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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

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

 

Filed by the Registrant  x

 

Filed by a Party other than the Registrant  o

 

Check the appropriate box:

o

Preliminary Proxy Statement

o

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

x

Definitive Proxy Statement

o

Definitive Additional Materials

o

Soliciting Material under §240.14a-12

 

Deluxe Corporation

(Name of Registrant as Specified In Its Charter)

 

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

x

No fee required.

o

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

(1)

Title of each class of securities to which transaction applies:

 

 

 

 

(2)

Aggregate number of securities to which transaction applies:

 

 

 

 

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

 

 

(4)

Proposed maximum aggregate value of transaction:

 

 

 

 

(5)

Total fee paid:

 

 

 

o

Fee paid previously with preliminary materials.

o

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

(1)

Amount Previously Paid:

 

 

 

 

(2)

Form, Schedule or Registration Statement No.:

 

 

 

 

(3)

Filing Party:

 

 

 

 

(4)

Date Filed:

 

 

 

 



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  GRAPHIC

 

Deluxe Corporation
3680 Victoria Street N.
Shoreview, MN 55126-2966
P.O. Box 64235
St. Paul, MN 55164-0235
www.deluxe.com

 

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 1, 2013

 

To the Shareholders of Deluxe Corporation:

 

It is our pleasure to invite you to the Deluxe Corporation 2013 annual meeting of shareholders.  The annual meeting will be held at Deluxe’s headquarters located at 3680 Victoria Street North, Shoreview, Minnesota on Wednesday, May 1, 2013, at 2:00 p.m. Central Time for the following purposes:

 

1.              To elect nine directors to hold office until the 2014 annual meeting of shareholders.

 

2.              To cast an advisory (non-binding) vote on the compensation of our Named Executive Officers (a “Say-on-Pay” vote).

 

3.              To consider and act upon a proposal to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the year ending December 31, 2013.

 

4.              To take action on any other business that may properly come before the meeting and any adjournment thereof.

 

Shareholders of record at the close of business on March 5, 2013, are entitled to vote at the meeting and at any adjournment thereof.  In this proxy statement, we may also refer to Deluxe Corporation as “Deluxe,” the “Company,” “we,” “our,” or “us.”

 

Once again, we are furnishing proxy materials to our shareholders over the Internet.  This process expedites the delivery of proxy materials, reduces paper waste and saves the Company expense.  In addition, these materials remain easily accessible, and shareholders receive clear instructions for voting and requesting paper copies of the materials if they so desire.

 

We are mailing the Notice of Internet Availability of Proxy Materials (“Internet Notice”) to shareholders of record beginning on or about March 15, 2013.  The Internet Notice contains instructions on how to access our Proxy Statement and Annual Report, and how to vote online.  In addition, the Internet Notice contains instructions on how to (i) request a paper copy of the Proxy Statement and Annual Report, if you received only an Internet Notice this year, or (ii) elect to receive your Proxy Statement and Annual Report only over the Internet, if you received them by mail this year.

 

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It is important that your shares be represented at the annual meeting.  Whether or not you plan to attend the annual meeting in person, please vote as soon as possible to ensure the presence of a quorum and save Deluxe further expense.  You may vote your shares by telephone or the Internet, or if you received a paper proxy card, you may sign, date and mail the proxy card in the envelope provided.  Instructions regarding the methods of voting are contained in the Internet Notice and in the Proxy Statement.  Voting by telephone, the Internet or mail will not limit your right to vote in person or to attend the annual meeting.

 

 

BY ORDER OF THE BOARD OF DIRECTORS

 

 

 

 

Anthony C. Scarfone

 

Corporate Secretary

 

 

 

 

March 11, 2013

 

 



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DELUXE CORPORATION

3680 Victoria Street North, Shoreview, Minnesota 55126-2966

 

Proxy Statement
2013 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 1, 2013

 

TABLE OF CONTENTS

 

INFORMATION CONCERNING SOLICITATION AND VOTING

 

What is the purpose of the annual meeting?

3

How does the Board recommend that I vote?

3

Who is entitled to vote at the meeting?

3

How many shares must be present to hold the meeting?

3

What is the difference between a shareholder of record and a “street name” holder?

3

How do I vote my shares?

4

What does it mean if I receive more than one Notice of Internet Availability of Proxy Materials?

4

Can I vote my shares in person at the meeting?

4

What vote is required to elect directors?

5

What vote is required on proposals other than the election of directors?

5

How are votes counted?

5

What if I do not specify how I want my shares voted?

5

What is the effect of not casting my vote?

5

Can I change my vote?

6

Who pays the cost of proxy preparation and solicitation?

6

 

 

STOCK OWNERSHIP AND REPORTING

 

Director and Executive Officer Stock Ownership and Sale Guidelines

6

Security Ownership of Certain Beneficial Owners and Management

6

Section 16(a) Beneficial Ownership Reporting Compliance

9

 

 

ITEM 1: ELECTION OF DIRECTORS

9

Nominees for Election

9

 

 

BOARD STRUCTURE AND GOVERNANCE

 

Board Oversight and Director Independence

14

Corporate Governance Principles

15

Code of Ethics and Business Conduct

15

Related Party Transaction Policy and Procedures

15

Board Composition and Qualifications

16

Director Selection Process

16

Meetings and Committees of the Board of Directors

17

 



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Audit Committee

18

Compensation Committee

19

Corporate Governance Committee

19

Finance Committee

20

Communications with Directors

20

Board Leadership Structure; Non-Executive Chairman; Executive Sessions

20

Board Role in Risk Oversight

20

Audit Committee Expertise; Complaint-Handling Procedures

21

Compensation Committee Processes and Procedures

21

Compensation Committee Interlocks and Insider Participation

22

Non-Employee Director Compensation

22

Director Compensation Table for 2012

24

 

 

EXECUTIVE COMPENSATION

 

 

 

ITEM 2: ADVISORY VOTE ON COMPENSATION OF NAMED EXECUTIVE OFFICERS (referred to as “Say-on-Pay”)

25

Compensation Discussion and Analysis

25

Compensation Committee Report

37

Executive Compensation Tables

38

Summary Compensation Table

39

2012 All Other Compensation Supplemental Table

41

Grants of Plan-Based Awards in 2012

42

Outstanding Equity Awards at 2012 Fiscal Year-End

44

2012 Option Exercises and Stock Vested

45

Deferred Compensation Plan

45

Non-Qualified Deferred Compensation Table

46

Severance, Retention and Change of Control Arrangements

46

Severance Calculations Table

49

Change of Control Calculations Tables

50

 

 

FISCAL YEAR 2012 AUDIT AND INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Audit Committee Report

53

Fees Paid to Independent Registered Public Accounting Firm

54

Policy on Audit Committee Pre-Approval of Accounting Firm Fees and Services

54

 

 

ITEM 3: RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

55

 

 

2014 SHAREHOLDER PROPOSALS

55

 

 

OTHER BUSINESS

55

 

 

ANNUAL REPORT TO SHAREHOLDERS AND FORM 10-K

56

 



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INFORMATION CONCERNING SOLICITATION AND VOTING

 

What is the purpose of the annual meeting?

 

At our annual meeting, the Board of Directors asks shareholders to vote on the matters disclosed in the Notice of Annual Meeting of Shareholders that preceded this proxy statement.  The three proposals scheduled to be voted on at the meeting are to:

 

·                  Elect as directors the nine nominees named in this proxy statement;

·                  Cast an advisory (non-binding) vote on the compensation of our Named Executive Officers (“Say-on-Pay”); and

·                  Ratify the appointment of PricewaterhouseCoopers LLP as Deluxe’s independent registered public accounting firm for the fiscal year ending December 31, 2013.

 

We will also consider any other business that may be properly presented at the meeting (although we are not expecting any other matters to be presented), and management will report on Deluxe’s performance during the last fiscal year and respond to questions from shareholders.

 

How does the Board recommend that I vote?

 

The Board of Directors recommends a vote:

 

·                  FOR the election of all of the nominees for director;

·                  FOR the compensation of the Company’s Named Executive Officers as disclosed in this proxy statement; and

·                  FOR the ratification of the appointment of PricewaterhouseCoopers LLP as Deluxe’s independent registered public accounting firm for the fiscal year ending December 31, 2013.

 

Who is entitled to vote at the meeting?

 

The Board has set March 5, 2013, as the record date for the meeting.  If you were a shareholder of record at the close of business on March 5, 2013, you are entitled to vote at the meeting.  You have one vote for each share of common stock you held on the record date.

 

As of the record date, 50,947,442 shares of Deluxe common stock were outstanding.  Deluxe does not have any other class of capital stock outstanding.

 

How many shares must be present to hold the meeting?

 

A quorum is necessary to hold the meeting and conduct business.  The presence of shareholders who can direct the vote of at least a majority of the outstanding shares of common stock as of the record date is considered a quorum.  A shareholder is counted present at the meeting if the shareholder (1) is present and votes in person at the meeting, or (2) has properly submitted a proxy or voted by telephone or the Internet.

 

What is the difference between a shareholder of record and a “street name” holder?

 

If your shares are registered directly in your name, you are considered the shareholder of record with respect to those shares.

 

If your shares are held in a stock brokerage account or by a bank or other nominee, you are still considered the beneficial owner of the shares, but your shares are held in “street name”.

 

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How do I vote my shares?

 

We are mailing the Notice of Internet Availability of Proxy Materials (the “Internet Notice”) to shareholders of record on or about March 15, 2013.  If your shares are held in street name, your broker or other agent is responsible for sending you an Internet Notice.  You will not receive a printed copy of these proxy materials unless you request to receive these materials in hard copy by following the instructions provided in the Internet Notice.  Instead, the Internet Notice will instruct you about how you may access and review all of the important information contained in these proxy materials.  The Internet Notice also instructs you about how you may vote by the Internet.  If you received an Internet Notice by mail and would like to receive a printed copy of these proxy materials, you should follow the instructions for requesting such materials included in the Internet Notice.

 

Voting by the Internet — You can simplify your voting by voting your shares using the Internet as instructed in the Internet Notice.  The Internet procedures are designed to authenticate your identity, to allow you to vote your shares and confirm that your instructions have been properly recorded.  Internet voting facilities for shareholders of record are available 24 hours a day and will close at 11:59 p.m. (CT) on April 30, 2013.  You may access this proxy statement and related materials by going to http://www.investoreconnect.com and entering the control number as shown on your Internet Notice.  You will then be directed to select a link to www.proxyvote.com where you will be able to vote on the proposals presented here.

 

Voting by Mail — Shareholders who receive a paper proxy card may elect to vote by mail (instead of by the Internet or telephone) and should complete, sign and date their proxy card and mail it in the pre-addressed envelope that accompanies the paper proxy card.  Proxy cards submitted by mail must be received by the time of the annual meeting in order for your shares to be voted.  Shareholders who hold shares beneficially in street name may vote by mail by requesting a paper proxy card according to the instructions contained in the Internet Notice received from your broker or other agent, and then completing, signing and dating the voting instructions card provided by the broker or other agent and mailing it in the pre-addressed envelope provided.

 

Voting by Telephone — Shareholders also may elect to vote using the telephone by calling 800-690-6903 (toll-free).  The telephone voting procedures have been set up for your convenience.  The procedures have been designed to verify your identity, to allow you to give voting instructions and to confirm that those instructions have been recorded properly.

 

What does it mean if I receive more than one Notice of Internet Availability of Proxy Materials?

 

It means you hold shares registered in more than one account.  To ensure that all of your shares are voted, if you vote by telephone or the Internet, vote once for each Internet Notice you receive.  If you wish to consolidate your accounts, please contact our stock transfer agent, Wells Fargo Bank, N.A., at P.O. Box 64854, St. Paul, Minnesota 55164 or by telephone at 800-468-9716 (toll-free).

 

You also may receive a “voting instructions” card which looks very similar to a proxy card.  Voting instructions are prepared by brokers, banks or other nominees for shareholders who hold shares in street name.

 

Can I vote my shares in person at the meeting?

 

Yes.  If you are a shareholder of record, you may vote your shares at the meeting by completing a ballot at the meeting.  However, even if you currently plan to attend the meeting, we recommend that you submit your proxy ahead of time so that your vote will be counted if, for whatever reason, you later decide not to attend the meeting, or are otherwise unable to attend.

 

If you hold your shares in street name, you may vote your shares in person at the meeting only if you obtain a signed proxy from your broker, bank or other nominee giving you the right to vote such shares at the meeting.

 

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What vote is required to elect directors?

 

In accordance with Minnesota law, directors are elected by a plurality of votes cast.  This means that the nine nominees receiving the highest number of votes will be elected, provided that a quorum is present at the meeting.

 

What vote is required on proposals other than the election of directors?

 

With respect to Items 2 (Say-on-Pay) and 3 (ratification of independent accounting firm) the affirmative vote of a majority of the shares present and entitled to vote with respect to that item is required for the approval of the item (provided that the total number of shares voted in favor of the proposal constitutes more than 25 percent of the outstanding shares).  Item 2 (Say-on-Pay) is a nonbinding advisory vote intended to solicit the input of our shareholders on this matter.

 

How are votes counted?

 

For Item 1, shareholders may either vote “FOR” or “WITHHOLD” authority to vote for the nominees for the Board of Directors.  For Items 2 and 3, shareholders may vote “FOR,” “AGAINST” or “ABSTAIN.”

 

If you vote WITHHOLD or ABSTAIN, your shares still will be counted as present at the meeting for the purposes of determining a quorum.

 

If you WITHHOLD authority to vote for one or more of the directors, this has the same effect as a vote against the director or directors.  If you ABSTAIN from voting on a proposal, your abstention has the same effect as a vote against the proposal.

 

What if I do not specify how I want my shares voted?

 

If your shares are held in street name and you do not provide voting instructions to your broker, bank or nominee, your shares will be counted as present at the meeting for purposes of determining a quorum but, in accordance with applicable law and the rules of the New York Stock Exchange, may not be voted on Item 1: Election of Directors or Item 2:  Advisory Vote on Compensation of Named Executive Officers.  Shares for which you do not provide voting instructions may, however, be voted on Item 3: Ratification of Appointment of Independent Registered Public Accounting Firm, at the discretion of your broker, bank or nominee.

