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Proxy Statement

 

September 23, 2011

Annual Meeting of Stockholders

 

 

 

August 5, 2011

 

Dear Fellow Stockholder:

 

It is my pleasure to invite you to join us for the ConAgra Foods Annual Meeting of Stockholders in Omaha, Nebraska on September 23, 2011 at 1:30 p.m., Omaha Time, at the Joslyn Art Museum, 2200 Dodge Street, Omaha, Nebraska 68102.

 

The meeting will include a report on our business, discussion and voting on the matters described in the accompanying notice of annual meeting and proxy statement, and a question-and-answer session.

 

We look forward to seeing you in Omaha. If you cannot be with us in person, please be sure to vote your shares by proxy. Just mark, sign and date the enclosed proxy card and return it in the postage-paid envelope. Or, vote on the Internet or by telephone according to the instructions you will find in the following pages. Your prompt response is appreciated.

 

Thank you for your continued investment in ConAgra Foods.

 

Sincerely,

 

Gary M. Rodkin

Chief Executive Officer & President

 

The Annual Stockholders’ Meeting of ConAgra Foods, Inc. will be held on Friday, September 23, 2011, in the Witherspoon Concert Hall of the Joslyn Art Museum, 2200 Dodge Street, Omaha, Nebraska 68102. The meeting will begin promptly at 1:30 p.m., Omaha Time. Registration will begin at 12:30 p.m. At the meeting, stockholders will:

 

 

Stockholders of record as of the close of business on July 29, 2011 are eligible to vote at the annual meeting and at any postponements or adjournments thereof.

 

Colleen Batcheler

Corporate Secretary

 

August 5, 2011

Omaha, Nebraska

 

Table of Contents

 

 

We are furnishing this proxy statement to our stockholders in connection with the solicitation by our Board of Directors of proxies to be used at the 2011 Annual Meeting of Stockholders of ConAgra Foods, Inc. Distribution of this proxy statement is scheduled to begin on or about August 5, 2011.

 

Stockholders of record at the close of business on July 29, 2011 are entitled to vote at the meeting and at any postponements or adjournments. On July 29, 2011, there were 414,592,942 voting shares of our common stock issued and outstanding. Each share of common stock is entitled to one vote.

 

Your vote is very important. For this reason, the Board of Directors is requesting that you vote your shares in advance of the meeting by proxy.

 

If you hold shares of ConAgra Foods stock in your own name (also known as “of record” ownership), you can come to the meeting and vote your shares in person, or you can vote your shares by proxy in one of the following manners:

 

 

Internet and telephone voting is available through 11:59 p.m. Eastern Time on Tuesday, September 20, 2011 for shares held in the ConAgra Foods Retirement Income Savings Plan and through 11:59 p.m. Eastern Time on Thursday, September 22, 2011 for all other shares.

 

You may also vote by completing, signing, dating and returning the enclosed proxy or voting instruction form in the postage paid envelope provided.

 

If a broker, bank or other nominee holds your stock (also known as “street name” ownership), it will send you a voting instruction form. If you wish to attend the meeting and vote in person, you must obtain a “legal proxy,” executed in your favor, from the broker, bank or nominee.

 

See pages 59 to 61 of this proxy statement for more voting information.

 

 

 

ConAgra Foods’ business is managed under the direction of our Board of Directors, which is currently comprised of 11 members. For the 2011 Annual Meeting, all 11 members have been re-nominated by the Board for election to hold office until the 2012 Annual Meeting and until their successors have been elected and qualified. Each nominee is a current member of the Board who was elected by stockholders at the 2010 Annual Meeting. In case any nominee becomes unavailable for election to the Board of Directors for any reason not presently known or contemplated, the proxy holders will have discretionary authority in that instance to vote the proxies for a substitute.

 

The Board’s Nominating and Governance Committee recommended that each individual identified below be re-nominated for election. A short biography, together with key experiences, qualifications and skills considered by the Committee is noted for each individual.

 

MOGENS C. BAY – Director since December 12, 1996

 

Mr. Bay (62 years of age) has served as Chairman of the Board and Chief Executive Officer of Valmont Industries, Inc. (products for water management and infrastructure) since January 1997. He has also been a director of Peter Kiewit Sons’, Inc. (construction and mining) since 1999.

Summary of experience, qualifications and skills considered in re-nominating Mr. Bay:

 

 

STEPHEN G. BUTLER – Director since May 16, 2003

 

Mr. Butler (63 years of age) served as the Chairman and Chief Executive Officer of KPMG LLP (national public accounting firm) from 1996 to June 2002. He has been a director of Cooper Industries plc (electric lighting and wiring company) since 2002 and Ford Motor Company (motor vehicles manufacturer) since 2004.

 

Summary of experience, qualifications and skills considered in re-nominating Mr. Butler:

 

 

STEVEN F. GOLDSTONE – Director since December 11, 2003

 

Mr. Goldstone (65 years of age) has served as non-executive Chairman of the ConAgra Foods Board since October 1, 2005. He has been a manager of Silver Spring Group (private investment firm) since 2000. From 1999 to 2000, Mr. Goldstone served as Chairman of Nabisco Group Holdings (food company). He also previously served as Chairman and Chief Executive Officer of RJR Nabisco, Inc. (consumer products company). Mr. Goldstone has been a director of Merck & Co., Inc. (pharmaceutical company) since 2006 and Greenhill & Co., Inc. (financial advisory services) since 2004. Mr. Goldstone also served as a director of Trane Inc. (heating and air conditioning equipment) from 2002 until 2008.

 

Summary of experience, qualifications and skills considered in re-nominating Mr. Goldstone:

 

 

JOIE A. GREGOR – Director since February 6, 2009

 

Ms. Gregor (61 years of age) has served as a Senior Advisor to Notch Partners (buyout-driven human capital consulting services firm) since 2009. From 2007 to 2008, Ms. Gregor served as assistant to the President for Presidential Personnel under President George W. Bush. Ms. Gregor served as Vice Chairman of Heidrick & Struggles International, Inc. (executive search firm) from 2002 until 2007. From 1993 until 2002 she served in a number of senior leadership roles with that firm, including President, North America, managing partner of the firm’s Global Board of Directors Practice and managing partner of the New York office.

Summary of experience, qualifications and skills considered in re-nominating Ms. Gregor:

 

 

RAJIVE JOHRI – Director since January 1, 2009

 

Mr. Johri (61 years of age) served as President and Director of First National Bank of Omaha (FNBO, a banking institution), from 2006 until 2009. From September 2005 to June 2006, he served as President of First National Credit Cards Center for FNBO. Prior to that, he served as an Executive Vice President for J.P. Morgan Chase Bank (banking institution) from 1999 until 2004. Mr. Johri served as a director of Charter Communications, Inc. (cable and pay television services) from 2006 until 2009.

 

Summary of experience, qualifications and skills considered in re-nominating Mr. Johri:

 

 

W.G. JURGENSEN – Director since August 2, 2002

 

Mr. Jurgensen (60 years of age) served as Chief Executive Officer and a director of Nationwide Financial Insurance Services, Inc. (insurance company) from 2000 to 2009. He also served as Chief Executive Officer and a director of several other companies within the Nationwide enterprise, which is comprised of Nationwide Financial, Nationwide Mutual, Nationwide Mutual Fire and all of their respective subsidiaries and affiliates. Mr. Jurgensen has been a director of The Scotts Miracle-Gro Company (agricultural chemicals company) since 2009.

