(Name of Registrant as Specified In Its Charter)

HASBRO, INC.

 

NOTICE OF 2010 ANNUAL MEETING OF SHAREHOLDERS

 

Time:

 

11:00 a.m. local time

 

Date:

 

Thursday, May 20, 2010

 

Place:

 

Hasbro, Inc. Corporate Offices

1027 Newport Avenue

Pawtucket, Rhode Island 02862

 

Purpose:

 

 

Other Important Information:

 

 

By Order of the Board of Directors

 

Barry Nagler

Corporate Secretary

 

Dated: April 7, 2010

HASBRO, INC.

1027 Newport Avenue
Pawtucket, Rhode Island 02862

 

 

 

 

PROXY STATEMENT
2010 ANNUAL MEETING OF SHAREHOLDERS
To be held on May 20, 2010

 

 

 

 

QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING

 

 

 

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 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 so that you can receive a legal proxy to present at the Meeting.

 

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 of this proxy statement). 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. Recent changes in regulations take away the ability of your broker to vote your uninstructed shares in the election of Directors on a discretionary basis. Thus, if you hold your shares in street name and you do not instruct your broker how to vote in the election of Directors, no votes will be cast on your behalf. 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. 3 of this proxy statement). As in the past, they will not have discretion to vote uninstructed shares on the proposed amendment to the Restated 2003 Stock Incentive Performance Plan (Proposal No. 2 of this proxy statement).

 

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.

 

 

 

ELECTION OF DIRECTORS

 

(Proposal No. 1)

 

Twelve directors are to be elected at the Meeting. All of the directors elected at the Meeting will serve until the 2011 Annual Meeting of Shareholders (the “2011 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 2011 Meeting, the persons named in the table below. All of the nominees are currently directors of the Company. E. Gordon Gee and Paula Stern, whose terms as directors also expire at the Meeting, are retiring and are not standing for re-election. The proxies cannot be voted for more than twelve 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 management. Management, 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 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 public company.

 

The following tables set forth as to each nominee for election at the Meeting: (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.

 

 

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.

 

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 directors. 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 of 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 THE TWELVE NOMINEES NAMED ABOVE.

 

GOVERNANCE OF THE COMPANY

 

Code of Conduct

 

Hasbro has a Code of Conduct which is applicable to all of the Company’s employees, officers 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 employees, officers 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 — Investor Relations — 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 — Investor Relations — Corporate Governance.”

 

Director Independence

 

Hasbro’s Board has adopted Standards for Director Independence (the “Independence Standards”) in accordance with the New York Stock Exchange’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 — Investor Relations — 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. Using the Independence Standards, the Board has determined 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, E. Gordon Gee, Jack M. Greenberg, Tracy A. Leinbach, Edward M. Philip and Paula Stern.

 

Of the Company’s directors who were determined to be independent, there were only four directors who had relationships which needed to be considered by the Board. Mr. Batkin serves on the Board of Omnicom Group, Inc. The Company, either directly or through its media placement firm, MediaCom, places some advertising with entities within the Omnicom Group family, but the aggregate payments associated with any such advertising placement for any fiscal year are well below the threshold set in the Company’s Independence Standards of 2% of Omnicom Group’s consolidated gross revenues. Similarly, Mr. Bronfin is President of Hearst Interactive Media, the interactive media division of diversified media company Hearst Corporation. The Company, either directly or through its media placement firm, MediaCom, places some advertising with entities within the Hearst Corporation family, but the aggregate payments associated with any such advertising placement for any fiscal year are well below the threshold set in the Company’s Independence Standards of 2% of Hearst’s consolidated gross revenues. Mr. Garrett serves on the Board of Gottex Funds Management Holdings. Gottex serves as one of Hasbro’s pension

fund investment managers. Mr. Garrett is not an officer or an employee of Gottex, and serves only as an outside director. The Company paid Gottex approximately $258,000 for its pension fund investment managerial services in the year ended December 2009. Mr. Greenberg was Chairman and Chief Executive Officer of McDonald’s Corporation through December 31, 2002. Mr. Greenberg remained an employee of McDonald’s until October 31, 2009, at which time Mr. Greenberg ceased his employment with McDonald’s. The Company and McDonald’s are party to certain arrangements pursuant to which the Company licenses its intellectual property to McDonald’s for use in promotions. The payments from McDonald’s to the Company pursuant to this arrangement do not arise to the level which would raise an issue under the Company’s independence standards.

 

The only three members of the Company’s Board who were determined not to be independent were Brian Goldner (current President and Chief Executive Officer), Alan G. Hassenfeld (formerly an executive officer of the Company), and Alfred J. Verrecchia (formerly an executive officer of the Company).

 

Board Meetings and Director Attendance at the Annual Meeting

 

During 2009, the Board held seven meetings. All directors attended at least 75% of the aggregate of (i) the Board meetings held during their tenure as directors during 2009 and (ii) the meetings of any committees held during their tenure as members of such committees during 2009. 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 fourteen members of the Board who were members as of the 2009 Annual Meeting of Shareholders attended the 2009 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, the Company’s former Chief Executive Officer, serving as Chairman of the Board. The Board believes that at the current time this structure is best for the Company, as it allows 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 can also enable Mr. Goldner, Mr. Verrecchia, and the other members of the Board to be better informed and to communicate more 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 might be held by the same individual in the future if circumstances were to make combining the two roles desirable.

 

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. 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”). Edward M. Philip currently serves as the Presiding Director, a position which is typically rotated among the Chairs of the Audit, Compensation, Finance and Nominating, Governance and Social Responsibility Committees. Interested parties may contact the Presiding Director confidentially by sending correspondence to c/o Presiding Director, Hasbro, Inc., P.O. Box 495, Pawtucket, Rhode Island 02860. Persons may also contact the Board as a whole 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 Basil L. Anderson (Chair), Michael W.O. Garrett, Tracy A. Leinbach and Edward M. Philip, held ten meetings in 2009. 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 — Investor Relations — Corporate Governance.”

 

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 New York Stock Exchange’s corporate governance listing standards. The Board has determined that three of the four current Audit Committee members (Basil L. Anderson, Tracy A. Leinbach and Edward M. Philip) qualify as Audit Committee Financial Experts, as such term is defined in the rules and regulations promulgated by the United States Securities and Exchange Commission.