 

If you vote your shares directly (as opposed to voting through a broker or other intermediary) and do not specify on your proxy card (or when giving your proxy by telephone or the Internet) how you want to vote your shares, we will vote them:

 

·                  FOR the election of all of the nominees for director;

·                  FOR the compensation of the Company’s Named Executive Officers; and

·                  FOR the ratification of the appointment of PricewaterhouseCoopers LLP as Deluxe’s independent registered public accounting firm for the fiscal year ending December 31, 2013.

 

What is the effect of not casting my vote?

 

If your shares are held in street name, it is critical that you cast your vote if you want it to count in the election of directors (Item 1 of this proxy statement), and the advisory vote related to the compensation of the Company’s Named Executive Officers (Item 2 of this proxy statement.).  If you hold your shares in street name and you do not instruct your broker, bank or other nominee how to vote on these matters, no votes will be cast on your behalf. Your broker, bank or other nominee 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 (Item 3 of this proxy statement).

 

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Can I change my vote?

 

Yes.  If you are a shareholder of record, you can change your vote and revoke your proxy at any time before it is voted at the meeting in any of the following ways:

 

·                  by sending a written notice of revocation to Deluxe’s Corporate Secretary;

·                  by submitting another properly signed proxy card at a later date to Deluxe’s Corporate Secretary;

·                  by submitting another proxy by telephone or the Internet at a later date; or

·                  by voting in person at the meeting.

 

If you hold your shares in street name, you should follow the voting instructions provided to you by your broker, bank or other nominee.

 

Who pays the cost of proxy preparation and solicitation?

 

Deluxe pays for the cost of proxy preparation and solicitation, including the charges and expenses of brokerage firms or other nominees for forwarding proxy materials to beneficial owners.  We have retained Georgeson Inc., a proxy solicitation firm, to assist in the solicitation of proxies for a fee of approximately $8,000, plus associated costs and expenses.

 

We are soliciting proxies primarily by use of the Internet.  In addition, proxies may be solicited by mail, telephone or facsimile, or personally by directors, officers and regular employees of Deluxe.  These individuals receive no additional compensation for these services.

 

STOCK OWNERSHIP AND REPORTING

 

Director and Executive Officer Stock Ownership and Sale Guidelines

 

The Board has established stock ownership guidelines for directors and executive officers.  These guidelines set ownership targets for each director and executive officer, with the expectation that the target be achieved within five years of the date the individual becomes subject to the target.  The guidelines restrict a director’s or executive officer’s ability to sell shares received upon the exercise of options or vesting of other stock-based awards until they have achieved their ownership targets.  The ownership target for non-employee directors is shares having a value of at least five times the current Board retainer.  Executive officers have targets based on a multiple of their annual base salary.  The ownership target for the Chief Executive Officer (“CEO”) is five times his annual base salary, the target for the Company’s Senior Vice Presidents is two times their annual base salary, and the target for the Company’s Vice Presidents who are members of the Company’s executive leadership team (“Executive Leadership Team”) is one-and-one-half times their annual base salary.

 

Security Ownership of Certain Beneficial Owners and Management

 

The following table shows, as of March 5, 2013 (unless otherwise noted), the number of shares of common stock beneficially owned by (1) each person or entity known by Deluxe to beneficially own more than five percent of Deluxe’s outstanding common stock, (2) each executive officer named in the Summary Compensation Table that appears in the “EXECUTIVE COMPENSATION” section of this proxy statement (each, a “Named Executive Officer”), (3) each director and nominee for director, and (4) all of the current directors, nominees and executive officers of Deluxe as a group.  Except as otherwise indicated in the footnotes below, the shareholders listed in the table have sole voting and investment powers with respect to the common stock owned by them.

 

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Name of Beneficial Owner

 

Amount and
Nature of
Beneficial
Ownership

 

Percent of Class

 

BlackRock, Inc.(1)
40 East 52
nd Street
New York, NY 10022

 

5,897,022

 

11.58

 

FMR LLC (Fidelity) (2)
82 Devonshire Street
Boston, MA 02109

 

3,297,026

 

6.48

 

The Vanguard Group, Inc.(3)
100 Vanguard Blvd.
Malvern, PA 19355

 

3,114,065

 

6.11

 

Lee J. Schram (4)

 

746,847

 

1.45

 

Terry D. Peterson (5)

 

60,559

 

*

 

John D. Filby (6)

 

19,251

 

*

 

Malcolm J. McRoberts (7)

 

65,524

 

*

 

Anthony C. Scarfone (8)

 

170,405

 

*

 

Ronald C. Baldwin (9)

 

26,269

 

*

 

Charles A. Haggerty (10)

 

65,479

 

*

 

Cheryl E. Mayberry McKissack (11)

 

27,401

 

*

 

Don J. McGrath (12)

 

35,474

 

*

 

Neil J. Metviner (13)

 

18,269

 

*

 

Stephen P. Nachtsheim (14)

 

61,918

 

*

 

Mary Ann O’Dwyer (15)

 

54,196

 

*

 

Martyn R. Redgrave (16)

 

49,450

 

*

 

All directors, nominees and executive officers as a group (18 persons) (17)

 

1,532,277

 

2.96

 

 


* Less than 1 percent.

 

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(1)              Based on a Schedule 13G filed with the Securities and Exchange Commission on January 9, 2013, reporting beneficial ownership as of December 31, 2012.  The power to vote or direct the vote of these shares generally resides within funds managed or advised by the reporting person and/or its subsidiaries.

 

(2)              Based on a Schedule 13G filed with the Securities and Exchange Commission on February 14, 2013, reporting beneficial ownership as of December 31, 2012.  The power to vote or direct the vote of these shares generally resides within funds managed or advised by the reporting person and/or its subsidiaries.

 

(3)              Based on a Schedule 13G filed with the Securities and Exchange Commission on February 11, 2013, reporting beneficial ownership as of December 31, 2012.  The power to vote or direct the vote of these shares generally resides within funds managed or advised by the reporting person and/or its subsidiaries.

 

(4)              Includes 551,399 shares receivable upon the exercise of options that are currently exercisable or will become exercisable within 60 days.

 

(5)              Includes 35,899 shares receivable upon the exercise of options that are currently exercisable or will become exercisable within 60 days.

 

(6)              Includes 9,592 shares receivable upon the exercise of options that are currently exercisable or will become exercisable within 60 days.

 

(7)              Includes 43,646 shares receivable upon the exercise of options that are currently exercisable or will become exercisable within 60 days.

 

(8)              Includes 130,299 shares receivable upon the exercise of options that are currently exercisable or will become exercisable within 60 days.

 

(9)              Includes 4,272 shares of restricted stock.

 

(10)       Includes 4,272 restricted stock units received in lieu of an annual restricted stock grant, 32,727 shares held by the Haggerty Family Trust, and 16,873 restricted stock units received in lieu of director’s fees pursuant to the deferral option under the Deluxe Corporation Non-Employee Director Stock and Deferral Plan (the “Director Plan”).

 

(11)       Includes 4,272 shares of restricted stock.

 

(12)       Includes 4,272 shares of restricted stock, 2,000 shares held in trust and 19,205 restricted stock units received in lieu of director’s fees pursuant to the deferral option under the Director Plan.

 

(13)       Includes 4,272 shares of restricted stock.

 

(14)       Includes 4,272 restricted stock units received in lieu of an annual restricted stock grant, 3,582 shares held by the Nachtsheim Family Trust, 11,000 shares held in Grantor Retained Annuity Trusts and 15,616 restricted stock units received in lieu of director’s fees pursuant to the deferral option under the Director Plan.

 

(15)       Includes 4,272 restricted stock units received in lieu of an annual restricted stock grant, and 20,596 restricted stock units received in lieu of director’s fees pursuant to the deferral option under the Director Plan.

 

(16)       Includes 4,272 shares of restricted stock, and 9,360 restricted stock units received in lieu of director’s fees pursuant to the deferral option under the Director Plan.

 

(17)       Includes 852,757 shares receivable upon the exercise of options that are currently exercisable or will become exercisable within 60 days, 31,720 shares of restricted stock, and 94,466 restricted stock units received in lieu of annual restricted stock grants and directors’ fees pursuant to the deferral option under the Director Plan.

 

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Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and related regulations, require Deluxe’s directors and executive officers, and any persons holding more than ten percent of Deluxe’s common stock (collectively, “Reporting Persons”), to report their initial ownership of Deluxe securities and any subsequent changes in that ownership to the Securities and Exchange Commission (“SEC”).  In October 2012, Malcolm J. McRoberts transferred the administration of a 401(k) account (the “Account”) to a new administrator.  To facilitate this transfer, the administrator liquidated all pre-existing Account holdings on October 29, 2012, and reinvested the proceeds in new funds.  Among the pre-existing holdings were 1,700 shares of Deluxe stock, which were inadvertently sold as part of the Account transfer process, and therefore not reported on a timely basis.  Upon becoming aware of the sale during a year-end review and reconciliation of his 401(k) accounts, Mr. McRoberts timely filed a Form 5 on January 24, 2013, to report the transaction.  In addition to being inadvertent, the sale occurred outside of any Company-imposed blackout period and at a time when Mr. McRoberts was not otherwise in possession of any material non-public information regarding the Company.  Except as noted above, and based solely on our review of the reports filed and written representations submitted by the Reporting Persons, we believe that all Reporting Persons timely filed all required Section 16(a) reports for the most recent fiscal year.

 

ITEM 1: ELECTION OF DIRECTORS

 

Nominees for Election

 

There are currently nine individuals serving on the Board of Directors.  Each director’s term expires as of the date of the annual meeting.

 

The Board has determined that the size of the Board will be nine directors as of the date of the annual meeting and recommends that the nine individuals presented on the following pages be elected to serve on the Board until the 2014 annual meeting of shareholders.  All of the nominees are current directors.  In addition, with the exception of Mr. Schram, who serves as Deluxe’s CEO and therefore by definition cannot be deemed independent; all nominees have been determined by the Board to meet the independence standards of the New York Stock Exchange (see the discussion of Director Independence in the “BOARD STRUCTURE AND GOVERNANCE” section of this proxy statement).

 

Each of the nine individuals listed below has consented to being named as a nominee in this proxy statement and has indicated a willingness to serve if elected.  However, if any nominee becomes unable to serve before the election, the shares represented by proxies may be voted for a substitute designated by the Board, unless a contrary instruction is indicated on the proxy.

 

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RONALD C. BALDWIN

Age 66

Director since June 2007

 

Vice Chairman (Retired), Huntington Bancshares Inc.

 

Mr. Baldwin served as Vice Chairman of Huntington Bancshares Inc., a regional bank holding company, from April 2001 until his retirement in December 2006.  Mr. Baldwin was responsible for overseeing Huntington’s regional banking line of business, which provided both commercial and retail financial products and services through nearly 400 regional banking offices. Mr. Baldwin is a 35-year veteran of the banking and financial services industry.  As such, he is able to provide Deluxe with unique insight into the challenges faced by financial institutions, particularly within the community bank sector, where the Company believes it has the opportunity to expand the business services and solutions offered to these financial institutions.  The experience acquired by Mr. Baldwin throughout his career also makes him adept in offering counsel on matters related to corporate finance and capital structure, all of which serve the needs of Deluxe and its shareholders as the Company seeks to maintain financial discipline while pursuing growth opportunities.

 

CHARLES A. HAGGERTY

Age 71

Director since December 2000

 

Chairman (Retired), Western Digital Corporation

 

Mr. Haggerty was Chairman of the Board of Western Digital Corporation, a manufacturer of hard disk drives, from July 1993 until his retirement in June 2000.  Mr. Haggerty also was Chief Executive Officer of Western Digital from July 1993 to January 2000, and was President from June 1992 to July 1993.  Prior to joining Western Digital, Mr. Haggerty spent more than 28 years with IBM.  Mr. Haggerty also serves as a director of Pentair, Inc., Imation Corp. and LSI Corporation.  Aside from Mr. Haggerty’s strong background in business operations and management, he is a seasoned public company director, having served for more than a decade on public company boards.  During his tenure as a public company director, he has chaired a range of board committees, including the audit committees of the boards of Imation Corp. and Pentair, Inc., and has served as a lead independent director, all of which allows him to bring a broad-based set of corporate governance perspectives and experience to the Deluxe Board.

 

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CHERYL E. MAYBERRY McKISSACK

Age 57

Director since December 2000

 

Chief Operations Officer, Johnson Publishing Company, and President of JPC Digital

 

Ms. Mayberry McKissack was appointed COO of Johnson Publishing Company (“JPC”) and President of its affiliate, JPC Digital, on January 1, 2013.  Johnson Publishing Company is the preeminent publishing, cosmetic and digital media company for people of color.  Ms. Mayberry McKissack also is President and CEO of Nia Enterprises, LLC, a Chicago-based online research, marketing, and digital consulting firm she founded in 2000.  Ms. Mayberry McKissack has provided project support to JPC for several years under a consulting relationship between Nia Enterprises and JPC, and her expanded role with JPC as COO and President of JPC Digital now constitutes her principal responsibility.   Prior to founding Nia Enterprises, Ms. Mayberry  McKissack served as the Worldwide Senior Vice President and General Manager for Open Port Technology and was Vice President for the Americas and a founding member of the Network Systems Division for 3Com (formerly U.S. Robotics).  She also serves as a director of Private Bancorp Inc., and in 2005 was named as an Associate Adjunct Professor of Entrepreneurship at the Kellogg School of Business, Northwestern University.  As a successful entrepreneur and digital technology executive, Ms. Mayberry McKissack brings a unique perspective to the Board as the Company pursues its growth strategies within the Small Business Services segment.  Given that a key component of Deluxe’s strategy for growing this segment involves Internet-based marketing and new media solutions, Ms. Mayberry McKissack’s experience in these areas is a valuable complement to the skills and experience she brings to the Board as a small business owner and executive of several technology and new business ventures.