 

Summary of experience, qualifications and skills considered in re-nominating Mr. Jurgensen:

 

 

RICHARD H. LENNY – Director since March 17, 2009

 

Mr. Lenny (59 years of age) has been an operating partner with Friedman, Fleischer & Lowe (private equity firm) since 2011. He served as Chairman, President and Chief Executive Officer of The Hershey Company (confectionery and snack products manufacturer) from 2001 through 2007. Prior to joining Hershey, Mr. Lenny was group vice president of Kraft Foods (food company) and President, Nabisco Biscuit and Snacks (food company), following Kraft’s acquisition of Nabisco in 2000. He joined Nabisco in 1998 from the Pillsbury Company (food company) where he was president of Pillsbury, North America. Mr. Lenny has been a director of McDonald’s Corporation (retail eating establishments) since 2005 and Discover Financial Services (direct banking and payment services) since 2009. Mr. Lenny also served as a director of The Hershey Company from 2001 until 2007 and Sunoco, Inc. (petroleum refinery) from 2002 until 2006.

Summary of experience, qualifications and skills considered in re-nominating Mr. Lenny:

 

 

RUTH ANN MARSHALL – Director since May 23, 2007

 

Ms. Marshall (57 years of age) was President of the Americas, MasterCard International (payments industry) from October 1999 until her retirement in June 2006. She has been a director of Global Payments Inc. (currency validation systems manufacturer) since 2006 and is also a director of Pella Corporation (window and door manufacturer). Ms. Marshall also served as a director of Trane Inc. from 2003 until 2008.

 

Summary of experience, qualifications and skills considered in re-nominating Ms. Marshall:

 

 

GARY M. RODKIN – Director since October 1, 2005

 

Mr. Rodkin (59 years of age) has been our Chief Executive Officer and President since October 1, 2005. Previously, he was Chairman and Chief Executive Officer of PepsiCo Beverages and Foods North America (consumer products and manufacturing company) from February 2003 to June 2005. He also served as President and Chief Executive Officer of PepsiCo Beverages and Foods North America in 2002, and President and Chief Executive Officer of Pepsi-Cola North America from 1999 to 2002. Mr. Rodkin has been a director of Avon Products, Inc. (beauty and related products company) since 2007, and is also Chairman of the Grocery Manufacturers of America (consumer product company association) and Chair-elect of the Board of Boys Town (charitable organization).

 

Summary of experience, qualifications and skills considered in re-nominating Mr. Rodkin:

 

 

ANDREW J. SCHINDLER – Director since May 23, 2007

 

Mr. Schindler (67 years of age) served R. J. Reynolds Tobacco Holdings, Inc. (tobacco products company) as Chairman and Chief Executive Officer from 1999 to 2004 and Reynolds American, Inc. (tobacco products company) as Chairman from July 2004 until his retirement in December 2005.

Mr. Schindler achieved the rank of captain in the U.S. Army, where he held command and staff positions in the United States and in Vietnam. He has been a director of Krispy Kreme Doughnuts Inc. (retail food establishments) since 2006 and Hanesbrands, Inc. (consumer products company) since 2006. Mr. Schindler also served as a director of ArvinMeritor, Inc. (motor vehicle parts company) from 2004 until 2008, Reynolds American Inc. from 2004 until 2005 and Pike Electric Corporation (energy solutions company) from 2006 until 2007.

 

Summary of experience, qualifications and skills considered in re-nominating Mr. Schindler:

 

 

KENNETH E. STINSON – Director since December 12, 1996

 

Mr. Stinson (68 years of age) is Chairman of the Board of Peter Kiewit Sons, Inc. He served as Chief Executive Officer of Peter Kiewit Sons, Inc. from 1998 until 2004. Mr. Stinson has been a director of Kiewit Investment Fund LLLP since 2004 and Valmont Industries, Inc. since 1996, and is also a director of McCarthy Group, L.L.C. (private equity firm).

 

Summary of experience, qualifications and skills considered in re-nominating Mr. Stinson:

 

 

The Board of Directors recommends a vote “FOR” each of the listed nominees.

 

 

 

The Board of Directors is committed to performing its responsibilities in a manner consistent with sound governance practices. It routinely reviews its processes to ensure they support informed, competent and independent oversight on behalf of our stockholders. The company’s Corporate Governance Principles, available at http://investor.conagrafoods.com through the “Corporate Governance” link, provides a summary of the Board’s governance practices. The following is additional detail on practices of interest to stakeholders.

 

Annual Elections for Directors

 

To promote greater accountability to stockholders, all of our directors stand for election annually.

 

Majority Voting in Director Elections

 

To be elected in an uncontested election, a director nominee must receive the affirmative vote of a majority of the votes cast in the election. If an incumbent nominee is not elected, he or she is required to promptly tender a resignation to the Board of Directors. The Board will act on the tendered resignation and publicly disclose its decision within 90 days after certification of the election results.

 

Board Leadership Structure

 

Our Board of Directors believes that independent Board leadership is a critical component of our governance structure. Our Corporate Governance Principles require us to have either an independent Chairman of the Board or a lead independent director if the positions of Chairman and CEO are held by the same person. Since 2005, our Chairman and CEO roles have been separate. By separating the roles of the Chairman and CEO,

our CEO can focus his time and energy on setting the strategic direction for the company, overseeing daily operations, engaging with external constituents, developing our leaders and promoting employee engagement at all levels of the organization. Meanwhile, our independent Chairman leads the Board in the performance of its duties by establishing agendas and ensuring appropriate meeting content, engaging with the CEO and senior leadership team between Board meetings on business developments, and providing overall guidance to our CEO as to the Board’s views and perspectives, particularly on the strategic direction of the company.

 

Director Independence

 

The Board has determined that ten of our 11 Board members – directors Bay, Butler, Goldstone, Gregor, Johri, Jurgensen, Lenny, Marshall, Schindler and Stinson – have no material relationship with ConAgra Foods and are independent within the meaning of our independence standards.

 

In making its independence determinations, the Board applied the listing standards of the New York Stock Exchange, or NYSE, and the categorical independence standards contained in the Corporate Governance Principles. The Board considers even immaterial relationships in its decision-making process to ensure a complete view of each director’s independence. This year, the Board considered that Mr. Bay is the Chief Executive Officer of Valmont Industries, Inc. One of our subsidiaries was a customer for immaterial levels of environmental engineering services from an affiliate of Valmont Industries, Inc. on an arms-length basis and in the ordinary course of business during fiscal 2011. The Board also reviewed our commercial relationships with companies on whose board’s our Board members served during fiscal 2011 (i.e., Ford Motor Company, McDonald’s Corporation and Valmont Industries, Inc.). The relationships with these companies involved ConAgra Foods’ purchase or sale of products and services in the ordinary course of business on arm’s-length terms in amounts and under other circumstances that did not affect the relevant directors’ independence under the Corporate Governance Principles or under applicable law and NYSE listing standards. Applying the NYSE listing standards and the Corporate Governance Principles, the Board determined that there are no transactions, relationships or arrangements that would impair the independence or judgment of any of our non-employee directors.

 

In addition to satisfying our independence standards, each member of the Audit Committee must satisfy an additional SEC independence requirement that provides that the member may not accept, directly or indirectly, any consulting, advisory or other compensatory fee from us or any of our subsidiaries other than his or her director’s compensation and may not be an “affiliated person” of ConAgra Foods. Each member of the Audit Committee satisfies this additional independence requirement.

 

Board’s Role in Risk Oversight

 

Our senior leadership is responsible for identifying, assessing and managing the company’s exposure to risk. A component of this work is performed through a management Risk Oversight Committee, chaired by our Senior Vice President and Treasurer. However, our Board of Directors and its committees play an active role in overseeing management’s activities and ensuring management’s plans are balanced from a risk/reward perspective. The Board and its committees perform this oversight through the following mechanisms:

 

 

 

Meetings and Attendance

 

The Board of Directors meets on a regularly scheduled basis and holds an executive session without management present at every regularly scheduled meeting. The Chairman of the Board presides at all meetings, including executive sessions. During fiscal 2011, the Board met ten times (six regular meetings and four special meetings) and acted by unanimous written consent once. All members attended at least 75% of the total number of Board and meetings of committees on which he or she served in fiscal 2011. Our Board members are encouraged to attend the annual stockholders’ meeting. All nominees who were serving at the time of the 2010 Annual Meeting of Stockholders attended that meeting.