 

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. No member of the Company’s Audit Committee currently serves on more than three public company audit committees.

 

Compensation Committee.  The Compensation Committee of the Board, which currently consists of John M. Connors, Jr. (Chair), Frank J. Biondi, Jr., Kenneth A. Bronfin and E. Gordon Gee, held five meetings in 2009. 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 employee stock equity plans 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 — Investor Relations — Corporate Governance.” 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 New York Stock Exchange’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 20 of this proxy statement, and the Compensation Discussion and Analysis which begins immediately thereafter on page 20 of this proxy statement.

 

In reviewing the proposed fiscal 2009 compensation and retention program for the Company’s executive officers, the Compensation Committee received input and recommendations from Mercer LLC (“Mercer”) who served as an outside compensation consultant for the Committee. For its work with respect to advising on the 2009 compensation program, Mercer was retained by, and reported directly to, the members of the Committee. Mercer advised the Committee with respect to the Committee’s review of the Company’s 2009 executive compensation programs and provided additional information as to whether the Company’s proposed 2009 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. Mercer was paid approximately $66,700 for its consulting work for the Committee in fiscal 2009. Mercer and its affiliates were retained directly by management of the Company to provide various services directly to the Company in fiscal 2009. Most of these services were provided outside of the United States to various foreign operations of the Company. These services included: (i) health and welfare administration work performed by Mercer’s office in Hong Kong for the Company’s Far East Operations, (ii) pension administration services performed for the Company in Canada by Mercer’s Montreal office, (iii) local compensation consulting work performed by Mercer’s office in Australia, and (iv) background checks on potential new hires performed by Kroll’s Boston office in the United States. In aggregate, Mercer and its affiliates were paid approximately $762,845 in fiscal 2009 for all of these other services performed for the Company. The Committee and the Board did not review management’s retention of Mercer and its affiliates to perform these other services for which they are retained directly by the Company.

 

Executive Committee.  The Executive Committee of the Board, which currently consists of Alan G. Hassenfeld (Chair), Basil L. Anderson, John M. Connors, Jr., Brian Goldner, Jack M. Greenberg, Edward M. Philip and Alfred J. Verrecchia, did not meet in 2009. 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 — Investor Relations — Corporate Governance.”

 

Finance Committee.  The Finance Committee of the Board, which currently consists of Edward M. Philip (Chair), Kenneth A. Bronfin and Jack M. Greenberg, met five times during 2009. 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 — Investor Relations — Corporate Governance.” 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 New York Stock Exchange’s corporate governance listing standards.

 

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), Alan R. Batkin, John M. Connors, Jr. and Paula Stern, met three times in 2009. 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. Beginning in 2006 the Company eliminated stock options as part of its non-employee director compensation program and the Company is instead granting its non-employee directors annual stock awards. The Nominating Committee recommended, and the full Board approved, this change to the Company’s non-employee director compensation program because they believed stock awards would be more effective in aligning the

interests of the non-employee directors with those of stockholders. Also 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 $275,000). The grant date value of the stock awards to directors in May of 2009 was $105,000.

 

Further, the Nominating Committee oversees the Company’s codes of business conduct and ethics, and analyzes issues of social responsibility and related corporate conduct, including sustainability, philanthropy and transparency. 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 — Investor Relations — Corporate Governance.” 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 New York Stock Exchange’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 nominees recommended by shareholders for election to the Board 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. Third-party executive search firms assist the Board by identifying candidates with expertise and experience relevant to the Company’s business who are interested in serving on the Company’s Board. The Nominating Committee will consider and evaluate candidates recommended by shareholders on the same basis as candidates recommended by other sources.

 

As of December 8, 2009 (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 2010 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, much of the Board’s oversight efforts are conducted through the various Committees of the Board. 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 hear directly from 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’ compliance with legal and regulatory requirements.

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 interest of executives with those of the Company 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.

 

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 02862.

 

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 2011 annual meeting must be received by the Secretary of the Company at the Company’s executive offices no later than December 8, 2010 (the date that is 120 calendar days before the anniversary of the release date of the proxy statement relating to the 2010 Annual Meeting of Shareholders). The address of the Company’s executive offices is 1011 Newport Avenue, Pawtucket, Rhode Island 02862. 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 2011 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 2011 annual meeting. Except for shareholder proposals made pursuant to the preceding paragraph, the Company will retain discretion to vote proxies at the 2011 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 2011 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 notice to the Secretary 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 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.

 

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 02862 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 2011 Annual Meeting of Shareholders must be submitted no later than December 8, 2010. 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 New York Stock Exchange, 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.

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 and Related Party Transactions” of the Company’s Corporate Governance Principles. Although the Company adopted this policy in 2007, the transactions disclosed below, even those entered into before this policy was adopted, have been reviewed and approved or ratified by the Company’s Board.

 

The Company’s wholly-owned subsidiary, Hasbro Canada Corporation (“Hasbro Canada”), leases an office and warehouse facility from Central Toy Manufacturing Inc. (“CTM”), a real estate corporation which is 25% owned by the estate of Merrill Hassenfeld, a former Chief Executive Officer and director of the Company. Sylvia K. Hassenfeld, a former director of the Company and mother of the Company’s former Chairman, Alan G. Hassenfeld, is executrix and a beneficiary of the estate of Merrill Hassenfeld. At the end of 2009, a six-year extension to this lease was executed. The extension takes the expiration date of the amended lease to January 31, 2016. Under the extension the landlord committed to make certain improvements to the facility. The rent provided for in the first two years of this six-year extension is CDN $550,000 per year (in 2009, prior to the extension, the annual rent was CDN $525,000). In years three and four of the extension term the annual rent is CDN $565,000 and in years five and six the annual rent is CDN $580,000. In accordance with the lease prior to the extension, total rent paid by Hasbro Canada to CTM for the lease of the office and warehouse facility in 2009 was CDN $525,000, or approximately U.S. $499,000 at exchange rates in effect at the end of 2009. In management’s opinion, this lease is on terms at least as favorable as would otherwise presently be obtainable from unrelated parties.

 

Michael Verrecchia, son of Alfred J. Verrecchia, is employed by the Company as a Director, Entertainment and Content Manager. For fiscal 2009, Michael Verrecchia was paid an aggregate salary and bonus of $169,066.