 

DON J. McGRATH

Age 64

Director since June 2007

 

Managing Partner, Diamond Bear Partners, LLC

 

Diamond Bear Partners, LLC is an investment company co-founded by Mr. McGrath in December 2009.  At the end of 2009, Mr. McGrath retired as Chairman of BancWest Corporation, a $70 billion bank holding company serving nearly four million households and businesses.  Mr. McGrath served as BancWest’s Chairman and CEO from January 2005 through December 2009, and as a director from 1998.  Prior to becoming CEO, he served as BancWest’s President and Chief Operating Officer from November 1998 to December 2004.  From May 2005 through December 2009, Mr. McGrath also served as Chairman of the Board of Bank of the West (a  BancWest subsidiary) and as CEO from 1996 to 2007.  In 2008, he was appointed to the President’s Council on Financial Literacy.  He has nearly 40 years of experience in the banking and financial services industry, particularly in the large bank sector, enabling him to provide the Company with valuable insight into this important portion of Deluxe’s customer base.  He also led BancWest through an era of significant growth and therefore is well-suited for the Deluxe Board as the Company continues to execute its transformational growth strategies.

 

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NEIL J. METVINER

Age 54

Director since June 2007

 

Chief Marketing Officer, Output Services Group, Inc.

 

Mr. Metviner joined Output Services Group, Inc. (“OSG”) in January of 2011.  OSG provides invoice and statement printing and presentment services, emphasizing their use as marketing tools.  Mr. Metviner is responsible for all marketing activities, organic growth initiatives and major account management.  Prior to joining OSG, Mr. Metviner served in various executive capacities with Pitney Bowes, Inc., a global mailstream technology company serving one million businesses in North America and over two million customers worldwide.  Mr. Metviner joined Pitney Bowes in 2000 as President of Pitney Bowes Direct, having management responsibility for serving the company’s U.S. small business customer base, together with various international markets.  From September 2007 until leaving the company at the end of December 2009, Mr. Metviner assumed full oversight responsibility for the company’s European mailstream operations.   As President of Pitney Bowes Direct and in his current role with OSG, Mr. Metviner has acquired extensive knowledge in marketing to, and otherwise serving, small business customers.  This knowledge is particularly relevant to Deluxe’s strategic growth initiatives within the Small Business Services segment, from where it is expected that a significant portion of the Company’s growth will be derived.  In addition, Mr. Metviner has spent more than 20 years in senior leadership positions responsible for new product development, management and marketing, all of which areas also are key components of Deluxe’s enterprise-wide growth strategies.

 

STEPHEN P. NACHTSHEIM

Age 68

Director since November 1995; Immediate Past Chairman of the Board

 

Vice President (Retired), Intel Corporation

 

Mr. Nachtsheim served as Non-Executive Chairman of the Board of Deluxe from November 2005 through July 2012.  Prior to that, he served as the Board’s Lead Independent Director, a role he had assumed in December 2003.  Mr. Nachtsheim was a Corporate Vice President of Intel Corporation, a designer and manufacturer of integrated circuits, microprocessors and other electronic components, and the co-director of Intel Capital from 1998 until his retirement in August 2001.  He also serves as a director of the Menlo Park Fire Protection District in California, a public service position to which he was elected in 2009.  Mr. Nachtsheim’s experience in the information technology area and in overseeing investments in product development initiatives is well-suited to Deluxe’s own transformational initiatives, many of which rely on the support of information technology.  As the longest tenured member of the Deluxe Board, as well as having served in a Board leadership role for nearly a decade, Mr. Nachtsheim also brings a unique historical perspective to the Board’s role in guiding strategic discussions, together with a wealth of experience in managing the work of the Board and the role it plays in serving the interests of Deluxe shareholders. 

 

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MARY ANN O’DWYER

Age 57

Director since October 2003

 

Senior Vice President, Finance and Operations and Chief Financial Officer, Wheels, Inc.

 

Wheels, Inc. is a leading provider of fleet management services to Fortune 1000 companies, with more than 300,000 vehicles under management.  Ms. O’Dwyer joined Wheels in 1991 and has served as Chief Financial Officer since 1994.  As Senior Vice President Finance and Operations since 1999, she is also responsible for all Vehicle Operations and Customer Service functions.  Ms. O’Dwyer also serves as a director of Wheels, Inc. and its parent company, Frank Consolidated Enterprises.  In addition to the strong financial acumen and operational background she brings to the Board, Ms. O’Dwyer’s experience at Wheels has included analyzing the strength of a company’s financial condition, assessing credit risks, accessing capital markets, and implementing internal control systems and risk mitigation strategies.  These qualifications serve Deluxe and its shareholders not only by helping to oversee the integrity of Deluxe’s financial statements, but also in supporting the Company’s strategies to ensure access to capital and in evaluating potential acquisition candidates as part of the Company’s growth strategies.

 

MARTYN R. REDGRAVE

Age 60

Director since August 2001; Non-Executive Chairman since August 2012

 

Non-Executive Chairman of Deluxe and Senior Advisor to Limited Brands, Inc.

 

Mr. Redgrave became a director in August 2001, and was appointed Non-Executive Chairman of the Board on August 1, 2012. He also serves as Senior Advisor to Limited Brands, Inc., a position he has held since August 2012. Mr. Redgrave previously served as Limited Brands’ executive vice president and chief administration officer from March 2005 to August 2012, and chief financial officer from January 2006 to May 2007. Limited Brands is one of the world’s leading personal care, beauty, intimate apparel and apparel specialty retailers.  In addition to bringing extensive operations management experience and financial and accounting acumen to the Board, Mr. Redgrave’s background in overseeing the reporting systems and controls of complex business operations is particularly relevant to the work of the Deluxe Board. Throughout his career, Mr. Redgrave has had direct involvement with matters similar to those encountered by Deluxe, such as operations management, financial reporting and controls, enterprise risk management, information technology systems, data management and protection, and access to capital markets.  His background also includes M&A financial analysis, a continuing area of importance for Deluxe.

 

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LEE J. SCHRAM

Age 51

Director since May 2006

 

Chief Executive Officer of Deluxe

 

 

Mr. Schram became CEO of Deluxe Corporation on May 1, 2006.  Prior to joining Deluxe, Mr. Schram served as Senior Vice President of NCR Corporation’s Retail Solutions Division, with responsibilities for NCR’s global retail store automation and point-of-sale solutions business, including development, engineering, marketing, sales, and support functions.  Mr. Schram began his professional career with NCR Corporation in 1983, where he held a variety of positions of increasing responsibility that included both domestic and international assignments.  From September 2000 to January 2002, he served as Chief Financial Officer for the Retail and Financial Group.  Thereafter, he became Vice President and General Manager of Payment and Imaging Solutions in NCR’s Financial Services Division, a position he held until March 2003, when he became Senior Vice President of the Retail Solutions Division.  He is the sole member of the Company’s management represented on the Board.

 

The Board of Directors recommends that you vote FOR the election of each nominee named on the preceding pages.

 

BOARD STRUCTURE AND GOVERNANCE

 

Board Oversight and Director Independence

 

Deluxe’s business, property and affairs are managed under the general direction of our Board of Directors.  In providing this oversight, the Board adheres to a set of Corporate Governance Guidelines designed to ensure that the Board has access to relevant information, and is structured and operates in a manner allowing it to exercise independent business judgment.

 

A critical component of our corporate governance philosophy is that a majority of our directors, and preferably a substantial majority, be individuals who meet strict standards of independence, meaning that they have no relationship with Deluxe, directly or indirectly, that could impair their ability to make objective and informed judgments regarding all matters of significance to Deluxe and its shareholders.  The listing standards of the New York Stock Exchange (“NYSE”) require that a majority of our directors be independent, and that our Corporate Governance, Audit and Compensation Committees be comprised entirely of independent directors.  In order to be deemed independent, a director must be determined by the Board to have no material relationship with Deluxe other than as a director.  In accordance with the NYSE listing standards, our Board has adopted formal Director Independence Standards setting forth the specific criteria by which the independence of our directors will be determined, including restrictions on the nature and extent of any affiliations directors and their immediate family members may have with Deluxe, its independent registered public accounting firm, or any commercial or not-for-profit entity with which Deluxe has a relationship.  Consistent with regulations of the SEC, our Director Independence Standards also prohibit Audit Committee members from accepting, directly or indirectly, any consulting, advisory or other compensatory fee from Deluxe, other than in their capacity as Board or committee members.  The complete text of our Director Independence Standards is posted on our Investor Relations website at www.deluxe.com/investor under the “Corporate Governance” caption.

 

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The Board has determined that every director and nominee, with the exception of Mr. Schram, satisfies our Director Independence Standards.  The Board also has determined that every member of its Corporate Governance, Audit and Compensation Committees is independent.

 

Corporate Governance Principles

 

As indicated above, our Board has adopted a set of Corporate Governance Guidelines to assist it in carrying out its oversight responsibilities.  These Guidelines address a broad range of topics, including director qualifications, director nomination processes, retirement policies, Board and committee structure and processes, Board evaluations, director education, CEO evaluation, management succession planning and conflicts of interest.  The complete text of the Guidelines is posted on our Investor Relations website at www.deluxe.com/investor under the “Corporate Governance” caption.  A copy of the Guidelines is available in print free of charge to any shareholder who submits a request to:  Corporate Secretary, Deluxe Corporation, 3680 Victoria Street North, Shoreview, Minnesota 55126.

 

Code of Ethics and Business Conduct

 

All of our directors and employees, including our CEO, Chief Financial Officer and other executives, are required to comply with our Code of Ethics and Business Conduct (“Code of Ethics”) to help ensure that our business is conducted in accordance with legal and ethical standards.  Our Code of Ethics requires strict adherence to the letter and spirit of all laws and regulations applicable to our business, and also addresses professional conduct, including customer relationships, respect for co-workers, conflicts of interest, insider trading, the integrity of our financial recordkeeping and reporting, and the protection of our intellectual property and confidential information.  Employees are required to bring any violations or suspected violations of the Code of Ethics to Deluxe’s attention through management or Deluxe’s law department, or by using our confidential ethics and compliance hotline.  The full text of our Code of Ethics is posted on our Investor Relations website at www.deluxe.com/investor under the “Corporate Governance” caption.  The Code of Ethics is available in print free of charge to any shareholder who submits a request to:  Corporate Secretary, Deluxe Corporation, 3680 Victoria Street North, Shoreview, Minnesota 55126.

 

Related Party Transaction Policy and Procedures

 

The Board maintains written procedures under which the Corporate Governance Committee is responsible for reviewing potential or actual conflicts of interest, including any proposed related party transactions and interlocking relationships involving executives and Board members.  The Committee determines whether any such potential or actual conflicts would require disclosure under securities laws, cause a director to be disqualified from being deemed independent, or cause a transaction being considered by the Board to be voidable if the conflict were not disclosed.  The Committee also considers whether the proposed transaction would result in a violation of any law or be inappropriate in light of the nature and magnitude of any interest of the director or executive in the entity or transaction giving rise to the potential conflict.

 

The Committee may take those actions it deems necessary, with the assistance of any advisors it deems appropriate, in considering potential conflicts of interest.  While it is expected that in most instances the Committee can make the necessary determination, where required by state law or due to the significance of the issue, the matter will be referred to the full Board for resolution.

 

Deluxe maintains a commercial relationship with Wheels, Inc. that was reviewed and approved under these procedures.  Wheels, Inc. is a $1.6 billion company that provides automobile leasing, fleet management and related services.  Deluxe selected Wheels, Inc. to provide these services as the result of a competitive bidding process in which several other service providers also participated.  Ms. O’Dwyer, who is an executive with Wheels, Inc. did not participate in the bidding or selection process.  Under the terms of the arms-length contract governing this relationship, Deluxe’s aggregate payment to Wheels, Inc. for 2012 was approximately $1,197,000, which amount is well below the thresholds for independence established by

 

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the NYSE and provided for in our Director Independence Standards.  The relationship with Wheels, Inc. was duly considered by the Board in making its determination that Ms. O’Dwyer is independent.

 

Board Composition and Qualifications

 

Our Corporate Governance Committee also oversees the process for identifying and evaluating candidates for the Board of Directors.  While not maintaining a specific policy on Board diversity requirements, we do believe that our directors should have diverse backgrounds and possess a variety of qualifications, experience and knowledge that complement the attributes of other Board members and enable them to contribute effectively to the evaluation of our business strategies and to the Board’s oversight role.  Deluxe also believes that a predominance of Board members should have a background in business, including experience in markets served by the Company or in which it is developing product and service offerings, and recognizes the benefit of Board members having an understanding of the methods by which other boards address issues common to publicly traded companies.  We also believe the Board should include both actively employed and retired senior corporate officers, and that directors should range in age so as to maintain a sound balance of board tenure and experience, as well as staggered retirement dates.  The Board believes that the diverse mix of skills, qualifications and experience represented by the current directors and nominees (as addressed more fully in the section of this proxy statement entitled “ITEM 1: ELECTION OF DIRECTORS”) effectively allows the Board to perform its responsibilities with respect to fiduciary oversight and evaluation of strategy.

 

The Board of Directors has established the following specific guidelines for nominees to the Board:

 

·                  A majority of the Board must be comprised of independent directors, the current standards for which are discussed above under “Board Oversight and Director Independence.”

 

·                  As a general rule, non-employees should not be nominated for re-election to the Board after their 72nd birthday, although the Board retains the ability to grant exemptions to that age limit where it determines that such an exemption will serve the interests of Deluxe and its shareholders.

 

·                  A non-employee director who ceases to hold the employment position held at the time of election to the Board, or who has a significant change in position, should offer to resign.  The Corporate Governance Committee will then consider whether the change of status is likely to impact the director’s qualifications and make a recommendation to the Board as to whether the resignation should be accepted.

 

·                  Management directors who terminate employment with Deluxe should offer to resign.  The Board will then decide whether to accept the director’s resignation, provided that no more than one former CEO should serve on the Board at any one time.

 

Other selection criteria used to evaluate potential candidates may include successful senior level business management experience or experience that fulfills a specific Company need, prior experience and proven accomplishment as a director of a public company, availability and commitment to attend Board and committee meetings, a reputation for honesty and integrity, interest in serving the needs of shareholders, employees and communities in which we operate, and compatibility with existing directors.