 

Stock Ownership Guidelines for Directors and Senior Leadership

 

Directors and senior leaders across the company are subject to stock ownership guidelines. All non-employee directors are expected to acquire and hold shares of ConAgra Foods common stock during their tenure with a value of at least $425,000. Directors are expected to acquire these shares within five years following their first election to the Board or September 25, 2014, whichever is later. Senior leaders across the company are subject to stock ownership guidelines equal to a multiple of the leader’s salary. Our Chief Executive Officer, Gary Rodkin, has a stock ownership requirement of six times his salary. See pages 50 and 26 for a summary of the current stockholdings of our directors and named executive officers, respectively, compared to their ownership requirements.

 

No “Poison Pill” Rights Plan

 

We have not had a “poison pill” stockholder rights plan since 2004, when it was terminated by our Board of Directors.

 

Commitment to Sustainable Business Practices

 

We believe that ConAgra Foods has an obligation to be a good steward of the environment, nourish our employees, give back to the communities we serve and drive economic gain for stakeholders. To these ends, we have clear corporate responsibility goals that are detailed and tracked in our annual Corporate Responsibility Report, last published in September 2010. A copy of the report is available on our website at http://investor.conagrafoods.com. Our 2011 Corporate Responsibility Report is expected to be available by the end of September 2011.

 

Corporate Governance Materials Available on Our Website

 

To learn more about our governance practices, you can review any of the following listed documents at http://investor.conagrafoods.com through the “Corporate Governance” link:

 

 

 

From time to time these documents are updated, and we promptly post amended documents to our website. The documents are also available in print to any stockholder who requests them from the Corporate Secretary. The information on our website is not, and will not be deemed to be, a part of this proxy statement or incorporated into any of our other filings with the SEC.

 

Interested parties may communicate with our Board of Directors, our non-management directors as a group or the Chairman by writing to: ConAgra Foods Board of Directors c/o Corporate Secretary, ConAgra Foods, Inc., Box 2000, One ConAgra Drive, Omaha, Nebraska 68102. Communications are compiled by the Corporate Secretary and forwarded to the addressee(s) on at least a bi-weekly basis. The Corporate Secretary routinely filters communications that are solicitations, consumer complaints, unrelated to ConAgra Foods or ConAgra Foods’ business or determined to pose a possible security risk to the addressee.

 

 

 

Currently, our Board of Directors has four standing committees: Audit Committee, Executive Committee, Human Resources Committee and Nominating and Governance Committee. All members of the Audit Committee, Human Resources Committee and Nominating and Governance Committee are independent under the rules of the NYSE and our independence standards.

 

 

* Mr. Jurgensen also served as a member of the Audit Committee until September 2010.

 

The Executive Committee generally has the authority to act on behalf of the Board of Directors between meetings. Its membership consists of Directors Butler, Goldstone, Rodkin and Stinson. Mr. Goldstone chairs the committee. The Executive Committee did not meet during fiscal 2011.

Audit Committee

 

The Audit Committee has the following responsibilities:

 

 

Audit Committee Financial Expert. The Board has determined that all members of the Audit Committee are qualified as audit committee financial experts within the meaning of SEC regulations.

 

Related-Party Transactions. The Audit Committee has adopted a written policy regarding the review, approval or ratification of related-party transactions. Under the policy, all related-party transactions must be pre-approved by the Audit Committee unless circumstances make pre-approval impracticable. In the latter case, management is allowed to enter into the transaction, but the transaction remains subject to ratification by the Audit Committee at its next regular, in-person meeting. In determining whether to approve or ratify a related-party transaction, the Audit Committee will take into account, among other factors it deems appropriate, whether the transaction is fair and reasonable to the company and the extent of the related-party’s interest in the transaction. No director is permitted to participate in any approval of a related-party transaction for which he or she is involved. On at least an annual basis, the Audit Committee reviews and assesses ongoing related-party transactions to determine whether the relationships remain appropriate. All related-party transactions are disclosed to the full Board of Directors.

 

Human Resources Committee

 

The Human Resources Committee, or HR Committee, has the following responsibilities:

 

 

The HR Committee has retained authority over the consideration and determination of executive and director compensation, subject only to the further involvement of the other independent directors with respect to the approval of the overall compensation for non-employee directors and of the compensation of the Chief Executive Officer. Additional information on the role of executive officers and the HR Committee’s compensation consultant can be found in the “Compensation Discussion & Analysis” later in this proxy statement.

 

Compensation Committee Interlocks and Insider Participation. During fiscal 2011, none of the current or former executive officers of ConAgra Foods or any of its current employees served on the

compensation committee (or equivalent), or the board of directors, of another entity whose executive officer(s) served on the HR Committee or Board of ConAgra Foods.

 

Nominating and Governance Committee

 

The Nominating and Governance Committee, or NG Committee, has the following responsibilities:

 

 

Director Nomination Process. The NG Committee considers Board candidates suggested by Board members, management and stockholders. The NG Committee may also retain a third-party search firm to identify candidates. A stockholder who wishes to recommend a prospective nominee for Board membership should notify our Corporate Secretary in writing at least 120 days before the annual stockholders’ meeting and include whatever supporting material the stockholder considers appropriate. The NG Committee will also consider nominations by a stockholder according to the provisions of our bylaws relating to stockholder nominations as described under “Additional Information — Stockholder Proposals to be Included in our 2012 Proxy Statement” and “Additional Information — Other Stockholder Proposals to be Presented at our 2012 Annual Meeting” at the end of this proxy statement.

 

The NG Committee makes an initial determination as to whether to conduct a full evaluation of a candidate once he or she has come to its attention. This initial determination is based on whether additional Board members are needed to fill vacancies or expand the size of the Board. It is also based on whether, based on the information provided or otherwise available to the NG Committee, the prospective nominee is likely to satisfy the evaluation factors described below. If the NG Committee determines that additional consideration is warranted, it may request a third-party search firm or other third party to gather additional information about the prospective nominee. The NG Committee may also elect to interview a candidate. The evaluation process for nominees recommended by stockholders does not differ.

 

The NG Committee evaluates each prospective nominee against the standards and qualifications set out in the Corporate Governance Principles, including, but not limited to: (1) background, including demonstrated high standards of ethics and integrity, the ability to have sufficient time to effectively carry out the duties of a director, and the ability to represent all stockholders and not a particular interest group; (2) Board skill needs, taking into account the experience of current Board members, the candidate’s ability to work toward business goals with other Board members, and the candidate’s qualifications as independent and qualifications to serve on various committees of the Board; (3) diversity, including the extent to which the candidate reflects the composition of our constituencies; and (4) business experience, which should reflect a broad experience at the policy-making level in business, government or education. Additionally, as part of this evaluation and to further our commitment to diversity, the NG Committee assesses whether our Board, collectively, represents diverse views, backgrounds, and experiences that will enhance the Board’s and our company’s effectiveness.

 

After completing its evaluation process, the NG Committee makes a recommendation to the full Board as to who should be nominated, and the Board determines the nominees after considering the NG Committee’s recommendations.

 

 

The following Compensation Discussion & Analysis, or CD&A, describes how, for fiscal 2011, the Human Resources Committee and Board of Directors designed the executive compensation program and set individual pay for the executive officers named in the compensation tables beginning on page 28. We refer to the Human Resources Committee as the Committee throughout the CD&A. Our fiscal 2011 began May 31, 2010 and ended May 29, 2011.

 

The focus of the ConAgra Foods executive compensation program is to encourage and reward behavior that promotes attainment of our annual and long-term business goals. The business goals are set by management, under the oversight of the Board of Directors, and are designed to promote sustainable growth in stockholder value. As stockholders themselves, our leaders are keenly focused on achieving these goals. The executive compensation programs for fiscal 2011, and the three-year periods beginning and ending in fiscal 2011, align with this approach.

