits commenced prior to age 65, (A) and (B) above were adjusted separately for early commencement as follows: (A) is reduced by 4% per year until age 50 and on an actuarially equivalent basis thereafter and (B) is reduced 5/9th of 1% for the first 60 months commencement precedes social security retirement age and 5/18th of 1% for the next 60 months. Thereafter, (B) is reduced on a actuarially equivalent basis. In all cases, X above equals 22.5% for early commencement of benefits.

Following the January 1, 2000 amendment annual annuity benefits under the Pension Plan are computed as follows: (I) (A) 2/3 of 1% of the person’s five-year average compensation is added to (B) 1/3 of 1% of the person’s five-year average compensation in excess of the social security taxable wage base and the resulting amount is multiplied by (II) the person’s years of benefit service. Under the amended plan, benefits commencing prior to age 55 are reduced 1/4th of 1% for each month commencement precedes age 55, with a maximum reduction of 75%.

For purposes of the computations set forth above under the Pension Plan, “five-year average compensation” equals the highest consecutive five years of compensation during the last ten years, while “three-year average compensation” equals the three most recent years during the same five-year period. Compensation includes salary, non-equity incentive plan payments and any additional cash bonus (in the year paid) as well as tax-qualified elective deferrals and excludes equity based compensation, sign-on or retention bonuses and other forms of non-cash compensation that may be taxable to the executive. Compensation is subject to the maximum limits imposed under the Code (which were $225,000 for 2007, the last year that compensation was considered under the plan).

Participants may elect to receive benefits as a lump sum payment or one of the annuity forms of payment available under the Pension Plan. Because the plan provides for a lump sum payment, benefits may commence at any age after termination, once vested (generally after five years of benefit service). For early commencement, the comparison of benefits under the amended and unamended formulae is determined based on the reduced benefit under each formula at the commencement age.

As is noted in the description of Pension Plans set forth above, the benefits under this plan were frozen effective December 31, 2007.

Supplemental Plan (Pension)

The Supplemental Plan provides benefits determined under the same benefit formula as the Pension Plan, but without regard to the compensation and benefit limits imposed by the Code. For determination of Supplemental Plan benefits, compensation deferred into the Non-qualified Deferred Compensation Plan is included in the year of deferral. Benefits under the Supplemental Plan are reduced by benefits payable under the Pension Plan. The Supplemental Plan benefits are not tax-qualified and are unfunded.

As is noted in the description of Pension Plans set forth above, the benefits under this plan were frozen effective December 31, 2007.

 

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U.K. Employee Benefits Plan

As a result of his service while in the U.K., Mr. Hargreaves accrued a benefit under the Company’s former U.K. Employee Benefits Plan (the “U.K. Plan”) and the Hasbro International Expatriate Pension Plan (the “Expatriate Plan”). The U.K. Plan was closed in 1994 and an annuity was purchased from Legal and General to provide the accrued benefits under the U.K. Plan. The Company no longer has any obligation to pay those benefits. Mr. Hargreaves is, however, entitled to the annuity benefit from Legal and General relating back to the closed U.K. Plan. The annual single straight-life annuity benefit earned by Mr. Hargreaves under the U.K. Plan as of the date his participation in the U.K. Plan ceased was 9,617 British pounds. This annuity amount is adjusted each year for inflation.

Retirement Agreement With Mr. Hargreaves

Mr. Hargreaves is entitled to a defined benefit from a Retirement Agreement that replaces the benefits previously accrued under the Expatriate Plan and considers all of his services with Hasbro, including periods in the U.K. The single straight-life annuity benefit under the Retirement Agreement is determined as follows: (I) (A) 1% of five-year average compensation multiplied by (B) years of benefit service (for this purpose Mr. Hargreaves is continuing to accrue years of benefit service), with such benefits then being reduced by (II) the benefits payable from the (i) former U.K. Plan sponsored by Hasbro (which benefits are now being provided by Legal and General as a result of the buyout of deferred pensioners), (ii) Pension Plan and (iii) Supplemental Plan (pension benefits). Due to Mr. Hargreaves age and service, benefits under this plan are payable on an unreduced basis.