 

Director Selection Process

 

All Board members are elected annually by our shareholders, subject to the Board’s right to fill vacancies in existing or new director positions on an interim basis.  Based on advice from the Corporate Governance Committee, each year the Board recommends a slate of nominees to be presented for election at the annual meeting of shareholders.

 

The Corporate Governance Committee considers candidates recommended by members of the Board or recommended by our shareholders, and the Committee reviews such candidates in accordance

 

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with our bylaws and applicable legal and regulatory requirements. Candidates recommended by our shareholders are evaluated under the same criteria and using the same procedures as candidates recommended by Board members or the CEO. In order for such shareholder recommendations to be considered, shareholders must provide the Corporate Governance Committee with sufficient written documentation to permit a determination by the Board as to whether such a candidate meets the required and desired director selection criteria set forth in our bylaws and our Corporate Governance Guidelines, and as outlined above.  Such documentation and the name of the recommended director candidate must be sent by U.S. mail to our Corporate Secretary at the address indicated on the Notice of Annual Meeting of Shareholders. Our Corporate Secretary will send properly submitted shareholder recommendations to the Chair of the Corporate Governance Committee for consideration at a future Committee meeting.

 

When a vacancy or a new position on the Board needs to be filled, the CEO, in consultation with the Chair of the Corporate Governance Committee, drafts a profile of the candidate he or she believes would provide the most meaningful contributions to the Board as a whole.  The profile is submitted to the Committee for approval.  In order to properly staff its various committees and support its succession planning initiatives, the Board currently believes that a Board consisting of nine to eleven directors is the optimal size.  The Committee has made it a practice in recent years to engage third-party search firms to assist it in identifying suitable candidates.  The firms selected, as well as the specific terms of the engagement, are based on the specific search criteria established by the Committee.  Members of the Board also are given the opportunity to submit names of potential candidates based on the profile developed.  Each candidate is subject to an initial screening process after which the Committee selects the candidates that it wishes to interview.  The Chair of the Board, the CEO and at least a majority of the Committee interviews each selected candidate and, concurrently with the interviews, the candidate will confirm his or her availability for regularly scheduled Board and committee meetings.  The Committee also will assess each candidate’s potential conflicts of interest and the ways in which their qualifications, experience and knowledge complement those of the members of the Board.  The Committee reviews the interviewers’ reports and recommendations, and makes the final determination as to which candidates are recommended for election to the Board.  Depending on when suitable candidates are identified, the Board may decide to appoint a new director to serve on the Board until the next annual meeting of shareholders.

 

Our bylaws require any shareholder wishing to formally nominate a candidate at the annual meeting of shareholders to give written notice of the nomination to our CEO or Corporate Secretary no later than 120 days prior to the first anniversary of the previous year’s annual meeting.  The shareholder must attend the meeting with the candidate and propose the candidate’s nomination for election to the Board at the meeting.  The shareholder’s notice must set forth as to each nominee (1) the name, age, business address and residence address of the person, (2) the principal occupation or employment of the person, (3) the number of shares of our stock owned by the person, (4) the written and acknowledged statement of the person that such person is willing to serve as a director, and (5) any other information relating to the person that would be required to be disclosed in a solicitation of proxies for election of directors pursuant to Regulation 14A under the Exchange Act if the candidate had been nominated by or on behalf of the Board.  No shareholders submitted director nominations in connection with this year’s meeting.  Any shareholders desiring to present a candidate at the 2014 annual meeting of shareholders must furnish the required notice no later than January 1, 2014.

 

Meetings and Committees of the Board of Directors

 

There were five meetings of the Board of Directors in 2012, all of which were regular meetings.  Each director attended, in person or by telephone, at least 75 percent of the aggregate of all meetings of the Board and its committees on which he or she served during the year.  It is our policy that directors attend our annual shareholder meetings.  All directors attended our annual shareholder meeting in 2012, with the exception of Ms. O’Dwyer, who was unable to attend due to certain unavoidable travel restrictions.

 

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The Board of Directors currently has four standing committees:

 

·                  Audit Committee;

·                  Compensation Committee;

·                  Corporate Governance Committee; and

·                  Finance Committee.

 

Each of the Board committees has a written charter, approved by the Board, establishing the authority and responsibilities of the committee.  Each committee’s charter is posted on our Investor Relations website at www.deluxe.com/investor under the “Corporate Governance” caption.  A copy of each charter is available in print free of charge to any shareholder who submits a request to:  Corporate Secretary, Deluxe Corporation, 3680 Victoria Street North, Shoreview, Minnesota 55126-2966.

 

The following tables provide a summary of each committee’s responsibilities, the number of meetings held by each committee during the last fiscal year and the names of the directors currently serving on the committee.

 

Audit Committee

 

Responsibilities

 

·                  Appoints and replaces the independent registered public accounting firm, subject to ratification by our shareholders, and oversees the work of the independent registered public accounting firm.

·                  Pre-approves all auditing services and permitted non-audit services to be performed by the independent registered public accounting firm, including related fees.

·                  Reviews and discusses with management and the independent registered public accounting firm our annual audited financial statements and recommends to the Board whether the audited financial statements should be included in Deluxe’s Annual Report on Form 10-K.

·                  Reviews and discusses with management and the independent registered public accounting firm our quarterly financial statements and the associated earnings news releases.

·                  Reviews and discusses with management and the independent registered public accounting firm significant reporting issues and judgments relating to the preparation of our financial statements, including the adequacy of internal controls.

·                  Reviews and discusses with the independent registered public accounting firm our critical accounting policies and practices, alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, and other material written communications between the independent registered public accounting firm and management.

·                  Oversees the work of our internal auditors.

·                  Reviews the effectiveness of Deluxe’s legal and ethical compliance programs and maintains procedures for receiving, retaining and handling complaints by employees regarding accounting, internal controls and auditing matters.

 

Number of meetings in 2012:  9

 

Directors who serve on the committee:

 

Mary Ann O’Dwyer, Chair

Cheryl E. Mayberry McKissack

Stephen P. Nachtsheim

Martyn R. Redgrave

 

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Compensation Committee

 

Responsibilities

 

·                  Develops our executive compensation philosophy.

·                  Evaluates and recommends incentive compensation plans for executive officers and other key managers, and all equity-based compensation plans, and oversees the administration of these and other employee compensation and benefit plans.

·                  Reviews and approves corporate goals and objectives relating to the CEO’s compensation, leads an annual evaluation of the CEO’s performance in light of those goals and objectives, and recommends to the Board the CEO’s compensation based on this evaluation.

·                  Reviews and approves other executive officers’ compensation.

·                  Establishes and certifies attainment of incentive compensation goals and performance measurements applicable to our executive officers.

·                  Considers shareholder advisory votes related to executive compensation and considers risk related to the design of the Company’s compensation programs.

·                  Retains and, in accordance with SEC requirements, determines the independence of consultants that assist in its activities.

 

Number of meetings in 2012:  5

 

Directors who serve on the committee:

 

Don J. McGrath, Chair

Charles A. Haggerty

Neil J. Metviner

Mary Ann O’Dwyer

 

Corporate Governance Committee

 

Responsibilities

 

·                  Reviews and recommends the size and composition of the Board, including the mix of management and independent directors.

·                  Establishes criteria and procedures for identifying and evaluating potential Board candidates.

·                  Reviews nominations received from the Board or shareholders, and recommends candidates for election to the Board.

·                  Establishes policies and procedures to ensure the effectiveness of the Board, including policies regarding term limits and retirement, review of qualifications of incumbent directors, and conflicts of interest.

·                  Establishes guidelines for conducting Board meetings.

·                  Oversees the annual assessment of the Board’s performance.

·                  In consultation with the Compensation Committee, reviews and recommends to the Board the amount and form of all compensation paid to directors.

·                  Recommends to the Board the size, composition and responsibilities of all Board committees.

·                  Reviews and recommends candidates for key executive officer positions and monitors management succession plans.

·                  Develops and recommends corporate governance guidelines, policies and procedures.

 

Number of meetings in 2012:  4

 

Directors who serve on the committee:

 

Charles A. Haggerty, Chair

Ronald C. Baldwin

Cheryl E. Mayberry McKissack

Martyn R. Redgrave

 

 

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Finance Committee

 

Responsibilities

 

·                  Evaluates acquisitions, divestitures and capital projects in excess of $5 million, and reviews other material financial transactions outside the scope of normal on-going business activity.

·                  Reviews and approves the Company’s annual financing plans, as well as credit facilities maintained by the Company.

·                  Reviews and recommends policies concerning corporate finance matters, including capitalization, investment of assets and debt/equity guidelines.

·                  Reviews and recommends dividend policy and approves declarations of regular shareholder dividends.

·                  Reviews and makes recommendations to the Board regarding financial strategy and proposals concerning the sale, repurchase or split of Deluxe securities.

 

Number of meetings in 2012:  4

 

Directors who serve on the committee:

 

Ronald C. Baldwin, Chair

Don J. McGrath

Neil J. Metviner

Stephen P. Nachtsheim

 

Communications with Directors

 

Any interested party having concerns about our governance or business practices, or otherwise wishing to communicate with our independent directors, may submit their concerns in writing to the Non-Executive Chairman of the Board or the independent directors as a group in the care of the Office of Corporate Secretary, Deluxe Corporation, 3680 Victoria Street North, Shoreview, Minnesota 55126-2966.

 

Board Leadership Structure; Non-Executive Chairman; Executive Sessions

 

As stated in our Corporate Governance Guidelines, the Board does not maintain a strict policy regarding separation of the offices of Chairman and CEO, believing that this issue should be addressed as part of the Board’s succession planning processes.  In November of 2005, as Deluxe was engaged in a search for a new CEO, the Board appointed Mr. Nachtsheim as Non-Executive Chairman to remove the responsibilities of Chairman from the then-interim CEO.  When Mr. Schram was hired to be the Company’s CEO in 2006, the Board made the determination that it would be in the Company’s best interest to maintain the separation of the Chairman and CEO roles, largely to allow Mr. Schram to focus on Deluxe’s operational imperatives with support from a Non-Executive Chairman on Board governance matters.  Mr. Nachtsheim continued to serve as the Non-Executive Chairman of the Board until August 1, 2012, at which time the Board appointed Martyn R. Redgrave as Non-Executive Chairman. Mr. Redgrave’s duties included moderating meetings and executive sessions of the independent directors and acting as the principal liaison between the independent directors and the CEO with respect to Board governance issues.

 

Our independent directors make it a practice to meet in executive session without management present at each Board meeting.  Likewise, all Board committees regularly meet in executive session without management.

 

Board Role in Risk Oversight

 

The Board takes an active role in risk oversight related to the Company both as a full Board and through its committees.  The Board regularly meets in executive session to, among other things, assess the quality of its meetings and to provide its observations to the CEO regarding the Company’s business challenges and risk mitigation strategies.

 

In addition, the Company conducts an annual enterprise-wide risk assessment.  A formal report is delivered to the Audit Committee, the chair of which provides a synopsis to the full Board, typically in December.  Updates are provided at regularly scheduled meetings and more frequently if required.  The objectives for the risk assessment process include (1) addressing the NYSE governance requirement that the Audit Committee discuss policies related to risk assessment and risk management; (2) developing a defined list of key risks to be monitored by the Audit Committee, Board and senior management;

 

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(3) determining whether there are risks that require additional or higher priority mitigation efforts; (4) facilitating discussion of the risk factors to be included in the Company’s SEC reports; and (5) guiding the development of the Company’s internal audit plans.

 

In 2012, the risk assessment process was conducted by members of our Assurance and Risk Advisory Services Department working with senior management and the Enterprise Risk Council, consisting of senior level staff from the legal, finance and other shared services departments.  Members of the Assurance and Risk Advisory Services Department interviewed key department and functional leaders in the Company to identify and evaluate potential risks and associated mitigating factors and strategies.  Any identified risks were prioritized based on the potential exposure to the Company, measured as a function of likelihood of occurrence and potential severity of impact if the risk were to materialize.  The process included evaluating management’s preparedness to respond to the risk if realized.  The risk profiles and current and future mitigating actions were discussed and refined during subsequent discussions with senior management.  A summary of the results of the risk assessment process and our risk mitigation activities was presented to the Audit Committee, which furnished a report to, and facilitated a discussion with, the full Board.

 

Audit Committee Expertise; Complaint-Handling Procedures

 

In addition to meeting the independence requirements of the NYSE and the SEC, all members of the Audit Committee have been determined by the Board to meet the financial literacy requirements of the NYSE’s listing standards.  The Board also has determined that at least one member of the Audit Committee, including Mary Ann O’Dwyer, the current Committee Chair, is an “audit committee financial expert” as defined by SEC regulations.

 

In accordance with federal law, the Audit Committee has adopted procedures governing the receipt, retention and handling of complaints regarding accounting and auditing matters.  These procedures include a means for employees to submit concerns on a confidential and anonymous basis, through Deluxe’s ethics and compliance hotline.

 

Compensation Committee Processes and Procedures

 

The authority and responsibilities of the Compensation Committee are governed by its charter, a copy of which can be found on Deluxe Corporation’s Investor Relations website at  www.deluxe.com/investor under the “Corporate Governance” caption, together with applicable laws, rules, regulations and NYSE listing standards.

 

The Compensation Committee is authorized to review and approve corporate goals and objectives related to the CEO’s compensation, lead the Board’s evaluation of the CEO’s performance in light of those goals and objectives, and recommend to the Board the CEO’s compensation based on the evaluation.  The Committee is expected to engage the entire Board in its evaluation of the CEO’s performance and appropriate level of compensation.

 

The Committee also reviews and approves each executive officer’s base pay and incentive compensation levels, stock ownership targets, employment-related agreements and any unique benefit plans or programs for executives.  As part of this responsibility, the Committee evaluates and makes recommendations to the Board regarding the Company’s compensation philosophy and structure, the design of incentive compensation plans in which executives participate and all equity plans.  It establishes incentive compensation goals and performance measurements for executives and determines the levels of achievement of each executive relative to the goals and measurements.  Subject to limits imposed by the plans, applicable law and the Board, the Committee also oversees administration of equity-based plans, deferred compensation plans, benefit plans, retirement and Employee Retirement Income Security Act (“ERISA”) excess plans, and also is responsible for determining the formula used to calculate contributions to the Company’s current profit sharing plan.  The Committee has delegated to management committees

 

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the responsibility to administer broad-based benefit plans and to oversee investment options and management of retirement and deferred compensation programs.