 

Executive Summary

 

On May 29, 2011, we concluded a challenging fiscal 2011 during which we faced escalating input cost inflation that exceeded our expectations, and a consumer environment that failed to rebound. This executive summary reviews not only the conditions existing at the start of the fiscal year, which informed the Committee’s decisions regarding compensation opportunities for our senior leaders, but also the growing challenges during the year that impacted the actual compensation they earned for fiscal 2011.

 

In June 2010 (the start of our fiscal 2011), we were optimistic about our opportunities. We had concluded a strong fiscal 2010, having grown our market share for a variety of key Consumer Foods categories, over-achieved against cost savings targets, invested for the future with marketing and innovation spending and the building of a new sweet potato manufacturing facility, which received a Leadership in Energy and Environmental Design, or LEED, Platinum certification (an internationally-recognized “green” building certification), and announced a $500 million multi-year share buyback program. Against this background, at the beginning of the fiscal year, we announced the following fiscal 2011 performance goals:

 

 

We also reiterated our long-term financial goals:

 

 

The Committee incorporated these short- and long-term goals into our fiscal 2011 incentive programs as follows:

 

 

Shortly after the start of fiscal 2011, challenges arose. First, the competitive and promotional environment intensified as customers and competitors responded to ongoing consumer demand for low prices. Second, the pace of input cost inflation in the Consumer Foods segment accelerated throughout the fiscal year and reached its highest quarterly rate, 9%, in the fiscal fourth quarter. With cost increases that exceeded our plans, and consumers continuing to look for value in the store, our profits were negatively impacted. These dynamics led us to reduce our EPS outlook for fiscal 2011 – first to 5% to 7% growth, and ultimately to low single digit growth. Despite these significant challenges, the Committee did not change the targets for our incentive programs.

 

Given the challenging external environment, our team focused on profit-enhancing opportunities and building for future years:

 

 

This mix of challenges and accomplishments resulted in low single digit fiscal 2011 EPS growth, on a comparable basis. This growth was in line with our revised expectations, but still below our original target. Revenue growth for the year of 2.4% was also below our target. However, we did exceed our Consumer Foods’ cost savings target, delivered on-target operating cash flows of $1.3 billion and achieved ROAIC in line with our long-term goals.

From a three-year perspective, fiscal 2011 represented the culmination of a period of volatility in our business performance, not unlike the volatility in the external environment during this period. From fiscal 2009 to 2011, we achieved many of our goals. As we have previously discussed in prior years’ CD&As, fiscal 2009 was a year of varied performance, beginning slowly but concluding with momentum and strength. Fiscal 2010 was then very strong. Fiscal 2011 was more challenging than expected, and the lack of EBIT growth in fiscal 2011 dampened our three-year results. Our ROAIC, however, exceeded internal plans for the period.

 

The Committee reflected these results in their payout determinations under our fiscal 2009 to 2011 performance share plan and fiscal 2011 management incentive plan and in setting base salaries for our senior officers for fiscal 2012. In remaining committed to our pay for performance philosophy, the Committee took the following actions in July 2011:

 

 

The Committee believes that these actions appropriately reflect its commitment to rewarding executives based on actual performance results.

 

Objectives of Our Compensation Program

 

Our executive compensation program is designed to encourage and reward behavior that promotes sustainable growth in stockholder value. The Committee believes that for the program to do so, it must accomplish five objectives:

 

 

The Committee believes that designing the compensation program with multiple objectives in mind mitigates the risk that employees will take unnecessary and excessive risks that threaten the long-term health and viability of the company. Between March and May of 2011, with the assistance of management, including Finance, Human Resources and Legal department personnel, and Frederic W. Cook & Co., Inc., the Committee’s independent compensation consultant, the Committee undertook a comprehensive risk review of our compensation programs for employees generally. As a result of this review, the Committee concluded that our employees are not incented by our compensation policies and practices to take actions that may conflict with our long-term best interests. For example, our programs:

 

 

 

Based on the review described above, we believe our compensation policies and practices are balanced and do not create risks that are reasonably likely to have a material adverse effect on the company. We believe our compensation programs encourage and reward prudent business judgment and appropriate risk-taking over the long-term.

 

Design and Approval of Our Fiscal 2011 Compensation Program

 

Human Resources Committee. The Committee considered a variety of factors when approving the design of the compensation program and setting pay for fiscal 2011, including:

 

 

The Committee made only limited changes to our compensation programs for fiscal 2011. One item of significance – a reduction in the maximum payout opportunity under our long-term performance share plan – is discussed in detail later in this CD&A. During fiscal 2011, the Committee also established a more specific philosophy about its use of external compensation market data, but this occurred after fiscal 2011 compensation decisions were made. This is also discussed later in the CD&A.

 

Compensation Consultant. The Committee relies on the expertise of an independent compensation consultant, which it engages directly, to assist it in obtaining and reviewing information relevant to compensation decisions. Frederic W. Cook & Co., Inc. was engaged as the Committee’s consultant for fiscal 2011. The independence and performance of the consultant are of the utmost importance to the Committee. As a result, the Committee maintains a policy that prevents management from directly engaging the consultant for significant projects without the prior approval of the Committee’s Chair. Given the focused scope of Frederic W. Cook & Co., Inc.’s services, no management-generated fees are expected with this firm. For fiscal 2011, Frederic W. Cook & Co., Inc. did not provide any additional services to us or our affiliates. The Committee reviews the types of services provided by the consultant and all fees paid for those services on a regular basis, and conducts a formal evaluation of the consultant annually.

 

External Comparisons. As mentioned above, the Committee considers external comparisons when setting pay. Historically, the Committee has not set our named executive officers’ total compensation at any specific percentile of an external comparator group’s compensation levels. Rather, the Committee has used peer group data – as well as general industry data and data from a customized survey of companies in the food and consumer products industries – as a market check on its compensation decisions. This practice continued for fiscal 2011.

The Committee’s first step in using external data for fiscal 2011 was the identification of an appropriate “peer group.” The Committee’s consultant prepared a list of peer consumer product companies (with an emphasis on food and beverage companies) based on the following criteria:

 

 

At the Committee’s direction, the consultant included companies with annual revenues between one-third to three times our own. However, if a larger or smaller company was sufficiently similar and comparable to us in terms of other criteria, such as talent, the consultant was permitted to include it. To further enhance the comparability of the companies included in the peer group, the consultant used regression analysis to size-adjust the compensation data for differences in company revenue. The Committee also asked the consultant to ensure that the peer group would be large enough to withstand unanticipated changes in the included companies’ structure or compensation programs.

 

Shortly before the start of fiscal 2011, the Committee approved the following peer group composition for fiscal 2011:

 

 

To maximize year-over-year comparability, the Committee prefers consistency in the peer group. However, the Committee thoroughly evaluates each member of the group on an annual basis to ensure continued appropriateness. The peer group has been consistent since fiscal 2010 and the Committee approved this same peer group for fiscal 2012. The median revenue of the peer group listed above is similar to ours; overall, the companies fall within a range of approximately one-quarter to three and one-half times our annual revenue.

 

Choosing Performance Metrics and Assessing Results. Another critical component in the process of designing the fiscal 2011 compensation program and making fiscal 2011 pay decisions was selecting the correct performance metrics for incentive plans and considering the extent to which the company performed against those metrics at the end of the appropriate performance periods. This is an area in which Mr. Rodkin was consulted. In particular, the Committee asked Mr. Rodkin to provide his views on the appropriate company goals to use for fiscal 2011 incentive plans based on his understanding of investor expectations and how those expectations are reflected in our operating plans. At the end of the incentive performance period, he offered the Committee his views of the company’s actual performance against expectations. The Committee had sole authority to approve the program metrics and payouts, but found Mr. Rodkin’s views regarding how the businesses performed during the fiscal year valuable.