The following table provides information with respect to fiscal 2013 for each of the Named Executive Officers regarding defined contribution plans and other plans which provide for the deferral of compensation on a basis that is not tax-qualified.

Non-qualified Deferred Compensation

 

Name   Plan Name   Executive
Contributions
in Last Fiscal Year
($)(a)
    Registrant
Contributions in
Last Fiscal Year
($)(a)
    Aggregate
Earnings in Last
Fiscal Year ($)(b)
    Aggregate
Withdrawals /
Distributions
($)
    Aggregate  Balance
at Last Fiscal
Year End
($)(c)
 

Brian Goldner

  Nonqualified Deferred Compensation Plan     $67,715        $         —         $    193,910        $—        $   879,904  
  Supplemental Savings Plan            269,377        129,633               2,881,720  

David Hargreaves

  Nonqualified Deferred Compensation Plan                  —        1,105,164               4,547,821  
  Supplemental Savings Plan            92,700        58,588               1,267,038  

Deborah Thomas

  Nonqualified Deferred Compensation Plan                  —        50,730               405,222  
  Supplemental Savings Plan            53,368        17,147               402,500  

Duncan Billing

  Nonqualified Deferred Compensation Plan                  —        78,665               321,910  
  Supplemental Savings Plan            47,198        29,065               633,780  

John Frascotti

  Nonqualified Deferred Compensation Plan                  —        6,337               130,659   
    Supplemental Savings Plan            47,198        11,541               284,159  
(a) Both the executive and registrant contributions above are also disclosed in the preceding Summary Compensation Table as either salary, non-equity incentive plan compensation or under all other compensation, as applicable. Registrant contributions earned during 2013 and credited to the account during 2013 as well as executive contributions on amounts earned during 2013 but paid in 2014 are included in the table above.

 

(b) The aggregate earnings in the last fiscal year include earnings on amounts deferred by the individual in years prior to fiscal 2013.

 

(c) Includes registrant and executive contributions on amounts earned during 2013 but credited during 2014. In addition to the amounts contributed for 2013, the amounts below were reported as compensation in prior Summary Compensation Tables (Mr. Goldner has had his compensation for fiscal 2000 forward reported as named executive officers in the Company’s previous Proxy Statements, Ms. Thomas had her compensation for fiscal 2009 forward reported as a Named Executive Officer, and Mr. Billing and Mr. Frascotti have had their compensation for fiscal 2008 forward reported in the Company’s Proxy Statements).

 

Brian Goldner

   $ 2,925,643   

David Hargreaves

   $ 2,902,889   

Deborah Thomas

   $ 209,678   

Duncan Billing

   $ 336,776   

John Frascotti

   $ 329,768   

 

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  Notice of Annual Meeting of Shareholders and 2014 Proxy Statement  |   Hasbro, Inc.

 


Table of Contents

Amounts included in the “Non-qualified Deferred Compensation” table above consist of executive deferrals and registrant contributions under the Supplemental Plan and the Non-qualified Deferred Compensation Plan, each of which are described below.

Supplemental Plan (401(k))

Each of the Named Executive Officers participated in the Supplemental Plan. All registrant contributions reflected in the preceding table were allocated to the Supplemental Plan. Elective deferrals are not permitted under the Supplemental Plan. Account balances received interest at the rate of 5.20% per year for 2013. This rate reflects the 2013 return, less an allowance for certain expenses, paid by the insurance companies providing this corporate owned life insurance product to Hasbro. Matching contributions are fully vested at all times while the annual Company and transition contributions are subject to a 3-year vesting requirement, however remaining benefits are subject to forfeiture for violations of non-competition or confidentiality obligations or for termination due to certain criminal acts involving Company property. Benefits under the Supplemental Plan are payable as a lump sum upon termination of employment (including retirement and death), subject to a six-month waiting period under Code Section 409A, as applicable.