 

Although matters of director compensation ultimately are the responsibility of the full Board, the Compensation Committee works in conjunction with the Board’s Corporate Governance Committee and its independent compensation consultants in evaluating director compensation levels, making recommendations regarding the structure of director compensation, and developing a director pay philosophy that is aligned with the interests of the Company’s shareholders.

 

The Committee has the authority to engage compensation consultants to assist it in conducting the activities within its general scope of responsibility.  Since 2001, the Committee has retained Towers Watson & Co. (sometimes referred to as “Towers Watson”) as its independent consultant.  The Committee has the sole authority to retain, terminate and approve the fees of a compensation consultant for the purpose of assisting in the evaluation of director, CEO and executive compensation.  In 2012, the Committee assessed its relationship with Towers Watson and determined that no conflicts of interest existed and that Towers Watson remained independent of the Company.  Among other factors supporting Towers Watson’s independence, the only fees paid to Towers Watson in 2012 were for its services as independent consultant to the Committee.

 

Compensation Committee Interlocks and Insider Participation

 

The Compensation Committee is comprised entirely of independent directors.  No member of the Compensation Committee has been an officer or employee of Deluxe.  None of our executives serve as a member of the Compensation Committee of any other company that has an executive serving as a member of the Deluxe Board of Directors.  None of our executives serve as a member of the board of directors of any other company that has an executive serving as a member of the Compensation Committee.

 

Non-Employee Director Compensation

 

Directors who are employees of Deluxe do not receive compensation for their service on the Board other than their compensation as employees. Non-employee directors each receive a $50,000 annual Board retainer, payable quarterly.  For 2012, the Non-Executive Chairman received an additional $100,000 annual retainer, also payable quarterly.

 

In order to fairly compensate non-employee directors for their service on Board committees, the elements, workload and responsibilities of which will fluctuate from time to time, committee members are paid fees for each committee meeting attended, with the chair of each committee also receiving an annual retainer for serving as the chair.

 

For 2012, the committee fee structure was as follows:

 

 

 

Audit Committee
($)

 

Compensation
Committee
($)

 

Other Standing
Committees
($)

 

Chair Retainer

 

15,000

 

7,500

 

5,000

 

In-Person Meeting Attendance

 

2,000

 

1,500

 

1,500

 

Telephonic Meeting Attendance

 

1,000

 

750

 

750

 

 

Non-employee directors also receive $1,500 for each approved site visit and director education program attended, up to a maximum of five per year, in the aggregate.  Directors also may receive additional compensation for the performance of duties assigned by the Board or its committees that are considered beyond the scope of the ordinary responsibilities of directors or committee members.

 

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Deluxe maintains a Non-Employee Director Stock and Deferral Plan (the “Director Plan”), which was approved by shareholders as part of Deluxe’s 2012 Long-Term Incentive Plan (the “Long-Term Incentive Plan”).  The purpose of the Director Plan is to provide an opportunity for non-employee directors to increase their ownership of Deluxe’s common stock and thereby align their interest in the long-term success of Deluxe with that of other shareholders.  Under the Director Plan, each non-employee director may elect to receive, in lieu of cash retainers and fees, shares of Deluxe common stock having an equal value, based on the closing price of Deluxe’s stock on the NYSE as of the quarterly payment date.  The shares of common stock receivable pursuant to the Director Plan are issued as of the quarterly payment date or, at the option of the director, credited to the director in the form of deferred restricted stock units.  These restricted stock units are converted into shares of common stock and issued to the director on the earlier of the tenth anniversary of February 1st of the year following the year in which the non-employee director ceases to serve on the Board or such other objectively determinable date as is elected by the director in his or her deferral election (for example, upon termination of service as a director).  Each restricted stock unit entitles the holder to receive dividend equivalent payments equal to the dividend payment on one share of common stock.  Restricted stock units issued pursuant to the Director Plan also convert into shares of common stock and become immediately issuable in connection with certain defined changes of control of Deluxe. All shares of common stock issued pursuant to the Director Plan are issued under the Long-Term Incentive Plan.

 

Under the terms of the Long-Term Incentive Plan, non-employee directors also are eligible to receive other equity-based awards to further align their interests with shareholders and assist them in achieving and maintaining their established share ownership targets.  In 2012, non-employee directors were provided the opportunity to defer any equity grant awarded to them under terms similar to those described above for deferral of cash retainers and fees under the Director Plan.  The equity grant deferral opportunity has been made an on-going part of the Director Plan.  Any stock options granted to non-employee directors must have an exercise price equal to the fair market value of Deluxe’s common stock on the date of grant, and no more than 5,000 options may be granted to a non-employee director in any one year.  Non-employee directors did not receive any option grants in 2012, but each non-employee director re-elected to the Board at last year’s annual meeting received a grant of restricted stock on May 2, 2012, with an approximate grant date value of $100,000, which shares vest one year from the grant date.  Equity grants to directors are recommended by the Compensation Committee, in consultation with the Corporate Governance Committee, and are ratified by the full Board.

 

Mr. Nachtsheim, the only non-employee director who was elected to the Board prior to October 1997, also is eligible for certain retirement payments under the terms of a Board retirement plan that has since been replaced by the Director Plan.  Under this predecessor plan, he is entitled to receive an annual payment equal to the annual Board retainer in effect on July 1, 1997 ($30,000 per year) for the number of years during which he served on the Board prior to October 31, 1997.  No further benefits are accruing under this plan.  In calculating a director’s eligibility for benefits under this plan, partial years of service are rounded up to the nearest whole number. Retirement payments do not extend beyond the lifetime of the retiree and are contingent upon the retiree’s remaining available for consultation with management and refraining from engaging in any activity in competition with Deluxe.  Mr. Nachtsheim is eligible to receive payments of $30,000 for two years following his retirement from the Board under this predecessor plan.

 

The following table summarizes the 2012 compensation earned by each non-employee director.

 

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DIRECTOR COMPENSATION — 2012

 

Name

 

Fees Earned or
Paid in Cash(1)
($)

 

Stock
Awards(2)
($)

 

All Other
Compensation(3)
($)

 

Total
($)

 

Ronald C. Baldwin

 

69,083

 

100,008

 

3,944

 

173,035

 

Charles A. Haggerty

 

66,250

 

100,008

 

3,944

 

170,202

 

Cheryl E. Mayberry McKissack

 

71,500

 

100,008

 

3,944

 

175,452

 

Don J. McGrath

 

68,750

 

100,008

 

3,944

 

172,702

 

Neil J. Metviner

 

62,000

 

100,008

 

3,944

 

165,952

 

Stephen P. Nachtsheim

 

124,083

 

100,008

 

3,944

 

228,035

 

Mary Ann O’Dwyer

 

72,667

 

100,008

 

3,944

 

176,619

 

Martyn R. Redgrave

 

118,917

 

100,008

 

3,944

 

222,869

 

 


(1)         Under the Director Plan, directors may elect to receive their fees in the form of stock, including the right to defer such stock into restricted stock units.  Any stock or stock units issued under the Director Plan are equal in value to the cash fees foregone by the director. As a result, amounts reflected are the total fees earned by the directors, including amounts elected to be received in the form of stock or restricted stock units.

 

(2)         Amounts in this column reflect the aggregate grant date fair value of stock awards granted during the fiscal year ended December 31, 2012 computed in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718.  All directors received 4,272 shares of restricted stock or restricted stock units upon their re-election to the Board on May 2, 2012.  These shares or units will vest one year from the date of grant.  As of December 31, 2012, the aggregate number of unvested shares of restricted stock or restricted stock units for each director was 4,272, and the aggregate number of fully vested restricted stock units held by each director was as follows:  Mr. Haggerty, 16,873; Mr. McGrath, 19,205; Mr. Nachtsheim, 15,616; Ms. O’Dwyer, 20,596; Mr. Redgrave, 9,360.

 

(3)         Amounts reflect dividends paid in 2012 on unvested restricted stock and restricted stock unit annual  awards.

 

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EXECUTIVE COMPENSATION

 

ITEM 2: ADVISORY VOTE ON COMPENSATION OF NAMED EXECUTIVE OFFICERS (referred to as “Say-on-Pay”)

 

We believe that it is appropriate to seek the views of shareholders on the design and effectiveness of the Company’s executive compensation program, and therefore are providing shareholders with the opportunity to cast an advisory (non-binding) vote on the compensation of our Named Executive Officers as described below.

 

The Compensation Discussion and Analysis appearing below describes in greater detail the Company’s executive compensation program and decisions made by the Compensation Committee in 2012.

 

The Company believes the compensation program for the Named Executive Officers is instrumental in helping the Company achieve its strong financial performance and requests the vote of shareholders on the following resolution:

 

RESOLVED, that the shareholders approve, on an advisory basis, the compensation of Deluxe’s Named Executive Officers, as described in the Compensation Discussion and Analysis section, the compensation tables and the narrative disclosures that accompany the compensation tables set forth in this proxy statement.

 

As an advisory vote, the vote on Item 2 is not binding upon the Company.  However, the Compensation Committee, which is responsible for designing and administering the Company’s executive compensation program, values the opinions expressed by shareholders and will consider the outcome of this vote when making future compensation decisions for Named Executive Officers.

 

The Board of Directors recommends that you vote FOR the compensation of the Company’s Named Executive Officers.

 

Compensation Discussion and Analysis

 

Introduction

 

The following discussion should be read in conjunction with the various tables and accompanying narrative disclosure appearing in this proxy statement.  Those tables and narrative disclosure provide more detailed information regarding the compensation and benefits awarded to, earned by, or paid to our Chief Executive Officer (“CEO”) and the other executive officers named in the Summary Compensation Table appearing later in this proxy statement (collectively, the “Named Executive Officers”), as well as the plans in which those officers are eligible to participate.  At last year’s annual meeting, our shareholders provided an advisory “say-on-pay” vote indicating their overwhelming support of the Company’s compensation program for our Named Executive Officers.  Our shareholders also previously have supported the Board’s recommendation that such say-on-pay votes be held annually.  As a result, Item 2 presented in this proxy statement again seeks our shareholders’ input on Deluxe’s executive compensation program.  This Compensation Discussion and Analysis, the compensation tables and the narrative disclosures that accompany the tables provide information that will assist our shareholders in deciding how to vote on Item 2.

 

Executive Summary

 

The goal of our executive compensation program is to attract and retain the best available leadership talent, to reward our leaders for creating long-term value for our shareholders, and to support the ongoing transformation of our business.  Our compensation program is designed to reward sustained

 

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financial and operating performance and leadership excellence, align the executives’ long-term interests with those of our shareholders and motivate our executives to remain with the Company for long and productive careers.  We believe our program combines a competitive mix of cash and equity, and short-term and long-term, compensation to reinforce a balance between meeting annual goals and achieving long-term growth.

 

As explained in greater detail below, Deluxe maintains a strong pay-for-performance philosophy, as evidenced by the fact that a significant portion of each executive’s total compensation is linked to financial and other performance criteria intended to deliver sustainable business results and drive shareholder value.  While risk-taking is a necessary component in any successful business model, we employ a number of features in our compensation program that are designed to prevent inappropriate or short-sighted risk-taking, including Compensation Committee oversight of an annual evaluation of risk associated with our compensation programs.  We think the combination of compensation elements in the program provides the Named Executive Officers with the appropriate incentives to create long-term value for shareholders while taking thoughtful and prudent risks to deliver strong performance year after year.  In each of the last four years, including 2012, the Company has provided positive total shareholder return.  We continue to focus on providing favorable returns for our shareholders while we pursue our transformative growth strategies.

 

Throughout 2012, the Company maintained its financial discipline and strategic focus, which led the Company to not only deliver revenue growth for the third consecutive year, but also strong operating income and operating cash flow performance while investing in many areas to improve its opportunities for long-term growth. We did so, moreover, in what continued to be a very challenging economic environment.  Details regarding the Company’s performance in 2012 are contained in our Annual Report to Shareholders, which we encourage all shareholders to read.  Some highlights of that performance, and the value being created for our shareholders, include the following:

 

·                  Our total shareholder return was 46%;

 

·                  Our consolidated revenue increased 6.9%, and we grew our Small Business Services segment revenue 13.6%;

 

·                  Our marketing and other services related revenue, an area of focus for growth, increased nearly 28%;

 

·                  We delivered strong diluted earnings per share of $3.32;

 

·                  Our cash flow from operations increased 3.7%; and

 

·                  We attracted, developed and retained the leadership talent necessary to execute our strategy, and delivered exceptional performance against the strategic growth initiatives established under our annual incentive program.

 

We believe the structure of our executive compensation program was a critical factor in aligning the priorities of the Company’s leaders to deliver strong results in 2012, while at the same time providing a solid foundation for continued success. We hope our shareholders will agree and will express their support in voting FOR Item 2 in this proxy statement.

 

Compensation Objectives, Philosophy and Best Practices

 

Deluxe is committed to providing executive compensation that attracts, motivates and retains exceptional executive talent for the benefit of our shareholders, supports Deluxe’s business objectives, and aligns the interests of the executive officers, including our Named Executive Officers, with the long-term interests of our shareholders.  We believe these objectives are achieved by employing the following philosophy and best practices:

 

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·                  Focusing executives on consistently achieving both revenue and earnings growth;

 

·                  Annually evaluating the competitiveness of our compensation programs relative to comparable organizations;

 

·                  Providing performance-based pay through annual and long-term incentive opportunities that are based on the achievement of specific business objectives (i.e., pay-for-performance);

 

·                  Providing equity-based incentives that promote the creation of long-term shareholder value;

 

·                  Rewarding outstanding performance, without encouraging excessive risk-taking;

 

·                  Maintaining stock ownership requirements to ensure that our executive officers hold meaningful equity stakes in Deluxe, together with policies prohibiting transactions intended to hedge these ownership positions;

 

·                  Using double-trigger vesting of stock options upon a change in control;

 

·                  Voluntarily implementing clawback provisions with respect to executive officer incentive awards;

 

·                  Engaging an independent compensation consultant;

 

·                  Entering into noncompetition and non-solicitation agreements with certain key employees; and

 

·                  Providing limited perquisites and no tax gross-up on perquisites.