 

Individual Performance. With respect to individual performance, which also informed fiscal 2011 compensation decisions, the Committee relied on regular performance evaluations of the senior leadership team and focused on the outcome of strategic projects and initiatives, whether organizational goals were met, and the leadership behaviors exhibited. The full Board participated in a formal evaluation of Mr. Rodkin’s performance for fiscal 2011. As a part of this process, Mr. Rodkin provided the Board with a self-assessment. For the other named executive officers, none of whom reports directly to the Board, Mr. Rodkin shared his assessment of their performance with the Committee. As part of this assessment, Mr. Rodkin provided his view on the level of salary and incentive compensation that the Committee should consider awarding to the individuals. Neither Mr. Rodkin nor any other individual named executive officer plays a direct role in his or her own compensation determination.

The remainder of this CD&A focuses primarily on fiscal 2011 compensation decisions. Our senior Human Resources and Legal officers and our Compensation and Benefits Department work closely with the Committee to implement and administer the approved programs and support the Committee in communications with its consultant.

 

Key Elements of our Fiscal 2011 Compensation Program

 

The fiscal 2011 pay packages for our named executive officers consisted of salary, short and long-term incentive opportunities and other benefits discussed below. The Committee believes that using a mix of compensation types (for example, salary, cash incentives, and equity) and performance periods (for example, one-year and three-year periods) promotes behavior consistent with our long-term strategic plan and minimizes the likelihood of executives having significant motivation to pursue risky and unsustainable results.

 

By design, targeted incentive compensation for the named executive officers for fiscal 2011 was a significant percentage – more than 75% of total compensation. This is shown in the charts below. The Committee’s general policy is to provide the greatest percentage of the incentive opportunity in the form of long-term compensation payable in shares of our common stock. The Committee believes the emphasis on stock-based compensation is the best method of aligning management interests with those of our stockholders.

 

 

Named Executive Officer Considerations. The Committee specifically considered the following when setting compensation opportunities and final payouts for each of our named executive officers for fiscal 2011:

 

Mr. Gary M. Rodkin. Mr. Rodkin has been our Chief Executive Officer and President since 2005. For fiscal 2011, consistent with previous years, Mr. Rodkin’s salary, annual incentive opportunity under the Management Incentive Plan, or MIP, and long-term incentives (comprised of performance shares and an option award) were larger than the comparable opportunities for the other named executive officers. However, Mr. Rodkin did not receive a salary increase, an increase in his MIP targeted opportunity or an increase in his targeted opportunity for long-term incentives for fiscal 2011. The Committee took into account Mr. Rodkin’s leadership, value to the company and accountability for the performance of the entire organization in setting his pay. The Committee also reviewed market data related to Mr. Rodkin’s compensation, as a whole and for each component, and found them reasonable versus the peer group. The Committee believes that within the company, Mr. Rodkin should have the highest ratio of incentive pay to salary and largest aggregate compensation opportunity.

 

Mr. John F. Gehring. Mr. Gehring has served as our Executive Vice President and Chief Financial Officer since 2009. Since he joined ConAgra Foods in 2002, Mr. Gehring has held roles with increasing responsibilities within our Finance organization. Today, Mr. Gehring has responsibility for key areas such as Accounting, Treasury, Risk, Investor Relations, M&A, Corporate Strategy and Planning and Aviation. At the beginning of fiscal 2011, his responsibilities also included our Facilities and Real Estate function. The Committee considered the broad scope of his responsibilities, his tenure and market data in setting his compensation opportunities for fiscal 2011. The Committee also considered internal pay equity, and determined that Messrs. Gehring, Hawaux and Keck should have comparable incentive opportunities for fiscal 2011.

Ms. Colleen R. Batcheler. Ms. Batcheler has served as our Executive Vice President, General Counsel and Corporate Secretary since 2009. Since she joined ConAgra Foods in June 2006, Ms. Batcheler has held roles with increasing responsibility within the Legal organization and, during fiscal 2011, she assumed responsibility for the company’s Government Affairs function. When setting Ms. Batcheler’s compensation opportunities for fiscal 2011, the Committee reviewed market data as well as Ms. Batcheler’s achievement in controlling administrative cost, achieving successful legal outcomes for the company and demonstrated growth in her role.

 

Mr. Andre J. Hawaux. Mr. Hawaux has been the President of our Consumer Foods business since 2009. Previously, he was our Chief Financial Officer from 2006 until 2009. Our Consumer Foods business represented 65% of our fiscal 2011 net sales and our overall success is largely dependent on the success of the business Mr. Hawaux leads. He also had responsibility for our Information Technology function throughout fiscal 2011. The Committee considered the significant responsibilities held by Mr. Hawaux, his tenure and market data in setting his compensation opportunities for fiscal 2011. As noted above, internal pay equity also was considered.

 

Mr. Brian L. Keck. On September 7, 2010, Mr. Keck joined the company as Executive Vice President and Chief Administrative Officer, assuming responsibility for our Human Resources function and Communication & External Relations functions from Mr. Sharpe and for our Facilities and Real Estate functions from Mr. Gehring. The Committee considered Mr. Keck’s prior experiences and highly transferable skills, as well as market data and internal pay equity, when setting his compensation opportunities upon hire, including his sign-on compensation.

 

Mr. Robert F. Sharpe, Jr. Mr. Sharpe, who retired at the end of fiscal 2011, received the second highest overall compensation opportunity for fiscal 2011. At the start of fiscal 2011, Mr. Sharpe’s job scope was very broad. He was serving as President of our Commercial Foods business (which represented 35% of our fiscal 2011 net sales) and leading our Human Resources, Communication & External Relations and Government Affairs functions. Mr. Sharpe’s prior experiences in a wide variety of roles within consumer packaged goods companies also contributed to the determination of his pay level, as well as the provisions of his employment agreement (Mr. Sharpe was the only executive other than Mr. Rodkin to have been hired in the past six years with an employment agreement). Mr. Sharpe’s actual fiscal 2011 compensation opportunity was reduced following his decision, in October 2010, to retire at the conclusion of fiscal 2011. Following his decision to retire, Mr. Sharpe reduced his responsibilities and work schedule. Mr. Sharpe ceased to be an executive officer of the company on October 17, 2010, and served as special advisor to the Chief Executive Officer from that time until his retirement on May 29, 2011.

 

Below is a more detailed analysis of each element of the fiscal 2011 compensation program for our named executive officers.

Salaries. We pay salaries to our named executive officers to provide them with a base level of fixed income for services rendered. Less than 25% of each executive’s total compensation opportunity for fiscal 2011 was provided in the form of base salary.

 

 

Incentive Programs. Consistent with its overall compensation objectives, the Committee aligned management compensation with company performance through a mix of annual and long-term incentive programs for fiscal 2011. Opportunities under these programs combined to represent approximately 75% of the named executive officers’ compensation opportunity. Financial targets disclosed in this section are done so in the limited context of these incentive plans and they are not statements of management’s expectations or estimates of results or other guidance. We specifically caution investors not to apply these statements to other contexts.

 

Annual Incentive Plan. The fiscal 2011 MIP provided a cash incentive opportunity to about 2,100 employees. For each of the named executive officers, the Committee used the terms of the fiscal 2011 MIP to guide its determination of the annual incentive amounts payable to each of the named executive officers. The fiscal 2011 MIP payments were based on:

 

 

Below is a discussion of how each of these considerations was applied to the fiscal 2011 awards earned by the named executive officers.

 

First Consideration: Were Pre-Established Performance Goals Met? At the start of fiscal 2011, the Committee approved PBT goals under the MIP, and developed target and maximum senior management incentive opportunities at corresponding levels of PBT. The Committee retained discretion to exclude items

impacting comparability from company-wide PBT results according to the terms of the plan. The PBT goals for the fiscal 2011 MIP applicable to the named executive officers were:

 

 

The target PBT was established to align with our original guidance to stockholders that fiscal 2011 diluted EPS, adjusted for items impacting comparability, was expected to grow 8% to 10% over comparable fiscal 2010 EPS. In line with its pay for performance philosophy, the Committee did not revise fiscal 2011 PBT goals under the MIP when management determined early in the year that the company was unlikely to achieve its targeted EPS or PBT.