COMPENSATION COMMITTEE REPORT

 

The Compensation Committee (the “Committee”) of the Company’s Board is responsible for reviewing, approving and overseeing the compensation and benefits for the Company’s senior management, including all of the Company’s executive officers, and is authorized to make grants and awards under the Company’s employee stock equity plans. The Committee operates under a written charter which has been established by the Company’s Board. The current Committee charter is available on the Company’s website at www.hasbro.com, under “Corporate — Investor Relations — 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 New York Stock Exchange’s corporate governance listing standards.

 

The following section of this proxy statement, entitled “Compensation Discussion and Analysis”, contains disclosure regarding the philosophy, policies and processes utilized by the Committee in reviewing and approving the compensation and benefits of the Company’s executive officers.

 

The Committee has reviewed and discussed with management the Compensation Discussion and Analysis which 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 27, 2009.

 

Report issued by John M. Connors, Jr. (Chair), Frank J. Biondi, Jr., Kenneth A. Bronfin and E. Gordon Gee as the members of the Committee as of the 2009 fiscal year end.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Executive Summary of 2009 Policies and Compensation

 

The Company is a worldwide leader in children’s and family leisure time products and services, with a broad portfolio of brands and entertainment properties. As a brand-driven, consumer-focused company, Hasbro brings to market a wide range of toys, games and licensed products from traditional to high-tech and digital. In the last several years the Company has also increasingly sought to expand awareness of its brands through immersive entertainment experiences, including television and movies. As part of this strategy, in 2009 the Company purchased a 50% interest in a joint venture with Discovery Communications, Inc. (“Discovery”). This joint venture operates a television network in the United States dedicated to high-quality children’s and family entertainment and educational programming. In conjunction with its investment in this joint venture, the Company has been building a studio, called Hasbro Studios, which will oversee the development of television programming based on the Company’s brands. This programming is intended to appear on the joint venture network in the United States, as well as on other networks internationally.

 

As the Company has developed into a global branded-entertainment company, as opposed to a traditional toy and game company, the companies with which Hasbro competes for executive talent have broadened considerably and the skills and expertise required of Hasbro’s executives have increased. As a result, the Company now competes with a broad range of consumer products, entertainment and general industry 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.

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. The Company believes that the primary responsibility of the Company’s 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 its business and financial goals, and/or if the Company’s share price does not rise, the value of the total executive compensation packages received by the Company’s executives is significantly reduced. The Company implements this principle by using variable compensation elements, such as management incentive plan awards and equity awards, for a large majority of the total executive compensation package.

 

Second, the Company seeks predominately to reward overall performance by the Company, or its major business units, and to a lesser extent to reward individual executive performance. The Company believes this is appropriate to foster an environment of team work and to maximize the performance of the Company as a whole, as opposed to individuals within the Company. As a result, the two most significant variable components of the Company’s executive compensation program, namely management incentive plan awards and equity awards, are most heavily weighted to achievement of Company goals and Company performance. The incentive plan awards most significantly reward achievement of stated Company and business unit financial metrics, with individual performance and individual achievements playing a smaller role. Equity awards also reward achievement of long-term Company goals and Company stock price appreciation.

 

Based upon the Company’s excellent performance in fiscal 2009, which was achieved against the backdrop of a continuing global consumer-led recession, the executive officers and employees of the Company received above-target payouts for 2009 under the management incentive program and the contingent stock performance awards which had performance periods that ended in December of 2009. Notwithstanding the difficult economic conditions, in 2009 the Company achieved its ninth consecutive year of growth in earnings per share, and fifth consecutive year of revenue growth, while taking significant steps to increase its future prospects, including, among others, the consummation of its purchase of 50% of a television joint venture with Discovery and steps taken in the creation and development of Hasbro Studios.

 

The Company’s excellent performance over the last several years has had a significant impact on the realization of value from the variable components of the Company’s executive compensation package.

 

The Committee structures the Company’s compensation program in a way it believes appropriately rewards excellent 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.

 

Executive Compensation Philosophy and Objectives

 

In structuring the compensation of the Company’s executive officers, including the named executive officers who appear in the compensation tables following this Compensation Discussion and Analysis (the “Named Executive Officers”), the Company’s fundamental objectives are to:

 

 

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:

 

 

All final decisions regarding the compensation and retention programs for the Company’s executive officers, including the Named Executive Officers, are made by the Committee. The compensation and retention package for the Company’s Chief Executive Officer is also reviewed and approved by the full Board in executive session without Mr. Goldner being present. Normally the Company would have five Named Executive Officers appearing in its compensation tables in the proxy statement. However, because both Mr. Hargreaves and Ms. Thomas served as Chief Financial Officer of the Company for a portion of fiscal 2009, the Company is reporting compensation for fiscal 2009 for a total of six Named Executive Officers.

 

In reviewing the proposed fiscal 2009 compensation and retention program for the Company’s executive officers, the Committee received input and recommendations from Mercer LLC (“Mercer”) who served as an outside compensation consultant for the Committee. For its work with respect to advising on the 2009 compensation program, Mercer was retained by, and reported directly to, the members of the Committee. Mercer advised the Committee with respect to the Committee’s review of the Company’s 2009 executive compensation programs and provided additional information as to whether the Company’s proposed 2009 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. Mercer was paid approximately $66,700 for its consulting work for the Committee in fiscal 2009. Mercer and its affiliates were retained directly by management of the Company to provide various services directly to the Company in fiscal 2009. Most of these services were provided outside of the United States to various foreign operations of the Company. These services included: (i) health and welfare administration work performed by Mercer’s office in Hong Kong for the Company’s Far East Operations, (ii) pension administration services performed for the Company in Canada by Mercer’s Montreal office, (iii) local compensation consulting work performed by Mercer’s office in Australia, and (iv) background checks on potential new hires performed by Kroll’s Boston office in the United States. In aggregate, Mercer and its affiliates were paid approximately $762,845 in fiscal 2009 for all of these other services performed for the Company. The Committee and the Board did not review management’s retention of Mercer and its affiliates to perform these other services for which they are retained directly by Company.