 

Roles of Committee, Outside Compensation Consultants and Management in Compensation Decisions

 

Our executive compensation program is designed to align all components of pay opportunity (base pay, annual incentive pay, long-term incentive pay, and benefits) at or near the median of the market, for each component and as a whole, and reward performance that meets or exceeds performance goals that are established, reviewed and approved each year by the Compensation Committee of the Board of Directors (sometimes referred to in this section as the “Committee”).  In arriving at the appropriate levels of pay and incentive opportunities, the Committee also considers the degree to which the structure of the program rewards reasonable risk-taking, and the overall cost of the compensation program so as to achieve proper balance between the need to reward employees and to deliver returns to Deluxe’s shareholders.  Accordingly, the Committee annually reviews the proportionate share of operating income used to reward employee performance through our incentive plans.

 

The Committee has responsibility for guiding our executive compensation philosophy and overseeing the design of executive compensation programs.  The Committee also recommends the compensation to be paid to the CEO (with approval from the full Board of Directors) and approves the compensation paid to other executive officers.  The Committee is composed entirely of “independent directors” as defined by NYSE corporate governance standards.  In order to ensure a holistic view of the compensation and benefits provided to our executives, the Committee reviews on an annual basis a summary (or tally sheet) of all elements of compensation for each member of the Company’s Executive Leadership Team.  The Committee also monitors, with the support of management and the Committee’s independent compensation consultants, developing best practices in the area of executive compensation, including recommended pay principles published by various trade, legal and advisory groups.  While the Committee remains focused on constructing an executive compensation program that will best serve the specific needs of Deluxe and the interests of our shareholders, we believe our program incorporates a responsible approach to pay structure, risk management and transparency.

 

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The Committee has engaged, and regularly meets with, an independent compensation consultant to assist the Committee in making decisions regarding our executive compensation practices.  Towers Watson has served as the Committee’s independent consultant since 2001.  This consultant is deemed independent in that it is selected by, and reports directly to, the Committee with its primary contact being the Chair of the Committee.  The Committee regularly meets with Towers Watson in executive session without management present and conducts an annual review of the consultant’s performance.  In addition, the Committee periodically evaluates the relationship with Towers Watson in order to identify and assess any potential conflicts of interest and Towers Watson’s continued independence.  No conflicts or independence issues were deemed to exist in 2012.  Among other factors supporting Tower Watson’s continued independence, the only services provided to the Company by Towers Watson in 2012 consisted of the consulting services provided to the Committee on executive and director compensation matters.

 

Management supports the work of the Committee and its independent consultant by providing information and data, as requested.  Company executives also make recommendations with respect to incentive plan targets in the context of management’s business and operational plans.  At the request of the Committee, the CEO attends each Committee meeting, meets with the Committee and independent consultant as necessary to discuss business strategy, and also meets with the Committee annually to discuss each executive’s individual performance and make recommendations on incentive awards and adjustments to base salary for those executives.  The Committee evaluates the CEO’s performance each year and provides recommendations to the Board regarding the CEO’s compensation based on that evaluation and current market data provided by the independent consultant.

 

Competitive Market Review and Peer Group

 

Consistent with its practice in prior years, for 2012, the Committee commissioned Towers Watson to provide a competitive market review of Deluxe’s executive compensation program in comparison to relevant information drawn from other companies’ executive compensation practices.  The data presented by Towers Watson was used for analyzing the following:  the nature, merit and recommended value of each pay component; the mix of base pay, annual incentive compensation, and long-term incentive values for the Named Executive Officers; and other benefit-related decisions.  Based on the recommendation of its compensation consultant, the Committee reviewed market data drawn from three published broad-based third-party surveys of general industry compensation practices, consisting of the 2012 Towers Watson Top Management Compensation Survey, 2012 Mercer Executive Compensation Survey, and 2012 Towers Watson Executive Compensation Survey.  Towers Watson screened the compensation databases for the position content most similar to each of Deluxe’s executive positions.  Given that Deluxe does not have access to the identity of individual survey respondents and that the reporting companies vary widely in size, Towers Watson did not benchmark Deluxe’s practices against specific companies’ practices within the survey pool, but instead used regression analysis to help statistically predict the level of compensation that a company of a given size in revenue would pay for a given position.  The Committee then used the information derived from the regression analysis as a general data point in assessing the reasonableness of the Company’s executive compensation practices.

 

In 2012, again with assistance from Towers Watson, the Compensation Committee adopted for use, beginning in 2013, a peer group of companies with which the Compensation Committee believes Deluxe competes in the market for executive talent.  This group of companies is referred to as the “Peer Group”.  In selecting companies for the Peer Group, the Compensation Committee considered various criteria, including, but not limited to, revenue size, market capitalization, industry relevance, business cycle and financial performance.  The current Peer Group is comprised of the following 19 companies:

 

ACCO Brands Corporation

 

Ennis Inc.

 

Paychex, Inc.

CBIZ, Inc.

 

Equifax Inc.

 

Schawk Inc.

Cenveo Inc.

 

Fiserv, Inc.

 

Total System Services, Inc.

Consolidated Graphics, Inc.

 

Insperity, Inc.

 

Vistaprint N.V.

DST Systems Inc.

 

Intuit Inc.

 

Web.com Group Inc.

Dun & Bradstreet Corp.

 

Iron Mountain Inc.

 

 

EarthLink Inc.

 

Jack Henry & Associates Inc.

 

 

 

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Although formal use of the Peer Group as a benchmark in making decisions will begin in 2013, using the Peer Group data as a general reference in 2012, the Compensation Committee has determined that the Company’s current executive compensation program is in line with that of the Peer Group.

 

Executive Officer Compensation Program

 

In constructing an overall compensation program, the Committee balances those components that are fixed (such as salary and benefits) against components that are variable and require the achievement of certain levels of performance.  The Committee also strives for a balance between compensation components that reward executives for the achievement of short-term goals with those that focus on the long-term growth of the Company.  Each year the Committee reviews the form and value of long-term incentive grants to ensure alignment with the Company’s overall compensation philosophy and to reward attainment of Company goals.

 

Elements of Compensation

 

For 2012, the principal components of our executive compensation program consisted of the following, each of which is addressed below in greater detail:

 

·                  base salary;

 

·                  annual incentive plan;

 

·                  long-term incentives in the form of stock options and a multi-year cash performance plan;

 

·                  non-qualified deferred compensation plan;

 

·                  broad-based defined contribution retirement plan; and

 

·                  cash allowance program in lieu of perquisites.

 

Compensation Mix

 

The primary components of compensation (base salary and performance-based pay opportunities in the form of annual and long-term incentives) for our Named Executive Officers in 2012 were allocated, at targeted levels of performance, to provide a higher weighting on performance-based pay compared to base salary.  Performance-based pay is not guaranteed, but is awarded based upon successful achievement of pre-established criteria.  The average target percentage of performance-based pay for the Named Executive Officers is 63 percent of total compensation, with a higher level, 72 percent, for the CEO.  Of the total performance-based compensation for the Named Executive Officers, approximately 60 percent is targeted to be long-term compensation as opposed to annual compensation.  Compared to Deluxe’s general employee population, the Committee believes that executives, including the Named Executive Officers, should have a greater percentage of their total compensation dependent upon reaching performance targets, a higher percentage of which is oriented toward long-term objectives rather than short-term performance.

 

The Company uses pay-for-performance principles throughout its compensation program.  Adjustments in base pay are linked to performance through the annual performance evaluation process, with salary increase guidelines structured to provide greater base pay increases for those who achieve higher than a successful performance rating and lower increases, if any, for those who perform at a successful level or below.  The Deluxe Corporation Annual Incentive Plan (“Annual Incentive Plan”) and long-term Cash Performance Plan (as defined below) are similarly structured to provide an opportunity to earn a higher payout for performance above target and lower payouts, if any, for performance at less than target.  The use of stock options as a component of the 2012 long-term incentive program also aligns our pay principles to long-term changes in shareholder value.  In addition, our Named Executive Officers are

 

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subject to stock ownership and sale guidelines, which restrict their ability to realize value from their equity awards unless they have achieved their ownership targets.

 

While the design of our executive compensation program is largely performance-based, we do not believe it encourages excessive risk-taking.  We believe the combination of compensation elements in the program provides the Named Executive Officers with the appropriate incentives to create long-term value for shareholders by taking thoughtful and prudent actions to grow the Company.  As in 2010 and 2011, the 2012 financial metrics used in the Annual Incentive Plan were operating income and revenue, with any payment under the revenue metric being subject to the achievement of a minimum operating income threshold.  Payments under the long-term Cash Performance Plan are tied to achievement of a minimum revenue requirement. Each year the Board of Directors reviews the operating plan that forms the basis for the financial performance factors incorporated into the variable compensation plans.  This review by the entire Board helps ensure that the targets established under our incentive compensation plans incorporate a reasonable degree of stretch, while at the same time promoting a focus on long-term growth and sustainable financial performance.  As addressed below, our executives also are subject to stock ownership guidelines and clawback policies, both of which serve as further checks against imprudent, short-term decision-making.

 

Base Salaries

 

Base salaries provide a competitive fixed rate of pay, recognizing different levels of responsibility within the Company.  Base pay compensates the Named Executive Officers for their normal day-to-day responsibilities, and is reviewed annually.  The CEO makes recommendations to the Compensation Committee for changes to other executives’ base salaries based on each executive’s individual performance and the market data presented by the Committee’s independent compensation consultants.  The Committee performs the same analysis with respect to the CEO’s salary with input from all of the Board’s non-employee directors based on an annual evaluation of the CEO’s performance by the Board’s non-employee directors.

 

Base salaries of our executive officers generally are set at or near the median of salaries paid to executive officers of companies of similar size and in similar positions using the data gathered from the compensation surveys referenced above.  Deviations from the median can be the result of experience in the position, individual performance exceeding or falling short of expectations, or the individual’s scope of responsibilities.  Base salaries are the basis for the other performance-driven programs discussed below, as well as our retirement program, in that target awards and contributions under these programs are calculated as a percentage of base salary.

 

Base salaries in 2012 for each Named Executive Officer are shown in the Summary Compensation Table.  All of the Named Executive Officers received an increase in their annual base salary rate from 2011, except for Mr. Schram.  Increases in base salaries included merit adjustments, a market adjustment for Mr. Peterson to align his pay to the market for Chief Financial Officer positions in companies of similar size and industry, and a base salary adjustment to address internal pay equity for Mr. McRoberts based on the scope of his responsibilities relative to similarly situated executives.

 

Annual Incentive Plan

 

The Annual Incentive Plan provides an incentive for achieving specified financial performance goals that the Company considers to be important contributors to shareholder value.  Named Executive Officers and other officers and management employees selected by the Committee participate in the Annual Incentive Plan.  The 2012 target awards approved by the Committee under the Annual Incentive Plan (summarized in the table below) were intended to provide annual cash compensation (i.e., base salary plus bonus) approximating the median of the cash compensation offered to executive officers of companies of similar size and in similar positions using the data gathered from compensation surveys.  Bonuses earned may exceed the target amount if performance goals are exceeded, and are less than the target amount if the performance goals are not fully attained, with no bonus payouts if Deluxe’s performance is below

 

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certain minimum thresholds.  The Committee annually reviews the proportionate share of operating income used to reward employee performance through our incentive plans.

 

Executive

 

Target Award
(% of Salary)

 

Lee Schram

 

110

%

Terry Peterson

 

60

%

Anthony Scarfone

 

60

%

John Filby

 

50

%

Malcolm McRoberts

 

50

%

 

The 2012 Annual Incentive Plan consisted of three components.  The first two components were based on the Company’s performance against specific revenue and operating income metrics.  The third component consisted of a group of factors (“enterprise factors”) developed to assess the Company’s progress in transforming Deluxe consistent with its strategic growth initiatives.  Plan participants with specific business segment responsibilities had a portion of their bonus opportunity tied to the segment’s financial results as well as consolidated results.

 

Section 162(m) of the Internal Revenue Code (“Section 162(m)”) places limits on the deductibility of compensation paid to certain executives that is not considered performance-based.  In order to ensure that all payments to our executives under the Annual Incentive Plan qualify as performance-based compensation for purposes of Section 162(m), a bonus pool based on the amount of net income (if any) generated by Deluxe during 2012 was established by the Committee at the beginning of the year, along with the maximum payments that could be allocated to each executive subject to Section 162(m).  Payments made to these executives were based on the performance criteria applicable to other participants under the Plan, and all such payments were less than the maximum amounts allocated to the executives under the Section 162(m) bonus pool.

 

In addition, in order to promote stock ownership by the Named Executive Officers and other participants, and to further align their interests with those of our shareholders, participants may choose to receive up to 100 percent of their Annual Incentive Plan payout in restricted stock units, in which case the Company will provide a 50 percent match on the amounts elected to be received in restricted stock units.  The restricted stock units vest on the second anniversary of the date of the grant.  We believe the 50 percent match and two-year vesting period encourage employee stock ownership and employee retention.

 

Performance Measures and Objectives under the Annual Incentive Plan

 

For the Named Executive Officers and all other participants, the three components that were considered in determining incentive compensation for 2012 under the Annual Incentive Plan were adjusted revenue, adjusted operating income and the enterprise factors.  “Adjusted revenue” and “adjusted operating income” are based on revenue and operating income as publicly reported by the Company in its consolidated financial statements, but include pre-defined adjustments (as permitted by Section 162(m)) to eliminate the effects of items that are not a part of the operating plan or are beyond management’s control, such as the adoption of new accounting principles, asset impairments, certain mergers and acquisitions, restructuring charges, etc.  The enterprise factors used in 2012 were intended to serve as leading indicators of the Company’s success in executing its growth strategy and to supplement the financial performance metrics.  The enterprise factors included a collection of key initiatives and performance indicators intended to assess how well the Company performed in the following areas:

 

·                  Continuing to improve the strategy;

 

·                  Continuing to improve talent management effectiveness;

 

·                  Improving key customer metrics; and

 

·                  Strengthening business processes in support of revenue growth transformation.