 

The following table shows the ranges of authorized payments (expressed as a percentage of salary) for the named executive officers for the target and maximum PBT goals approved for the fiscal 2011 MIP. No incentive was guaranteed. Payouts were interpolated between the PBT markers according to a Committee approved payout slope to determine actual earned awards. For example, PBT of $1,284 million equated to a payout at target, while PBT of $1,219 million equated to a payout of approximately 60% of target.

 

 

 

 

The fiscal 2011 MIP defined PBT as the company’s income tax expense plus its net income from continuing operations. To incent management to make decisions that have positive long-term impacts, even at the expense of shorter term results, and to prevent one-time gains and losses from having too great an impact on plan payouts, the terms of the fiscal 2011 MIP allowed PBT to be adjusted for specific items that occurred during the year. For fiscal 2011, the Committee approved adjustments to eliminate the impacts during the year of a sizable insurance recovery, restructuring events, net hedge gains, the net impact of the early repayment of a note receivable held by the company, and asset sales.

 

The company achieved fiscal 2011 PBT of $1,179 million for MIP purposes, which was above threshold but only 92% of targeted performance. According to the pre-established goals, this performance level equated to a payout of 22% of target MIP awards.

 

Second Consideration: How was the Business Plan Delivered? Once the PBT review was complete, the Committee considered the manner in which management executed the operating plan during the year. The fiscal 2011 MIP gave the Committee discretion to modify payouts based on this assessment.

 

Mr. Rodkin provided his views to the Committee during this process. Mr. Rodkin recognized that we did not achieve the company-wide PBT target set at the start of the fiscal year, and communicated his strong belief that pay levels should be commensurate with performance. He noted the challenges experienced by the business, and his disappointment with the company’s results. Mr. Rodkin advised the Committee, however,

that even with below-expected PBT performance, the company had other successes, such as (1) the strong results of the company’s ConAgra Mills business, (2) successful performance against cost savings and operating cash flow goals, and (3) functional accomplishments. Therefore, Mr. Rodkin recommended that payouts fund at the 22% level authorized under the PBT formula. The Committee concurred with Mr. Rodkin’s assessment and agreed with him that payouts at levels equal to 22% of the target amount authorized under the PBT performance metric would be generally appropriate prior to considering individual performance.

 

Third Consideration: How Did Each Named Executive Officer Perform? The Committee’s final consideration in determining each named executive officer’s fiscal 2011 MIP payout was an assessment of his or her individual performance. Mr. Rodkin’s input on the individual contribution of these leaders assisted the Committee in approving specific MIP payouts. In line with the company’s strong pay for performance philosophy, Mr. Rodkin shared his perspective that given the overall performance of the company, the formulaically derived payouts were appropriate and that no named executive officer should be rewarded at a level above the 22% of his or her individual target level, notwithstanding the various functional achievements described above for each officer under “Named Executive Officer Considerations” (two awards were rounded to the nearest $100 for administrative convenience). He also shared his belief that the accomplishments of the leadership team in the face of external challenges were such that a reduction below the 22% level for any individual would be unwarranted. The Committee agreed, and each officer’s functional achievements described on pages 16 and 17 of this section were the material considerations, in addition to Mr. Rodkin’s views, for the Committee in reaching this conclusion. The full Board’s performance evaluation of Mr. Rodkin was used in determining his payout, and the Board concluded similarly for Mr. Rodkin.

 

The Committee believes that the MIP awards paid to the named executive officers for fiscal 2011 are consistent with the level of accomplishment by the company and the named executive officers.

 

 

 

 

Long-Term Incentive Plan. The long-term incentive plan for senior officers includes an award of stock options and an award of performance shares that are settled in shares of common stock based on results over a three-year performance period. The performance shares reward the improvement over the three-year performance period in metrics likely to have a significant impact on enterprise value: growth in EBIT and performance against ROAIC goals. These metrics are calculated as follows:

 

 

The program also rewards stock price appreciation directly through the granting of stock options. The ultimate value of earned performance shares, which are paid in stock, is also impacted directly by stock price.

The Committee firmly believes in aligning our senior officers’ interests with those of our stockholders. The significant extent to which equity is included in both the executive pay program overall and this program in particular evidences this belief. We describe each component of the plan below.

 

Stock Options. The use of stock options directly aligns the interests of the named executive officers with those of our stockholders. All options granted have an exercise price equal to the closing market price of our common stock on the date of grant, a seven-year term, and vest 40% on the first anniversary of the grant date, subject to the executive’s continued employment with the company. The remaining portion of the award vests in equal installments on the second and third anniversaries of the grant date, subject to the executive’s continued employment. The grant date fair value of the stock options awarded to our named executive officers is included in the “Option Awards” column of the Summary Compensation Table – Fiscal 2011 on page 28. The number of options granted to each named executive officer under the fiscal 2011 option program is set forth below. The Committee considered the factors discussed above under the heading “Named Executive Officer Considerations” when determining grant sizes by individual, although the Committee’s review of market data for long-term incentives was done in the aggregate (meaning the implied value of the stock option and performance share grants together were compared to the available external data).

 

 

 

 

Performance Shares. Performance shares represent the award of an opportunity to earn a defined number of shares of our common stock if we achieve pre-set, three-year performance goals. For the three performance periods in effect during fiscal 2011, the targeted number of shares for each named executive officer was as set forth in the table that follows.

 

 

 

 

The grant date fair value of the performance shares, based on the probable outcome of the performance conditions, is included in the “Stock Awards” column of the Summary Compensation Table — Fiscal 2011.

The Committee considered the factors discussed above under the heading “Named Executive Officer Considerations” when determining grant sizes by individual, although the Committee’s review of market data for long-term incentives was done in the aggregate, as explained above under “Stock Options.”

 

As indicated in the table above, the number of targeted performance shares, by named executive officer, has been flat, other than in connection with promotions. Instead of determining performance share grant sizes using a targeted dollar value, and then dividing that value by our stock price on the date of grant, the Committee used a fixed share approach to determine target awards in each of the outstanding cycles. In these cycles, the Committee has believed that a targeted dollar value approach would inappropriately increase the number of performance shares awarded (particularly during a recessed stock market). Instead, with the exception of increases for promotions, the Committee has awarded the same number of target performance shares to the named executive officers each year, with the premise that the market will normalize over the three-year performance period of the awards. The Committee will continue to evaluate its approach, and ensure that targeted awards are appropriately sized.

 

The actual number of shares of common stock that will be issued for each performance share cycle is determined based on a combination of growth in EBIT and performance against targets for ROAIC. The Committee selected these financial metrics because it believes they have a positive impact on stockholder value.

 

The following table includes performance targets for a payout of 100% of the total number of shares granted.

 

 

A payout of more or less than 100% of the total number of shares granted may be earned depending on actual results, but no payouts are guaranteed. In each program cycle, the targets are designed such that lower levels of combined EBIT growth and ROAIC are rewarded at significantly less than a full payout on the granted performance shares. In addition, the fiscal 2010 to 2012 cycle requires EBIT growth of at least 4.5% for a payout to occur, regardless of ROAIC performance. Similarly, the fiscal 2011 to 2013 cycle requires EBIT growth of at least 4.0% for a payout to occur, regardless of ROAIC performance.