 

In addition to the work performed by Mercer directly for the Committee with respect to the 2009 compensation program, Towers Watson & Co. (“Towers Watson”) was retained by the Company’s Human Resources and Corporate Compensation Departments to perform analysis on the Company’s proposed compensation and retention program, including its fairness to the Company and the executives, retention value, effectiveness in promoting and rewarding performance and achievement of the Company’s goals and competitiveness with comparable companies. As part of this work, Towers Watson assisted the Company with the preparation of compensation information presented to the Committee at various times, including tally sheets showing each executive officer’s forward-looking target, and backward looking actual compensation, as well as certain of the compensation tables and other information included in the Company’s proxy statement.

 

The Company’s Chief Executive Officer, Senior Vice President of Human Resources, Head of Corporate Compensation, 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 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 Corporate 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 Senior Vice President of Human Resources, the Company’s Director of Corporate Compensation and 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 from Mercer.

 

For the Chief Executive Officer, the Committee directly determines the compensation and retention package, receiving input, recommendations and market data as it deems appropriate from the Company’s Human Resources and Corporate Compensation Departments, the Committee’s outside compensation consultant, and the Company’s compensation consultant. The Committee also received input from the Company’s Senior Vice President of Human Resources in structuring the compensation for the Company’s Chief Executive Officer. Other than the Company’s Senior Vice President of Human Resources, the Committee does not receive a recommendation as to the Chief Executive Officer’s compensation from any member of Company’s management. 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 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.

 

In designing the fiscal 2009 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) target management incentive awards, (iii) total target cash compensation (comprised of base salaries and target management incentive awards together) and (iv) target equity award packages. Such market information is one element reviewed by the Committee, but the Committee does not simply set compensation levels at a certain benchmark level 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 an element of pressure testing the reasonableness of those proposed packages.

 

For purposes of establishing a market check for base salaries, management incentive awards and total target cash compensation the Company and the Committee reviewed the Hewitt Executive Total Compensation Measurement Survey, prepared by Hewitt Associates, LLP, and Towers Perrin’s Executive Compensation Databank. The Towers Perrin survey is employed by the Company as a market check against other companies of similar size, in terms of revenues and other financial metrics. The Hewitt survey is focused on industry type, as opposed to company size, and provides a market check for other companies which have a business similar to that of the Company. Within these surveys the Committee and the Company focused on the following types of companies: (i) companies in the general industry category with total annual revenues ranging from $3 billion to $6 billion within Towers Perrin’s Executive Compensation Databank, and (ii) the following 36 consumer products and consumer facing companies, within the Hewitt Executive Total Compensation Measurement Survey: Anheuser-Busch Companies, Inc., Blockbuster, Inc., Brunswick Corporation, Campbell Soup Company, Colgate-Palmolive Company, Del Monte Foods Company, Eddie Bauer, Inc., Fortune Brands, Inc., General Mills, Inc., HJ Heinz Company, Hallmark Cards, Inc., Harley-Davidson Motor Company, Henkel of America, Inc., Herman Miller, Inc., Kellogg Company, Kimberly-Clark Corporation, Kohler Company, Kraft Foods, Inc., LL Bean Incorporated, Levi Strauss & Co., Mars Incorporated, McCain Foods USA, Inc., Molson Coors Brewing Company, Nestle USA, Reynolds American, Inc., SC Johnson Consumer Products, The Clorox Company, The Hershey Company, The Procter & Gamble Company, The Scotts Miracle-Gro Company, The Sherwin-Williams Company, Time Warner Cable, Timex Corporation, Tupperware Corporation, Unilever United States, Inc., and Wm. Wrigley Jr. Company.

 

In structuring the equity compensation program for 2009, the Company and the Committee reviewed certain market data from Towers Perrin’s Executive Compensation Databank and the Hewitt Executive Total

Compensation Measurement Survey mentioned above. The Company’s equity compensation program for fiscal 2009 was not changed significantly from the program in fiscal 2008.

 

The Company selected the sets of market data discussed above because they are comprised of a broad range of companies which are considered comparable to and competitive with the Company in terms of the challenges faced by such companies and their executive teams, and the skills and experience required by the executive teams in leading such companies. In reviewing compensation reference points, the Company generally seeks, absent other circumstances driving a different outcome which are discussed below, to have a total compensation package for its executive officers that falls between the 50th and 75th percentiles of compensation at comparable companies in the market data. However, it is not always the case that the compensation packages fall within this band. They could be higher or lower depending on the particular executive and the goals the Committee is seeking to achieve in structuring the compensation package. The Committee is predominately focused on developing compensation and retention programs that: (i) are appropriate and effective in furthering the goals of the Company, (ii) provide adequate retention incentive for top performing executives and (iii) fairly reward 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. The Committee believes that this approach to the Company’s compensation program allows the Company to effectively hire, retain and motivate talented executives. This approach also enables the Company to keep the cost of the Company’s executive compensation at a reasonable level as compared to other similar and/or competitive companies.

 

Although the Company considers 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 the Company may feel a particular goal is very important to the Company, even though it is not objective within the meaning of the Code. 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).

 

The Company does not have a formal policy requiring executives to forfeit compensation, either cash or non-cash, to the Company in the event that there is a financial restatement or some other negative occurrence after such compensation is paid. However, there are legal provisions under the Sarbanes-Oxley Act of 2002 which require forfeiture of some elements of compensation in certain situations. The full Board, the Committee and the Company’s senior management are committed to an environment in which all of the Company’s officers and employees act in accordance with the highest ethical standards and in accordance with all legal and accounting requirements. Any failure to do so will be dealt with on a case by case basis by management, the Committee and the Board, in the manner they deem appropriate.

 

Primary Elements of 2009 Executive Compensation

 

The executive compensation and retention program for fiscal year 2009 was composed of four primary elements:

 

 

The Company uses these four 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. As an illustration of this approach, of Mr. Goldner’s total compensation for fiscal 2009, as reported in the Summary Compensation table appearing on page 34 of this proxy statement, over 80% of the value of the total compensation was comprised of equity awards and performance based non-equity incentive plan compensation. The Company believes this fosters a performance-driven mentality and best serves the interests of the Company and its stakeholders, 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.

 

Base Salary

 

The salaries for all six of the Company’s Named Executive Officers in fiscal 2009 are included in the Summary Compensation Table that follows this report. 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.