 

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As indicated above, the Committee also retains discretion to make other adjustments to the financial measurement calculations, provided such adjustments do not result in the payment to any Named Executive Officer in excess of their applicable Section 162(m) bonus pool allocation.  We continue to believe revenue, operating income and the enterprise factors are critical drivers of our strategy to achieve profitable and sustainable revenue growth, and thereby create long-term value for our shareholders.  Each component was weighted as shown below, with revenue and operating income target performance set in alignment with the Company’s annual operating plan (“AOP”) targets.

 

In establishing the metrics and payout scales for 2012 under the Annual Incentive Plan, targets were set at ambitious, yet reasonably achievable levels. We also continued to require that a minimum threshold of adjusted operating income be achieved before payments could be made under the adjusted revenue and operating income performance factors.  We believe this minimum threshold serves as an effective control on imprudent decision-making, in that it ensures that the revenue growth achieved by the Company is profitable.  Given the challenges presented by the economy in general, as well as the specific challenges confronted by small businesses and the continuing secular decline in the core check industry, the Company sought to balance its focus on growth with the need to establish financial performance targets for the year that would afford realistically-achievable incentive opportunities for its employees, while at the same time requiring solid returns to its shareholders.

 

The target revenue and operating income for the Company were increased for the 2012 plan year to continue to incent growth in 2012.  The following table illustrates the 2012 threshold and maximum performance levels compared to targets for the adjusted revenue and operating income factors, as well as the corresponding payout percentages (versus the target award opportunity) at each level of performance.

 

Performance Level

 

Adjusted Operating
Income

 

Adjusted Revenue

 

Percent of
Target Award (%)

 

Maximum

 

108.0% of AOP

 

104.0% of AOP

 

200

%

Target

 

AOP

 

AOP

 

100

%

Threshold

 

93.0% of AOP

 

94.7% of AOP

 

50

%

Below Threshold

 

 

 

0

%

 

Actual Annual Incentive Plan Payments

 

Deluxe’s consolidated performance in 2012 exceeded the threshold performance levels for both adjusted operating income and revenue.  As indicated above, for 2012, the Committee also established enterprise factors as a component of performance to be measured in assessing payments to be made under the Annual Incentive Plan.  These factors consist of a group of quantitative and qualitative indicators intended to assess the Company’s progress on various strategic initiatives.  After assessing the Company’s performance in the aggregate on the various metrics established for the enterprise factors, the Committee determined that participants should be awarded a payout of 150 percent of target for that component.  The actual 2012 performance on all three components is summarized in the following table.

 

Measures
(Dollars in Thousands)

 

Target
($)

 

Actual
($)

 

Weighting
(%)

 

Payout Percent
(% of target)

 

Adjusted Operating Income

 

$

308,600

 

$

316,600

 

35

%

132.6

%

Adjusted Revenue

 

$

1,500,000

 

$

1,515,700

 

45

%

126.1

%

Enterprise Factors

 

 

 

20

%

150.0

%

Blended Payout Percentage

 

 

 

 

133.1

%

 

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As indicated above, executive officers with specific business segment responsibilities also have a portion of their Annual Incentive Plan opportunity tied to the performance of their segment’s adjusted revenue and operating income.  Of the Named Executive Officers, Messrs. Filby and McRoberts had a portion of their Annual Incentive Plan opportunity tied to business segment performance.  Business segment performance is evaluated on the basis of adjusted segment revenue and adjusted segment controllable operating income, which is adjusted segment operating income after removing allocations of corporate overhead costs.  The Financial Services segment, for which Mr. Filby is responsible, delivered adjusted revenue at 100.9 percent of the targeted level of $343,084,000 and adjusted controllable operating income at 105.4 percent of the targeted level of $132,483,000.  The associated payout percentages at these levels of performance were 121.5 percent and 200.0 percent, respectively.  With 30 percent of his incentive opportunity based on segment revenue results, 20 percent based on adjusted controllable operating income results for the segment, and 50 percent based on the consolidated performance, Mr. Filby’s blended payout percentage for 2012 was 142.9 percent.  The Small Business segment, for which Mr. McRoberts is responsible, delivered adjusted revenue at 101.2 percent of the targeted level of $940,452,000 and adjusted controllable operating income at 99.8 percent of the targeted level of $282,692,000.  The associated payout percentages at these levels of performance were 128.8 percent and 98.8 percent, respectively.  With 30 percent of his incentive opportunity based on segment revenue results, 20 percent based on adjusted controllable operating income results for the segment, and 50 percent based on the consolidated performance, Mr. McRoberts’ blended payout percentage for 2012 was 124.9 percent. The amounts earned by all Named Executive Officers under the Annual Incentive Plan for 2012 are included in the Summary Compensation Table appearing later in this proxy statement.

 

Long-Term Incentive Compensation

 

Long-Term incentive compensation for our executive officers generally is set at or near the median of long-term compensation paid to executive officers of companies of similar size and in similar positions using the data gathered from compensation surveys.  After analyzing a variety of approaches for delivering long-term incentive value to the Named Executive Officers and other key employees who participate in the Company’s long-term incentive program, for 2012, the Committee continued to endorse a strategy that employed a combination of stock options and a cash incentive program based on achievement of multi-year performance factors (“Cash Performance Plan”).  The aggregate targeted value of awards granted to participants in the long-term incentive program for 2012 was allocated 50 percent to stock options and 50 percent to Cash Performance Plan awards.

 

The stock options granted to the Named Executive Officers and other designated key employees in 2012 have a three-year vesting period.  The grant date for the options coincided with the regularly scheduled February Compensation Committee meeting with the exception of Mr. Filby’s grants, which were made at the time he commenced his employment with the Company in April 2012. The timing of the annual grants also aligns with the employee performance evaluation process and is outside any regular stock trading blackout period.  In calculating the number of stock options required to deliver the targeted award value, the Committee uses a Black-Scholes valuation methodology based on the average price of the Company’s stock over a 50-day trading period preceding the share calculation date.  The Committee believes this methodology helps control for volatility in the stock market that might otherwise cause material variations between the targeted award value and calculations based on a single-day stock price methodology.  The exercise price for all option grants, however, is the closing price of Deluxe common stock on the NYSE on the applicable grant date, meaning that no actual value will be realized by option recipients unless there is stock price appreciation following the grant date.

 

The Cash Performance Plan awards provided to the Named Executive Officers and other designated key employees in 2012 incorporated performance targets based on success in achieving Deluxe’s Marketing Solutions and Other Services (“MSOS”) Revenue goals for 2014.  MSOS is a category of products and services that are considered to be high growth and, therefore, important indicators of the Company’s ability to achieve its long-term growth initiatives.  To reach its goals, Deluxe must make significant progress in each year of the three-year performance period.  The payout amount can vary from 0 percent to 200 percent of the target Cash Performance Plan award value depending upon the performance level achieved by the end of 2014, after exceeding a minimum MSOS Revenue threshold.  As

 

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is the case with our Annual Incentive Plan, the 2012 Cash Performance Plan awards were structured so as to ensure that any payouts ultimately made to executives under the applicable award agreements will qualify as performance-based compensation for purposes of Section 162(m).

 

For 2013, the structure of the long-term incentive program remains substantially the same, with the targeted value of awards being allocated 50 percent to stock options and 50 percent to Cash Performance Plan awards, except that the Cash Performance Plan will use as metrics (1) MSOS Revenue, combined with Adjusted Operating Margin, and (2) a new criterion based on Total Shareholder Return (“TSR”) versus the Peer Group.  Each of these two metrics will be weighted 50 percent, and will be measured over a three-year period ending in 2015.  The use of TSR is a growing practice among the Peer Group and we believe it is an effective way to align executive performance with the interests of our shareholders.

 

The Company believes our long-term incentive plan design achieves several critical objectives and best practices, including:

 

·                  Supporting and rewarding the achievement of Deluxe’s long-term business strategy and objectives;

 

·                  Encouraging decisions and behavior that will increase shareholder value;

 

·                  Reinforcing the pay-for-performance orientation of the overall executive compensation program;

 

·                  Allowing Deluxe to attract and retain key executive talent by providing competitive incentive and total compensation opportunities; and

 

·                  Promoting share ownership and facilitating achievement of the ownership guidelines.

 

All long-term incentive awards to the Named Executive Officers and other key employees are granted on the same date, with the exception of awards made in conjunction with an individual’s promotion or hire into the Company, or as necessary to facilitate broader retention of key employees.

 

Cash Performance Plan for Period Ending 2012

 

The Company’s 2010 Cash Performance Plan (the “2010 CPP”) had a three-year performance period that expired at the end of 2012. The 2010 CPP focused attention on growth of Services Revenue, defined as revenue from the sale of services including, but not limited to, fraud monitoring and protection, web design and hosting, payroll, logo design, business networking, rewards checking, customer loyalty and retention services, but excluding revenue from sales of tangible goods including, but not limited to checks, other printed products, accessories, promotional products and packaging supplies.  The metrics for the 2010 CPP specified threshold, target and maximum ranges of Services Revenue at given ranges of operating margin.  Even though the Company accelerated Services Revenue growth in each successive year during the 2010 CPP three-year performance period, the Company did not achieve the minimum threshold performance criterion of $210 million in Services Revenue, and as a result, no payment was made under the 2010 CPP.

 

Deferred Compensation Plan

 

The Deluxe Corporation Deferred Compensation Plan is intended to promote executive retention by providing a long-term savings opportunity on a tax-efficient basis.  Under this plan, which complies with the requirements of Section 409A of the Internal Revenue Code (“Section 409A”), Named Executive Officers and other key employees may choose to defer up to 100 percent of base salary (less applicable deductions) and up to 50 percent of any Annual Incentive Plan payout into multiple investment options.  This plan also contains a provision that restores benefits lost under the defined contribution pension plan and the annual profit sharing plan due to Internal Revenue Code limits.  Contributions for the Named Executive Officers under this provision for 2012 are reflected in the All Other Compensation column of the Summary Compensation Table.  The investment options are similar to the investment options available to employees in the Company’s broad-based retirement plans.  The majority of payouts from this plan

 

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commence following termination of employment, based on elections made by the participants in accordance with, and subject to, any delays in payment that otherwise might be required by Section 409A.

 

Retirement Program

 

The Named Executive Officers are eligible to participate in the same qualified broad-based retirement plans that are available to most employees. The program consists of two components, a 401(k) plan and an annual profit sharing plan (under which contributions, if any, are based on Deluxe’s performance).  Prior to 2011, Deluxe also had a defined contribution pension plan, but contributions to this plan were suspended in 2011.  The retirement program at Deluxe is regularly compared with retirement programs of companies that are in businesses similar to ours and/or are located in geographic areas from which we recruit talent to ensure that the Company remains competitive in the market.  The incremental value of benefits provided to the Named Executive Officers under this program is included in the All Other Compensation column of the Summary Compensation Table.

 

Personal Choice Program

 

All of our Named Executive Officers, with the exception of our CEO, Mr. Schram, participated in the executive officer Personal Choice Program.  The Personal Choice Program provides a fixed cash allowance to participating Named Executive Officers in lieu of any other perquisites.  The quarterly cash allowance of $7,500 for Senior Vice Presidents and $5,000 for Vice Presidents on the Executive Leadership Team is intended to cover personal expenses typically incurred by executives as a result of their positions (such as financial and tax planning, vehicle mileage, etc.).  No gross-ups are provided on the amounts paid under this program.  As with the other compensation components, this program is assessed against market data regarding perquisite programs on an annual basis.  The Company chose this program structure because it is more flexible for the executives, less administratively burdensome and less costly to the Company.

 

Stock Ownership Guidelines; Pledging and Hedging Policies

 

Deluxe has established stock ownership guidelines for its executive officers and directors.  The Committee annually reviews each executive officer’s and director’s progress toward attaining his or her ownership target.  The current target for the CEO is five times (5x) annual base salary, for all Senior Vice Presidents is two times (2x) annual base salary and for Vice Presidents who are members of the Executive Leadership Team is one-and-one-half times (1 ½ x) annual base salary.  The guidelines call for the targeted level of ownership to be achieved within five years of the date the individual becomes subject to the target.  For purposes of calculating an executive’s stock ownership under these guidelines, stock options are not included.  While restricted stock and restricted stock units convertible into shares are included, only 60 percent of their value is counted toward the ownership target prior to vesting, based on the rationale that approximately 40 percent of such shares or units will be withheld or surrendered by the executive upon vesting to cover taxes.  In the past twelve months executives have continued to increase their actual share ownership, and the Committee continues to review each individual’s ownership on an annual basis.  Each Named Executive Officer has achieved his ownership target, or is so newly subject to the ownership guidelines that the Committee has no reason to believe that the target will not be reached by the individual’s deadline.

 

In addition to the stock ownership guidelines, the executive officers and directors are subject to share retention and holding period requirements.  Under this policy, individuals who have not achieved their ownership targets must retain 75 percent of the net shares (i.e., shares remaining after exercise costs and applicable taxes are covered) upon the exercise of stock options and vesting of other equity awards, and are required to hold the shares until the ownership targets are met.  The Company also maintains policies discouraging the pledging of company stock as collateral and generally prohibiting transactions by directors and executive officers intended to hedge the economic risk of ownership in Deluxe stock.  Under these policies, pledges of company stock by directors and executive officers must be approved by Deluxe’s General Counsel, and any hedging transactions must be pre-approved by the Board’s Corporate Governance Committee.  To date, no pledging or hedging transactions by a director or executive officer have been approved, nor is any such approval currently contemplated.

 

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Clawback Practices

 

For many years, Deluxe has maintained clawback provisions in its equity agreements, which can be triggered for a broad range of misconduct by the award recipient.  In 2009, the Company extended its clawback policy to cover the recoupment of annual bonuses and other incentive awards, including awards under the Annual Incentive Plan and Cash Performance Plan, granted to officers subject to Section 16 of the Exchange Act.  This extended policy took effect with awards granted in 2010, and covers situations where misconduct by the executive contributes to a restatement of the Company’s financial statements.  While the Company had adopted and broadened its clawback policy prior to the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (referred to as the “Dodd-Frank Act”), the policy will be amended consistent with any forthcoming regulations under the Dodd-Frank Act after they are published.