 

Because these EBIT targets are focused on growth over the relevant performance period, the level of EBIT from which performance is expected to grow impacts the target. In other words, the company’s low EBIT for fiscal 2008, coupled with strong expectations for the fiscal 2009 to 2011 performance period, is the reason for the 14% EBIT growth target in that cycle. For the cycles beginning in fiscal 2010 and fiscal 2011, the baseline EBIT from which growth was planned was more normal. When the Committee adopted the performance share program, it included the ability to adjust EBIT and ROAIC for restructuring and unusual items as appropriate.

 

Prior to fiscal 2011, the maximum number of shares that could be earned under the performance share plan was 300% of the original grant. This maximum applies to the fiscal 2009 to 2011 and fiscal 2010 to 2012 cycles of the program. When creating the fiscal 2011 to 2013 cycle of the program in July 2010, the Committee reduced this maximum to 200% of the original grant. The Committee made this change after a review of market practices.

 

At the end of fiscal 2011, the fiscal 2009 to 2011 cycle of the long-term program concluded. We delivered a combined level of three-year compound EBIT growth and three-year average ROAIC over the performance period (after adjustments) that equaled a funding level of approximately 121% of target. This funding level was achieved through the delivery of three-year compound EBIT growth of approximately 9.6%, and a three-year average ROAIC of approximately 11.8%. In determining the three-year EBIT growth and average ROAIC, the Committee considered and authorized adjustments to eliminate the impacts during the performance period of a sizable insurance recovery, restructuring events, net hedge gains and asset sales. The

following numbers of shares of common stock were issued to the named executive officers for the fiscal 2009 to 2011 cycle (amounts include dividend equivalents, which were paid in additional shares):

 

 

With respect to the fiscal 2010 to 2012 program and fiscal 2011 to 2013 program, no payouts have yet been earned.

 

Other Features. Performance shares that have not been paid at the time of a participant’s termination of employment are forfeited. An exception allows for pro-rata payouts in the event of death, disability or retirement. The Committee has also retained the discretion to provide for payouts on termination when it finds it appropriate and in the best interest of the company. To date, however, the Committee has not used this discretion. Both this exception and discretion are subject to satisfaction of the performance goals. Dividend equivalents are paid on the portion of performance shares actually earned, and are paid at the regular dividend rate in shares of our stock.

 

Other Fiscal 2011 Compensation. The additional elements of our compensation program for the named executive officers during fiscal 2011 were as follows:

 

Discretionary Bonus or Equity Grant. The Committee may choose to approve a sign-on or discretionary bonus or equity grant for a senior officer if it deems it necessary as a recruitment tool or to recognize extraordinary performance. Discretionary cash bonuses are included in the “Bonus” column of the Summary Compensation Table – Fiscal 2011 and the grant date fair value of a sign-on or discretionary equity award is included in either the “Stock Awards” or “Option Awards” column of the table, as appropriate. During fiscal 2011, a $100,000 sign-on bonus was awarded to Mr. Keck as a recruitment tool when he was asked to join us as Executive Vice President and Chief Administrative Officer. He is required to repay 65% of the bonus if prior to September 7, 2012 he either is terminated for “Cause” (as described on page 40) or terminates his own employment without good reason. Mr. Keck is also required to repay 65% of the bonus if he terminates his own employment prior to September 7, 2012 without the consent of the Board of Directors or the Committee. Mr. Keck also received a grant of 40,000 restricted stock units as a sign-on inducement and to begin building his stockholder alignment. These restricted stock units fully vest on the third anniversary of the date of grant, or earlier on a pro-rata basis upon certain circumstances resulting in his departure from the company (described more fully on page 41). No dividends are paid on the restricted stock units.

 

Retirement and Health and Welfare Programs. We offer a package of core employee benefits to our employees, including our named executive officers. This includes health, dental and vision coverage, life insurance and disability insurance. The company and employee participants share in the cost of these programs. Each of the named executive officers was also entitled to participate in an executive physical program during fiscal 2011. The company covered the cost of the physical, although the executive was responsible for the taxes associated with the program. As an alternative to participation in the executive physical, each of the named executive officers was entitled to elect participation in a medical access program, with the cost of the program imputed to the executive as taxable income.

 

With respect to retirement benefits, we maintain qualified 401(k) retirement plans (with a company match on employee contributions) and qualified pension plans. The named executive officers are entitled to participate in these plans.

 

Some of the named executive officers and other employees at various levels of the organization participate in a non-qualified pension plan, non-qualified 401(k) plan and/or voluntary deferred compensation plan. The non-qualified pension and non-qualified 401(k) plans permit us to pay retirement benefits in amounts that exceed the limitations imposed by the Internal Revenue Code, which we refer to as the Code, under our

qualified plans. With respect to the non-qualified pension plan, the employment agreement entered into with Mr. Rodkin upon his hiring in 2005 provides that, subject to service requirements and various exceptions, years of service for purposes of calculating benefits will be credited at a three-for-one rate until he has service credit of thirty years. Mr. Rodkin’s agreement also provides that the annual earnings amount to be used in the pension benefit formula under the non-qualified pension plan will be no less than $3.0 million. Prior to his retirement, Mr. Sharpe was party to an employment agreement that provided him with years of service for purposes of calculating benefits under the non-qualified pension plan at a two-for-one rate.

 

The company’s deferred compensation plan allows the named executive officers, as well as a broader group of approximately 800 employees, to defer receipt of up to 50% of their base salary and 85% of their annual cash incentive compensation. The program permits executives to save for retirement in a tax-efficient way at minimal administrative cost to the company. Executives who participate in the program are not entitled to above-market (as defined by the SEC) or guaranteed rates of return on their deferred funds.

 

We show contributions made by the company to the named executive officers’ 401(k) plan and non-qualified 401(k) plan accounts in the “All Other Compensation” column of the Summary Compensation Table – Fiscal 2011. We provide a complete description of these retirement programs under the headings “Pension Benefits – Fiscal 2011” and “Non-Qualified Deferred Compensation – Fiscal 2011” below.

 

Perquisites. The Committee’s philosophy on perquisites for senior officers has been consistently communicated over the years. Members of senior management are not eligible for indirect pay except in limited circumstances. The incremental cost to the company of providing these benefits is included in the “All Other Compensation” column of the Summary Compensation Table — Fiscal 2011.

 

The Committee has determined it appropriate to cover Mr. Rodkin by our security policy. As a result, he is required to take corporate aircraft for all business and personal air transportation. To offset the incremental cost to the company of Mr. Rodkin’s personal use of corporate aircraft, we have entered into an aircraft timeshare agreement with Mr. Rodkin. The Committee also authorized a timeshare agreement for Mr. Sharpe, which was terminated on November 30, 2010. Under the agreements, the executives are responsible for reimbursing us, in cash, in an amount approximately equal to the variable cost of operating the aircraft for each personal flight taken.

 

Relocation Benefits. We offer relocation benefits to employees at many levels in our organization. These benefits are available upon hire or an internal movement requiring a change in primary business location. Mr. Keck received relocation benefits upon hire that are consistent with our standard relocation package, including payment of reasonable and customary buyer’s closing expenses on a new home in Omaha, Nebraska, a transition support payment, household good shipment support and tax assistance for those relocation benefits that resulted in taxable compensation. The incremental costs to the company of Mr. Keck’s relocation benefits are included in the “All Other Compensation” column of the Summary Compensation Table – Fiscal 2011.

 

Change of Control/Severance Benefits. We have agreements with our named executive officers that are designed to promote stability and continuity of senior management in the event of a change of control. The Committee routinely evaluates participation in this program and its benefit levels to ensure their reasonableness.

 

Following a review of market practices in July 2011, the Committee adopted a policy that any future change in control benefits will be structured without any excise tax gross-up protection. For example, if the company promotes or hires an individual to a position that is, in the Committee’s view, appropriate for change in control program participation, the individual will not be entitled to any excise tax gross-up protection. Although the Committee continues to believe in the importance of maintaining a change of control program, it believes that offering excise tax gross-ups to future participants would be inappropriate relative to best executive pay practices.