 

Consistent with this philosophy, and the Company’s decision in 2009 to freeze salaries for all employees worldwide (other than in the cases of promotions, the addition of significant new responsibilities, or increases required for legal or other reasons), the only Named Executive Officer who received an increase in base salary during 2009 was Ms. Thomas. In connection with her promotion to Chief Financial Officer of the Company, Ms. Thomas’ annual base salary was increased from $400,000 to $450,000.

 

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 losing that person to a competitive employment opportunity, (ii) retain the executive, and (iii) fairly compensate the executive for his or her responsibilities, skills and work. 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.

 

According to the last set of market data which the Committee and the Company reviewed at the end of fiscal 2009, the base salaries for the Named Executive Officers in fiscal 2009 ranged between the 29th and the 75th percentiles of base salaries for comparable positions at companies contained in the market data reviewed by the Committee and the Company. This outcome was consistent with the Committee’s goal of setting compensation levels it believes are appropriate and meet the Company’s objectives, as opposed to having market data be the primary driver behind compensation decisions.

 

In late 2009 and early 2010, the Committee conducted a review of the Company’s executive base salaries as part of its work on structuring the executive compensation program for 2010. The Committee looked at the base salaries of the Named Executive Officers as part of this review, asking whether they appropriately reflected the person’s responsibilities and contributions to the Company, fairly compensated the person for their work for the Company, provided sufficient retention value and were competitive. As a result of this review, the Committee implemented increases in base salary for certain of the Named Executive Officers effective in February 2010. Mr. Goldner’s base salary was increased from $1 million to $1.2 million; Mr. Hargreaves’ base salary was increased from $700,000 to $800,000; Ms. Thomas’ base salary was increased from $450,000 to $475,000; Mr. Billing’s base

salary was increased from $412,500 to $485,000; and Mr. Frascotti’s base salary was increased from $425,000 to $485,000.

 

Management Incentive Awards

 

Summary of 2009 Management Incentive Awards

 

Approximately 26% of the Company’s employees, including all of the Named Executive Officers, received management incentive awards with respect to fiscal 2009. The management incentive award is performance based, with payout of these awards tied to the achievement of specific yearly performance objectives by the Company, as well as individual performance for the year to the extent discussed below. This is in contrast to equity awards, which although also performance based, are designed to reward achievement of specific performance objectives and/or stock price appreciation over periods longer than one year.

 

Management incentive awards for the Company’s executive officers for fiscal 2009 were determined under two programs, the 2004 Senior Management Annual Performance Plan (the “Annual Performance Plan”) and the 2009 Management Incentive Plan (“MIP”). 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 MIP is not a shareholder approved plan. The primary difference in administering the MIP, as compared to the Annual Performance Plan, is that under the MIP the Company is able to adjust actual award payouts, either up or down, based upon individual performance. This is in contrast to the Annual Performance Plan, where only negative discretion to reduce an award is allowed.

 

Additional detail concerning these two plans, the manner in which awards are structured and administered under the plans, and the differences between the plans, is set forth below. Despite certain differences in the two plans, however, both the Annual Performance Plan and the MIP use the same corporate performance criteria and targets.

 

The Committee established the fiscal 2009 corporate and business unit performance goals for the Company under these two plans in the first quarter of fiscal 2009. These performance goals were based on the 2009 operating plan and budget approved by the Company’s Board. Setting performance goals involves both selecting the performance metrics that will be used to evaluate bonus eligibility and establishing the performance targets for each of those metrics. The Committee used three performance metrics to measure corporate performance in 2009. 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 sales, 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 2009 corporate total net revenues, operating margin and free cash flow performance targets established by the Committee, as well as the Company’s actual performance against those targets in 2009. The Company’s actual weighted performance in fiscal 2009 under the MIP corresponded to a 136% weighted payout against achievement of the target corporate performance goals. The same goals and levels were used under the Annual Performance Plan. The free cash flow performance set forth in the table below for 2009 under the MIP is (i) adjusted to exclude the $50 million payment made by the Company in 2009 in connection with extending its license with Marvel Characters BV (“Marvel”) and (ii) the $250 million impact from the Company’s not utilizing its accounts receivable securitization facility at the end of 2009. While the adjustment for not using the securitization facility was contemplated under the Annual Performance Plan, the payment to Marvel was not contemplated under the Annual Performance Plan computation. The Committee believed that this extension was of great benefit to the Company and, as a consequence, that participants in the management incentive program should not be penalized for it. That adjustment could not be made under the Annual Performance Plan given the requirements of Section 162(m), and as a result, even though the actual performance for the Company is the same, the Company’s weighted performance against the goals set for 2009 under the Annual Performance Plan, given the reduction in free cash flow due to the Marvel extension, was 127%.

The total weighted payout percentage of 136% against target (based on performance against the three corporate performance metrics ranging from 101% to 130%) reflects that performance under the plans is leveraged, both in a positive and negative direction. As a result, when performance against a target is surpassed, the plan recognizes incremental gains over target performance to an increasingly greater extent the more the target is exceeded. Similarly, leverage is applied to reduce awards to an increasingly disproportionate extent as performance falls further below target.

 

 

 

 

The Committee sets the corporate and business unit performance goals under the management incentive plan 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 2009 represented the following changes over the Company’s performance in fiscal 2008 in order to achieve 100% of target performance, (i) total net revenues, an increase of $46 million over 2008 actual net revenues of $4.02 billion (this target increase of $46 million in net revenues took into account a projected 5% decrease in net revenues (so approximately a $200 million reduction in net revenues), from 2008 to 2009, being driven by changes in foreign exchange rates, so it represented a $246 million increase from the 2008 revenues to offset the exchange rate projections), (ii) operating margin, an increase from the actual operating margin of 12.3% in 2008 to a target of 13.14% in 2009, and (iii) free cash flow of $354 million, which although lower than the Company’s 2008 free cash flow, took into account the Company’s earnout of all of its prepaid royalties to Lucas Licensing (associated with the sale of Star Wars products) during 2008 and the projected negative impact to the Company’s free cash flow in 2009 associated with significant cash royalty payments to Lucas.