As is noted in the description of Pension Plans set forth in the preceding pages, effective January 1, 2008, this plan was expanded to include new program employer contributions in excess of IRS limits.

Non-qualified Deferred Compensation Plan

The Company’s Non-qualified Deferred Compensation Program is available to all of the Company’s employees who are in band 40 (director level) or above and whose compensation is equal to or greater than $115,000 for 2013, including the Named Executive Officers. Participants may defer up to 75% of their base salary and 85% of the awards they are paid under the Company’s non-equity incentive plans. Participant account balances are credited with earnings based on the participant’s selection from the list of investments below. The fixed rate option was added to the plan effective July 21, 2009. The allocation of investments may be changed as often as daily, with the exception of the Hasbro Stock Fund and the fixed rate option. Selection of the Company Stock Fund and the fixed rate option is made once per year and becomes effective the following January.

Rates of return earned (lost) by the Named Executive Officers are the same as the rates of return earned (lost) by other participants selecting the same investment choices and are set forth in the table below for fiscal 2013. As such, the Company does not consider these rates of return to be “above-market” within the meaning of the rules of the United States Securities and Exchange Commission.

 

Investment  

            Rate of Return             

for 2013

Money Market

    0.00%

Intermediate Bond

  (2.11)%

Balanced

  19.88%

Large Cap Value

  29.40%

S&P 500 Index

  32.24%

Fixed Rate Option

 

 

 

    5.20%
Investment               Rate of Return             

for 2013

Large Cap Growth

  36.20%

Mid-Cap Core Index

  34.93%

Small-Cap Growth

  46.54%

International Equity

  23.26%

Real Return

  (9.91)%

Hasbro Stock Fund

  Approximates the rate of
return on the Company’s
common stock
 

 

Generally, account balances under the plan may be paid as a lump sum or in installments over a five, ten or fifteen-year period following the termination of employment, except amounts designated as short-term payouts which are payable at a pre-selected date in the future. Account balances may be distributed prior to retirement in the event of a financial hardship, but not in excess of the amount needed to meet the hardship.

Potential Payments Upon Termination or Change in Control; Employment Agreements

 

The following tables provide information as to the value of incremental payments and other benefits that would have been received by the Named Executive Officers upon a termination of their employment with the Company due to various types of situations, including upon a change in control of the Company, assuming such termination and change in control had taken place on December 27, 2013 (the last business day of the Company’s 2013 fiscal year). The benefits reflect the closing price of the Company’s Common Stock of $54.40 on December 27, 2013, where appropriate, except that in the case of a Change in Control, the benefits reflect a price of $54.55 per share (which was the highest sale price during the sixty days prior to December 29, 2013, as computed in accordance with the Company’s equity compensation plans). Following these tables is a narrative description of the plans and agreements pursuant to which these payments and benefits are payable.

In addition to the benefits detailed in the following tables, the Named Executive Officers are eligible to receive vested benefits under the Company’s pension plans and deferred compensation plans, to the extent applicable, which are quantified in the preceding tables in this Proxy Statement, as well as benefits under stock options held by such executive officers which are vested and exercisable as of the date of their termination. In addition, the Named Executive Officers are eligible to participate in the Company’s post-retirement medical program, which is available to all salaried employees and provides post-retirement life insurance and access to health coverage funded by the retiree at the same rates as an active employee.

 

Hasbro, Inc.   |  Notice of Annual Meeting of Shareholders and 2014 Proxy Statement  

 

 

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Table of Contents

The Named Executive Officers would not receive any incremental payments or other benefits if they voluntarily resigned from the Company or were involuntarily terminated by the Company for cause.

 

    No Change in Control         Change in Control  
Name   Involuntary
Termination(a)
    Death or
Disability
    Retirement(b)