 

We provide a complete description of the amounts potentially payable to our named executive officers under these agreements under the heading “Potential Payments Upon Termination or Change of Control”.

We have also adopted a broad severance plan applicable to most salaried employees, including the named executive officers. In some circumstances, we have supplemented this plan with specific severance arrangements with our named executive officers. Our existing severance arrangements with the named executive officers are also described under the heading “Potential Payments Upon Termination or Change of Control”.

 

Fiscal 2012 Programs

 

The Committee reviewed and approved fiscal 2012 compensation opportunities for our executive and senior officers in July 2011. In light of the company’s overall fiscal 2011 performance, none of the named executive officers received a salary increase for fiscal 2012. In addition, there was no material change in the design of the annual incentive plan versus the fiscal 2011 MIP or in the elements described under “Other Fiscal 2011 Compensation” (other than the Committee’s adoption of a policy against future excise-tax gross-ups, as discussed in the preceding paragraphs). With respect to long-term incentives, the Committee approved grants of performance shares and stock options for our executive and senior officers as it has in the past. The stock options have the same terms as they have in prior years and the structure of the performance share plan remains unchanged. However, the Committee approved a change to the performance metrics for the new fiscal 2012 to 2014 cycle of the performance share plan. In lieu of EBIT and ROAIC goals, the Committee approved goals for our three-year average cash flow return on operations and three-year average net sales growth. The Committee made this change following an extensive review, throughout fiscal 2011, with management and its compensation consultant’s assistance, of financial metrics that would ensure strong alignment between participant incentives and the behaviors necessary to drive business success against investor expectations over the next three years. Although EBIT and ROAIC remain important metrics and continue to be the performance objectives for the outstanding fiscal 2010 to fiscal 2012 and fiscal 2011 to fiscal 2013 cycles of the performance share plan, the Committee ultimately determined that a set of metrics with strong emphasis on revenue and operating cash flow growth were preferable for the new cycle.

 

The final notable change with respect to executive compensation that occurred after the start of fiscal 2011 relates to the Committee’s intended use of market data. During fiscal 2011, the Committee undertook an ordinary course review of its pay for performance philosophy, including the key objectives of our executive compensation program included on pages 13 and 14. As part of this review, the Committee reaffirmed its multi-faceted approach to setting compensation opportunities, but also articulated directional market positioning ranges for our senior officers’ salaries, annual incentive opportunities, long-term incentive opportunities, and total direct compensation levels.

 

The Committee intends to use the following directional ranges in future years to determine whether our compensation program is competitive with the peer group, but just as in previous years, this remains only one of a number of analytical tools and reference points. Therefore, the ranges described below are not intended to be prescriptive determinants of individual compensation, but instead serve as guideposts for competitive market comparison. The potential for significant differences continues to exist between competitor pay programs, both in the degree of “stretch” inherent in incentive plan performance targets and in program design. For example, some competitors use a greater portion of fixed compensation than the company, making payouts more certain. The Committee therefore intends to continue to place strong weight on individual performance, position responsibilities and retention considerations when setting individual compensation opportunities.

 

The “Directional Market Positioning” column in the following table is intended to generally guide the Committee’s future decisions on the amount and mix of individual pay opportunity rather than strictly

determine them. Ultimately, what is paid relative to the opportunity will be solely based upon the performance of the individual and the company.

 

 

We expect to further discuss and analyze these ranges and their impact on compensation decisions for fiscal 2012 in our proxy statement for our 2012 Annual Meeting of Stockholders.

 

Committee’s Views on Executive Stock Ownership

 

The Committee has adopted stock ownership guidelines applicable to approximately 180 of our senior officers because it believes that management stock ownership promotes alignment with stockholder interests. The number of shares of ConAgra Foods common stock that our named executive officers are required to hold is set at a multiple of their salary and increases with greater responsibility within the company. The named executive officers are expected to reach the set level within a reasonable period of time after appointment. Shares personally acquired by the executive through open market purchases or through our 401(k) plan or employee stock purchase plan, as well as restricted stock units, restricted shares and shares acquired upon the deferral of earned bonuses are counted toward the ownership requirement. Neither unexercised stock options nor unearned performance shares are counted. The following table reflects ownership as of July 29, 2011.

 

 

 

 

Committee’s Practices Regarding the Timing of Equity Grants

 

We do not backdate stock options or grant stock options retroactively. We do not coordinate grants of stock options with disclosures of positive or negative information. All stock options are granted with an exercise price equal to the closing price of our common stock on the NYSE on the date of grant. The vast majority of our stock option grants for a fiscal year are made in July, at a regular Committee meeting. When

management proposes a merit award or sign-on grant for a non-executive officer, the Committee considers approval of the grant at a regularly scheduled Committee meeting. In the event management proposes a sign-on grant for a senior officer and a grant-related decision is necessary between regularly scheduled Committee meetings, the Committee may hold a special meeting to consider the grant. If approved, the grant date will be made the first trading day of the month on or following the officer’s date of hire.

 

Tax and Accounting Implications of the Committee’s Compensation Decisions

 

U.S. federal income tax law prohibits the company from taking a tax deduction for certain compensation paid in excess of $1 million to the company’s chief executive officer or any of the company’s three other most highly compensated executive officers, other than the chief financial officer, who are employed as of the end of the calendar year. This limitation does not apply to qualified performance-based compensation under federal tax law. Generally, this is compensation paid only if the individual’s performance meets pre-established, objective goals based on performance goals approved by our stockholders. The Committee’s intent is to structure our executive compensation programs so that payments will generally be fully tax deductible. For fiscal 2011, all annual incentive and performance share awards to covered employees were subject to, and made in accordance with, performance-based compensation arrangements that were intended to qualify as tax deductible. In order to achieve this result, the Committee approved a framework in which (1) maximum awards under these incentive programs would be authorized upon attainment of a pre-determined level of diluted EPS of $0.50 (compared to actual fiscal 2011 diluted EPS of $1.88) and (2) negative discretion would be applied by the Committee to decrease authorized awards based upon the program frameworks described above (that is, based on PBT results for the MIP, and EBIT and ROAIC results for the performance shares). The Committee intends to continue using this type of approach to preserve the tax deductibility of its compensation arrangements in the future. However, the Committee does retain the discretion to occasionally make payments or grants of equity that are not fully deductible if, in its judgment, those payments or grants are needed to achieve its overall compensation objectives.

 

The Human Resources Committee has reviewed and discussed the company’s Compensation Discussion & Analysis with management. Based upon this review and discussion, the Committee recommended to the Board of Directors that the company’s Compensation Discussion & Analysis be included in this proxy statement and incorporated by reference in the company’s Annual Report on Form 10-K for the fiscal year ended May 29, 2011.

 

ConAgra Foods, Inc. Human Resources Committee

 

Steven F. Goldstone
Joie A. Gregor
W.G. Jurgensen
Ruth Ann Marshall
Ken Stinson, Chairman

 

The table below presents compensation information for individuals who served as our Chief Executive Officer and Chief Financial Officer during fiscal 2011, for each of the other three most highly-compensated executive officers who were serving as executive officers at the end of fiscal 2011, and for Mr. Sharpe, who was no longer serving as an executive officer at the end of fiscal 2011 due to his announced retirement in October 2010 but who otherwise would have qualified to be a named executive officer. Ms. Batcheler was not a named executive officer in fiscal 2009 and Mr. Keck was not a named executive officer in fiscal 2010 or fiscal 2009; information about their compensation for those fiscal years is not included. The amounts in the following Summary Compensation Table are based in part on written agreements in place between ConAgra Foods and certain of these individuals as discussed in the CD&A and “Potential Payments Upon Termination or Change of Control”.

 

 

 

 

 

 

 

 

 

The following table presents information about grants of plan-based awards (equity and non-equity) during fiscal 2011 to the named executive officers. All equity-based grants were made under the stockholder-approved ConAgra Foods 2009 Stock Plan.