 

For Mr. Goldner and Mr. Hargreaves, who participated in the Annual Performance Plan in 2009, fiscal 2009 management incentive award opportunities were structured in terms of maximum permissible payouts corresponding with various levels of Company performance. In every case these awards could then be reduced, but not increased, at the sole discretion of the Committee. To the extent that the Committee determined it was appropriate to reward Mr. Goldner or Mr. Hargreaves for achievement of subjective goals or individual performance, the Committee would need to award discretionary bonuses outside of the Annual Performance Plan. Neither Mr. Goldner nor Mr. Hargreaves received a discretionary bonus award for fiscal 2009.

 

To assist in making decisions as to when, and to what extent, to exercise negative discretion to reduce the bonuses which are otherwise payable under the Annual Performance Plan, the Committee set personal objectives for each of Mr. Goldner and Mr. Hargreaves for fiscal 2009. The executive’s achievement of these personal objectives was then used as one of the factors considered by the Committee in its determination whether to apply any negative discretion to the amount of the bonus which would otherwise be paid to Mr. Goldner or Mr. Hargreaves based upon the Company’s achievement of its corporate performance metrics under the Annual Performance Plan. In no event may performance against these individual objectives increase in any way the bonus which may be otherwise paid to Mr. Goldner or Mr. Hargreaves. Among the personal objectives set by the Committee for Mr. Goldner and Mr. Hargreaves for fiscal 2009 (although they each had other objectives as well) were that the Company: (i) successfully close its investment in a television joint venture and begin formation of its studio, Hasbro Studios, to produce programming based on the Company’s brands for distribution on the television joint venture and

through other distributions channels, (ii) continue to successfully build its Transformers and G.I. Joe brands, including through successful movies and associated marketing programs in 2009, (iii) continue the expansion of its business into new and emerging markets and (iv) continue to pursue a business strategy which builds shareholder value for the long-term, including its continued transformation into a global branded entertainment company. In his first year as Chief Operating Officer, Mr. Hargreaves also had the personal objective of ensuring continued strong retail performance and growth at retail of the Company’s brands.

 

Based upon the Company’s 136% weighted payout against achievement of its corporate performance objectives in 2009 (127% under the Annual Performance Plan which did not adjust for the Marvel payment), the Annual Performance Plan allowed for payment of the maximum management incentive award to each of Mr. Goldner and Mr. Hargreaves for 2009. In each case, the maximum incentive award for 2009 for the executives participating in the Annual Performance Plan was set at three times the executive’s base salary.

 

Considering the Company’s fifth consecutive year of net revenue growth in 2009, ninth consecutive year of earnings per share growth, and strong overall performance, while in the midst of a global consumer-led recession, as well as each of Mr. Goldner’s and Mr. Hargreaves’ contributions to that performance, and the performance of Mr. Goldner and Mr. Hargreaves against their personal objectives, as well as the role of Mr. Goldner and Mr. Hargreaves in securing the extension of the Company’s license with Marvel, the Committee determined to exercise only partial negative discretion with respect to the awards payable to Mr. Goldner and Mr. Hargreaves. In each case the executive was paid a management incentive bonus the Committee believed appropriately reflected the executive’s respective significant contributions to achieving the Company’s performance in 2009. The bonuses paid to Mr. Goldner and Mr. Hargreaves reflected 90% and 81% respectively of the maximum bonus each such executive could have received under the Annual Performance Plan for the Company’s fiscal 2009 performance.

 

For Ms. Thomas, Mr. Nagler, Mr. Billing and Mr. Frascotti, who participated in the MIP in 2009, their fiscal 2009 management incentive award opportunities, rather than being structured as a range of maximum awards corresponding to various levels of performance against target, were instead set to provide for a payout of 60% of base 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 MIP is set at 80% of target performance for purposes of the achievement of that goal contributing to payout of the management incentive award. An 80% achievement of a performance goal under the MIP equates to a 60% payout against that goal. In addition to taking into account Company performance, the MIP, unlike the Annual Performance Plan, also allows for a multiplier of up to 150% of the formula award in recognition of superior performance against individual performance objectives. The maximum incentive award which could have been paid to each of Ms. Thomas, Mr. Nagler, Mr. Billing and Mr. Frascotti for fiscal 2009 was 180% of their respective base salaries.

 

The 136% weighted payout against the corporate performance goals in 2009 would have corresponded with approximately 136% of the target payout for each of Ms. Thomas, Mr. Nagler, Mr. Billing and Mr. Frascotti under their management incentive awards for 2009, absent personal performance multipliers and adjustments. Those formula payouts would have resulted in pure formula awards under the MIP, prior to personal performance adjustments or discretionary awards, as follows: Ms. Thomas, $345,230, Mr. Nagler, $403,920, Mr. Billing, $336,600, and Mr. Frascotti, $346,800. With the exception of Mr. Nagler, each of these executives was granted a greater than formula bonus under the MIP based on their personal performance multiplier and/or particular individual achievements for 2009. Mr. Nagler, instead of receiving an above target payout under the MIP, was paid a discretionary bonus, reflected in the bonus column of the Summary Compensation table, as a President’s Award to reflect his performance, particularly in connection with the Company’s consummation of its joint venture with Discovery.

 

For Ms. Thomas, this personal adjustment was based on factors including her: (i) successful first year as Chief Financial Officer, (ii) efforts and results in instilling stronger financial discipline and an improved financial architecture across the Company, and (iii) strong management of the Company’s expenses in 2009. Mr. Nagler’s discretionary bonus was based on factors including his critical efforts in bringing the Company’s investment in its television joint venture with Discovery to a successful close. Mr. Billing’s personal adjustment was based on factors including: (i) his and his organization’s role in bringing ongoing innovation to all of the Company’s product

offerings across all of the Company’s brands, and (ii) the discipline Mr. Billing has brought to managing the Company’s product development costs globally and in integrating the Company’s Hasbro Far East Operations into the Company’s broader product development structure. Mr. Frascotti’s personal adjustment was based on factors including: (i) his results in bringing ongoing brand discipline and brand growth to key Company brands such as Nerf and Littlest Pet Shop and (ii) the full establishment of a global brand organization to drive the Company’s brands.

 

In all cases, the bonuses for performance under the Annual Performance Plan and the MIP for executive officers, including all of the Named Executive Officers, were reviewed and approved by the Committee. The bonuses for the Company’s Chief Executive Officer and Chief Operating Officer were also reviewed and approved by the full Board.

 

The maximum awards for each of the Named Executive Officers for 2009, as well as the threshold and target awards for Named Executive Officers participating in the MIP Plan, are included in the Grants of Plan-Based Awards table that follows this discussion.

 

According to market data reviewed by the Company the target management incentive award opportunities for Ms. Thomas, Mr. Nagler, Mr. Billing and Mr. Frascotti, for whom target awards are set, ranged between the 39^th and the 63^rd percentiles of target cash management incentive awards at companies in the market surveys reviewed by the Company and the Committee.

 

Long-Term Equity Awards

 

Prior to fiscal 2006, the Company had granted almost all of the equity awards to the Company’s executive officers in the form of non-qualified stock options, generally vesting in annual installments over three years. These options were designed to motivate and retain those individuals, over a period of multiple years, who are most important to the Company’s future success. Stock options are also designed to align the interests of employees with those of shareholders by providing employees with a benefit from price appreciation in the Common Stock after the date of grant and to hold employees accountable for delivering stock price appreciation to the shareholders of the Company.

 

In structuring the 2009 (and prior to that the 2008, 2007 and 2006) equity compensation program the Committee believed it was important to retain stock options as a significant element of the equity program for executive officers to continue to achieve the motivational benefits of rewarding them for appreciation in the Company’s stock price over the course of multiple years. However, in light of the many market factors that can impact an individual company’s stock performance, other than the performance of the company itself, and the consequent imperfect connection between a company’s stock price performance and the performance of the underlying business, the Committee felt it was important beginning in 2006 to have a significant portion of the value of the Company’s equity compensation program tied to achievement of specific internal financial goals for the Company, rather than just stock price appreciation.

 

In determining the 2009 equity award targets the Committee reviewed and considered the prior equity grants made to the executive officers, as well as those officers’ cumulative holdings of stock in the Company. 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 target equity grant levels.

 

For fiscal 2009, the Committee approved target total 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 total target equity award values in 2009, as a percentage of their base salaries, were as follows: Brian Goldner, 400%, David D.R. Hargreaves, 200%, Deborah Thomas, 100% (which was set prior to her promotion to Chief Financial Officer in May of 2009, at which time the target level, to be applied in 2010, was raised to 150%), Barry Nagler, 150%, Duncan Billing, 150% and John Frascotti 150%.

 

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 performance of the Company and its stock. As is

the case with management incentive plan awards, the performance metrics are designed to reward Company performance, as opposed to individual performance.

 

The target equity award value for each executive officer was then divided evenly between two award types, non-qualified stock options and performance share awards, such that 50% of the total equity award value would be represented by each type of award. This even division of the award value reflected the Committee’s belief that over the performance period the realization of equity award values should be equally divided between achievement of the Company’s longer-term internal financial targets and the Company’s stock price appreciation.

 

For the 50% of the equity award value in 2009 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 2009 and ending December 2011 (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 2010 and 2011) and the Company’s operating plan (for 2009) as those plans had been approved by the Company’s Board of Directors and, as is the case with the performance levels under the Annual Performance Plan and the MIP, were set at levels which the Committee determined would require solid performance from the Company, and in turn its executives, in order to achieve a threshold payout, and superior performance to achieve a higher than target payout.

 

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. However, the targets are based on the same Board approved operating plan which is used in setting performance targets under the Annual Performance Plan and MIP, as well as on the longer-term strategic operating plan approved by the Board. 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 2009.

 

Revenues Measure

 

 

90% achievement of each target under the contingent stock performance awards was established as a threshold to that metric contributing to the ultimate award payout under the contingent stock performance awards granted in 2009. Each stock performance award has a target number of shares of common stock, a portion of which may be earned by the recipient if the Company achieves at least 90% of the stated EPS and/or Revenue targets over the Performance Period. For example, 90% achievement of both of the performance metrics corresponds with a planned payout of 85% of the target number of shares. The actual number of shares to be received at the end of the Performance Period can be below or above the target number based on the actual levels of the target performance achieved against the two metrics. In all cases the Committee retains the right to reduce the number of actual shares received pursuant to any award to any level, including 0%, to the extent it believes the actual payout should be below the number called for by the award agreements.

 

For the grant of contingent stock performance awards made in early 2007, the three-year performance period ended in December 2009. Following the Committee’s review and approval of the Company’s performance under

those awards, actual shares of stock were paid out under the 2007 stock awards in early 2010. The table set forth below shows how the Company performed against the net revenues and EPS performance metrics set forth in the 2007 contingent stock performance awards. The revenue performance of 111% of target, and the EPS performance of 123% of target, together resulted in a payout under these contingent stock performance awards of 125% of target.

 

Actual Performance Under the 2007 Contingent Stock Performance Awards

 

 

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.

 

The Committee believes the equity compensation awards to the Company’s executive officers are appropriate to properly incentivize these officers to achieve maximum performance, and to align their interests with those of the Company’s shareholders, 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 and performance share award grants to the Company’s Named Executive Officers in 2009 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 in fiscal 2009 was February 4, 2009, and the grant date for the yearly grant of options in fiscal 2009 was May 21, 2009. The option grant was deferred until May to allow the Company to obtain shareholder approval for increasing the authorized shares under its equity plan at the 2009 annual meeting of the Company’s shareholders.

 

The Company has only infrequently used restricted stock and restricted stock units as a reward and retention mechanism. Mr. Goldner was granted 57,787 restricted stock units in connection with his promotion to President and Chief Executive Officer in May 2008. In 2008, no other executive officers received grants of restricted stock or restricted stock units and no such grants were made in fiscal 2009.

 

The Company has 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.

 

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. The Committee also approves the total equity grant pool for all other eligible employees of the Company, with the individual grants from that pool being made from a list prepared by the Company’s senior management which is available for the Committee’s review. 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. All of these off-cycle grants are also reviewed and approved by the Committee.

 

Equity Grants in 2010, Including Retention Grants to the Chief Executive Officer

 

The Company made its annual grant of stock options and contingent stock performance awards to executive officers, including the Named Executive Officers, for fiscal 2010 in February of 2010. The target values of those annual equity awards, as a percentage of the officers’ then effective salaries, for each of the Named Executive Officers were consistent with 2009.

 

In March of 2010, the Company and Mr. Goldner entered into an amended employment agreement. The amended agreement extended the term of Mr. Goldner’s employment through December 31, 2014 and broadened

the non-competition covenant made by Mr. Goldner in favor of the Company. The amended employment agreement is discussed in more detail starting on page 53 of this proxy statement. The amended employment agreement reflects the increase in Mr. Goldner’s annual base salary to $1.2 million which was previously made in February of 2010, but does not increase Mr. Goldner’s management incentive award targets as a percentage of his base salary. However, it did provide for one-time supplemental equity grants, beyond the annual equity grants Mr. Goldner received in February of 2010. In connection with the amended employment agreement, both a supplemental contingent stock performance award and a supplemental option award were granted to Mr. Goldner. The supplemental contingent stock performance award granted to Mr. Goldner has a three-year performance period ending at the end of 2012 and uses the same three-year performance metrics as the annual contingent stock performance awards which were made in February of 2010. This additional award covers 125,000 shares at target performance. However, the supplemental contingent stock grant, unlike the annual contingent stock grants, provides for an extended vesting period following the end of the performance period, such that of any shares earned under the supplemental contingent stock performance award following the end of 2012, 50% would vest at the end of 2013 and the remaining 50% would vest at the end of 2014. The supplemental stock option award granted to Mr. Goldner in connection with the amended employment agreement covers 687,000 shares and vests in cumulative annual installments of 20% over five years, with the final tranche scheduled to vest in December of 2014.

 

The Board and the Committee believed that these supplemental equity grants to Mr. Goldner were required to provide Mr. Goldner with an appropriate and fair compensation package which reflects his tremendous past contributions, and anticipated future contributions, to the Company, including Mr. Goldner’s role in continuing the Company’s transformation into a global branded-entertainment company. The Board and the Committee also believe that these supplemental equity grants provide an increased retention incentive to address the risk that Mr. Goldner could be recruited away from the Company by a competitive offer in the future. However, even with the supplemental equity grants which were made to Mr. Goldner in March of 2010, some level of additional equity grants to Mr. Goldner and/or other increases to Mr. Goldner’s compensation may be required in the future to properly reflect the value to the Company of his ongoing leadership, his contribution to the Company’s business and financial performance, his continuing role in transforming the Company into a global branded-entertainment company, and to help prevent a loss of Mr. Goldner’s services to the Company through his hiring by another business willing to offer a larger compensation package.

 

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, which are described starting on page 41 of this proxy statement, 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 is described starting on page 41 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 had been with the Company for 26 years, with a retirement benefit which effectively grandfathered for 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 55 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 $110,000. 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 annual limit on these costs for the Chief Executive Officer is $25,000, for the Chief Operating Officer is $7,500, and for the other Named Executive Officers is $5,000. 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.

 

Change of Control and Employment Agreements

 

Mr. Goldner, Mr. Hargreaves and Mr. Nagler are party to Change in Control Agreements with the Company. In addition, Mr. Goldner is party to an additional agreement with the Company governing his employment and providing certain post-termination benefits and payments. Mr. Hargreaves is party to an arrangement grandfathering certain aspects of the Company’s pension plans for him. All of these agreements and arrangements, and the payments which the executive can receive in certain situations, are described in detail under the caption “Agreements and Arrangements Providing Post-Employment and Change in Control Benefits” that follows this report. The Committee authorizes the Company to enter into Change of Control or other employment related agreements or arrangements with executives only in those situations where the Committee feels doing so is necessary to recruit and/or retain the most talented executives and to provide optimal incentive to the executive in question to work to maximize the performance of the Company and the creation of long-term value for the Company’s shareholders. The Change in Control Agreements are discussed in detail starting on page 52 of this proxy statement. The change in control provisions in these agreements are generally double-trigger provisions in that the executive officer generally receives benefits under the agreements only if, following a change in control, the individual executive officer is either terminated by the Company without cause, or leaves on account of events which qualify under the definition of good reason in the agreement. The Company believes that double-trigger change in control agreements are generally most appropriate as an executive would only be compensated thereunder in the event that the executive was no longer employed with the Company following the change in control.

 

However, the Company’s equity compensation plans generally provide that equity awards (including performance share awards) for all participants, including the Named Executive Officers, fully vest in the event of a change in control of the Company. The participant is entitled to receive the value of such awards either in cash or shares of the Company’s stock, determined in the Committee’s discretion, following such change in control.

EXECUTIVE COMPENSATION

 

The following table summarizes compensation paid by the Company for services rendered during fiscal 2009, fiscal 2008 and fiscal 2007 by any person serving as the Company’s Chief Executive Officer during any part of fiscal 2009, by any person serving as the Company’s Chief Financial Officer during any part of fiscal 2009, and by the three other most highly compensated executive officers of the Company in fiscal 2009 (to the extent that such person was an executive officer during the year in question).

 

Summary Compensation Table

 

 

 

 

In each of the years shown, these executives were granted non-qualified stock options and contingent stock performance awards. Mr. Goldner was also granted restricted stock units in 2008.

 

The grant date fair values included in the table for the contingent stock awards have been calculated based on the probable outcomes under such awards (assumed to be the target values of such awards). If it were assumed that the maximum amount payable under each of these awards were ultimately paid, which maximum is 125% of the target value, then the grant date fair values included under the stock award column for each of the Named Executive Officers would have been as follows: Mr. Goldner, $1,920,640, Mr. Hargreaves $672,229, Ms. Thomas $168,050, Mr. Nagler $356,514, Mr. Billing $297,085 and Mr. Frascotti $306,094.

 

 

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 6%, when 120% of the applicable long-term rate was 4.3%:

 

 

Does not include the following aggregate amounts, in fiscal 2009, fiscal 2008 and fiscal 2007 respectively, which were earned or (lost) 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)):

 

 

Except as set forth above, 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, and they do not exceed the returns which are earned by other participants selecting the same investment options.

 

 

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:

 

 

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)).

 

 

* * *

 

The following table sets forth certain information regarding grants of plan-based awards for fiscal 2009 to the Named Executive Officers.

 

Grants of Plan-Based Awards

 

 

 

 

* * *

The following table sets forth information for equity awards held by the named individuals as of the end of the Company’s 2009 fiscal year.

 

Outstanding Equity Awards at Fiscal Year-End