 

Severance, Retention and Change of Control Arrangements

 

Deluxe maintains severance arrangements or agreements with each of its Named Executive Officers (collectively “arrangements”).  The arrangements are intended to facilitate the executives’ attention to the affairs of Deluxe and to recognize their key role within the Company.  If their employment is terminated without “cause” by Deluxe or by the executive with “good reason,” he or she is eligible to receive severance pay and benefits.  The Severance Calculations table appearing later in this proxy statement, together with the accompanying narrative to that table, explains in detail the benefits provided under these arrangements and the circumstances under which such a Named Executive Officer would be eligible for severance benefits.  Receipt of these benefits is conditioned upon the Named Executive Officer entering into a release and agreeing to maintain the confidentiality of Company confidential information for a period of two years after their termination.  Mr. Schram’s employment agreement also requires that for two years after he ceases to be employed by Deluxe, he will not engage in any business that competes with Deluxe, will not hire any Deluxe employee or induce an employee to provide confidential information to a third party, and will not induce any customer or supplier to stop doing business with the Company.  Mr. Filby and Mr. McRoberts also are subject to agreements that contain similar restrictions for a one-year period after they cease to be employed by Deluxe.

 

The Company also maintains retention agreements (“Retention Agreements”) with those current executives who became executive officers prior to 2010.  The Retention Agreements are addressed in greater detail in the narrative accompanying the Change of Control Calculations table appearing later in this proxy statement.  Generally speaking, however, these Retention Agreements provide incentives for the executive officer to remain with Deluxe through a change of control, and provide certain benefits in the event the executive officer’s employment is negatively impacted as a result of, or following, a change of control.  In other words, benefits are not paid out automatically upon a change of control, but only if such executive officer’s employment is negatively affected (i.e., a double trigger).  Moreover, the severance arrangements described above do not apply if the executive officer’s employment is terminated following a change of control under circumstances that would entitle them to receive benefits under the Retention Agreements.  The Retention Agreements comply with Section 409A, have a renewable term of two years, place a limit on tax gross-up payments, and provide a payment multiple of three times salary and bonus for the CEO, two times for Senior Vice Presidents, and one time for Vice Presidents on the Executive Leadership Team.  No new Retention Agreements were entered into by the Company during 2012, nor were any pre-existing Retention Agreements amended during the year.

 

Advisory Vote on Say-on-Pay

 

At the 2012 annual meeting of shareholders, the results of our shareholders’ advisory vote on the compensation of our Named Executive Officers (“say-on-pay”) were as follows:

 

·                  35,490,859 shares “For” (or 95.27% of the shares voted);

 

·      1,529,157 shares “Against” (or 4.11% of the shares voted); and

 

·      231,104 shares “Abstain” (or 0.62% of the shares voted).

 

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The Compensation Committee considered the results of the say-on-pay advisory vote.  Given that these results reflected strong support for our Named Executive Officers’ compensation, the Committee did not make any changes to executive compensation policies and decisions directly as a result of the 2012 say-on-pay advisory vote.  Nevertheless, we continue to monitor best practices with respect to the design of executive compensation programs, assess our compensation programs in light of our strategic initiatives for delivering shareholder value, regularly assess risk inherent in our compensation programs, and solicit views of analysts and investors in the course of our regular interactions with them.

 

As a result of an advisory vote of shareholders in 2011 strongly supporting a say-on-pay vote every year, shareholders are again asked to provide an advisory vote on the compensation of our Named Executive Officers as Item 2 appearing earlier in this proxy statement.

 

Compliance with Section 162(m) of the Internal Revenue Code

 

Section 162(m) limits the deductibility of compensation in excess of $1 million paid to certain executive officers, unless such compensation qualifies as “performance-based compensation.”  Among other things, in order to be deemed performance-based compensation for Section 162(m) purposes, the compensation must be based on the achievement of pre-established, objective performance criteria and must be pursuant to a plan that has been approved by Deluxe’s shareholders. The 2009 Cash Performance Plan (“2009 CPP”) incorporated a minimum retention payment feature in the event the threshold performance levels could not be achieved.  Although the Company achieved its threshold performance objectives under the 2009 CPP, the retention feature prevented the Company from treating payouts under the 2009 CPP (which are reported for 2011 in the Summary Compensation Table found later in this proxy statement, but were paid in 2012) as performance-based compensation under Section 162(m).  With the exception of a portion of compensation paid to Mr. Schram, we expect that all compensation paid in 2012 to the executive officers under the plans and programs described above will qualify for deductibility, either because the compensation is below the threshold for non-deductibility provided in Section 162(m) or because the payment of such compensation complies with the performance-based compensation provisions of Section 162(m).

 

The Company believes that it is important to continue to be able to take all available tax deductions with respect to the compensation paid to its executive officers, and has taken such actions as may be necessary to continue to qualify significant portions of executive compensation as performance-based under Section 162(m).

 

Compensation Committee Report

 

The Compensation Committee has reviewed and discussed with management the foregoing Compensation Discussion and Analysis.  Based on our review and discussion with management, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and be incorporated by reference into Deluxe Corporation’s Annual Report on Form 10-K for the year ended December 31, 2012.

 

 

MEMBERS OF THE COMPENSATION COMMITTEE

 

 

 

Don J. McGrath, Chair

 

Charles A. Haggerty

 

Neil J. Metviner

 

Mary Ann O’Dwyer

 

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Executive Compensation Tables

 

The Summary Compensation Table, 2012 All Other Compensation Supplemental Table, and Grants of Plan-Based Awards in 2012 table presented on the following pages summarize the total compensation paid to or earned by our Named Executive Officers, which include (i) each of the individuals who served as Deluxe’s Chief Executive Officer or Chief Financial Officer during any part of 2012, and (ii) the next three most highly compensated individuals serving as executive officers at the end of the year.  The following narrative is provided to help you understand the information presented in those tables.

 

The base salaries of Named Executive Officers were generally set at or near the median for executive officers of the S&P Mid-Cap 400 companies in similar positions.  Where comparable salary data could not be derived from proxy information filed by S&P Mid-Cap 400 companies, reference was made to data derived from broad-based compensation surveys, appropriately adjusted through the use of regression analysis (“regression data”).  The Named Executive Officers participate in the Company’s Annual Incentive Plan, under which bonuses can be earned based on pre-established performance criteria.  For 2012, these criteria included adjusted revenue, adjusted operating income and enterprise factors, a pre-defined set of initiatives developed to support the Company’s growth strategy.  As discussed in the Compensation Discussion and Analysis section of this proxy statement, the Compensation Committee determined that the Company exceeded the threshold levels of performance established for the various criteria, and therefore approved Annual Incentive Plan payments for 2012.

 

All of the Named Executive Officers participate in a long-term incentive program (“LTIP”), pursuant to which they were awarded stock options and cash performance plan awards that provide for future pay-outs based upon longer term financial metrics.  The aggregate target value of LTIP awards approximates the median of long-term incentive compensation provided to executive officers in the S&P Mid-Cap 400 group of companies or regression data.  With the exception of Mr. Filby, whose awards were granted when he joined the Company, LTIP awards to Named Executive Officers were granted on the same day as awards to all eligible employees.  The exercise price of options is the closing price of Deluxe’s stock on the grant date.  The options vest annually in three equal installments beginning on the first anniversary of the grant date.

 

The Cash Performance Plan (“CPP”) for 2012 employs a three-year performance period, measures the level of marketing solutions and other services revenue achieved by the end of 2014 and requires a threshold measure of revenue before any amount can be earned.   Payouts under the CPP occur after the completion of the relevant performance period (assuming performance goals are achieved), at which time the payouts would be reflected in the Summary Compensation Table.  Awards made under the 2010 CPP were based on a three-year performance period expiring at the end of 2012. The 2010 CPP measured Services Revenue at ranges of Operating Margin on that revenue.  The Committee concluded that the Company did not meet the minimum threshold for performance for the 2010 CPP and, as a result, no payments were made under that plan.

 

The Named Executive Officers, other than the CEO, also participate in a program that provides a quarterly cash allowance for personal expenses typically incurred by executives, as discussed in the Compensation Discussion and Analysis section of this proxy statement.

 

Year-Over-Year Comparisons

 

The CPP was first introduced in 2009, as a replacement for restricted stock.  Under SEC reporting rules, the value of our pre-2009 restricted stock grants was reported in the year of grant, whereas CPP payouts are not reported until after completion of the associated performance period and satisfaction of all other conditions attached to the award.  Given that 2011 was the first year in which payouts under the CPP were included in the Summary Compensation Table (as Non-Equity Incentive Plan Compensation), and that pre-2009 restricted grants were reported prior to 2009, the transition from restricted stock to the CPP in 2009 results in a gap in the way long-term incentive value is reported in the Summary Compensation Table, in that no value attributable to pre-2009 restricted stock grants or the CPP is reflected during 2010.  As a

 

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result, the 2010 to 2011 increase in Non-Equity Incentive Plan Compensation reported in the Summary Compensation Table does not reflect an overall increase in targeted incentive compensation levels, but is due to 2011 being the first year in which CPP payouts appear in the Summary Compensation Table.

 

SUMMARY COMPENSATION TABLE

 

Name and Principal
Position

 

Year

 

Salary
($)

 

Bonus(1)
($)

 

Stock
Awards(2)
($)

 

Option
Awards(3)

($)

 

Non-Equity
Incentive Plan
Compensation(4)
($)

 

All Other
Compensation(5)
($)

 

Total
($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lee J. Schram
Chief Executive Officer

 

2012

 

 

809,000

 

 

0

 

 

0

 

 

974,140

 

 

1,184,946

 

 

33,733

 

 

3,001,819

 

 

2011

 

 

805,000

 

 

0

 

 

0

 

 

1,018,960

 

 

1,468,283

 

 

19,845

 

 

3,312,088

 

 

2010

 

 

785,000

 

 

0

 

 

0

 

 

918,182

 

 

803,114

 

 

81,915

 

 

2,588,211

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Terry D. Peterson

Senior Vice President & Chief Financial Officer

 

2012

 

 

400,833

 

 

0

 

 

288,180

 

 

307,865

 

 

128,103

 

 

60,965

 

 

1,185,946

 

 

2011

 

 

364,167

 

 

0

 

 

182,559

 

 

322,420

 

 

153,251

 

 

54,280

 

 

1,076,677

 

 

2010

 

 

335,000

 

 

0

 

 

185,054

 

 

275,041

 

 

82,276

 

 

63,794

 

 

941,165

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

John D. Filby(6)

Senior Vice President, Financial Services

 

2012

 

 

308,409

 

 

200,000

 

 

229,981

 

 

239,704

 

 

128,889

 

 

122,378

 

 

1,229,361

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Malcolm J. McRoberts(7)

Senior Vice President, Small Business Services

 

2012

 

 

387,500

 

 

0

 

 

108,920

 

 

259,158

 

 

169,464

 

 

45,338

 

 

970,380

 

 

2011

 

 

316,667

 

 

0

 

 

0

 

 

163,128

 

 

233,289

 

 

39,530

 

 

752,614

 

 

2010

 

 

256,250

 

 

0

 

 

0

 

 

106,846

 

 

131,081

 

 

99,841

 

 

594,018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Anthony C. Scarfone Senior

Vice President, General Counsel & Secretary

 

2012

 

 

353,833

 

 

0

 

 

63,593

 

 

243,535

 

 

240,291

 

 

44,765

 

 

946,017

 

 

2011

 

 

345,833

 

 

0

 

 

0

 

 

254,740

 

 

360,858

 

 

53,125

 

 

1,014,556

 

 

2010

 

 

335,000

 

 

0

 

 

549,990

 

 

213,691

 

 

205,638

 

 

81,020

 

 

1,385,339

 

 


(1)   Under the terms of Mr. Filby’s employment offer, a portion of his 2012 annual incentive opportunity was guaranteed. Based on the Company’s performance, Mr. Filby’s actual incentive payment under the Annual Incentive Plan (“AIP”) exceeded the guaranteed amount. As a result, the guaranteed portion is reflected in this column, and the remainder of the payout is shown in the “Non-Equity Incentive Plan Compensation” column.

 

(2)   The amounts in this column reflect the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718 for awards of stock during the fiscal years ended December 31, 2012, 2011, and 2010.  Assumptions used in the calculation of these amounts are included in Note 10 to the Company’s Consolidated Financial Statements filed as part of the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.  As described in the Compensation Discussion and Analysis section of this proxy statement, recipients of awards under the AIP may elect to receive all or a portion of their incentive compensation in the form of restricted stock units.  If an election is made to receive restricted stock units in lieu of cash, the amount of the cash foregone is increased at a match rate established by the Compensation

 

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Committee in determining the number of units awarded.  The aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for these stock units also is reflected in this column.

 

For all years reported, the AIP match rate was 50 percent.  For AIP awards earned during 2012, restricted stock units were granted on January 22, 2013 in lieu of cash compensation in the amount of 8,456 units ($288,180) to Mr. Peterson; 3,196 units ($108,920) to Mr. McRoberts; and 1,866 units ($63,593) to Mr. Scarfone. For AIP awards earned during 2011, restricted stock units were granted on January 24, 2012 in lieu of cash compensation in the amount of 7,795 units ($182,559) to Mr. Peterson.  For AIP awards earned during 2010, restricted stock units were granted on January 25, 2011 in lieu of cash compensation in the amount of 7,606 units ($185,054) to Mr. Peterson.  The number of restricted stock units received was based on the closing price of the Company’s common stock on the NYSE on the date of grant of such units ($34.08 on January 22, 2013, $23.42 on January 24, 2012, and $24.33 on January 25, 2011, respectively).  The portion of each executive’s AIP compensation paid in cash is included in the “Non-Equity Incentive Plan Compensation” column.  The estimated possible threshold, target, and maximum values for the 2012 AIP, including the 50 percent match based on the individual elections made by each Named Executive Officer prior to the start of the plan period, are listed in the “Grants of Plan-Based Awards in 2012” table.

 

The 2012 stock award value for Mr. Filby reflects a restricted stock grant made under the Company’s Long-Term Incentive Plan as part of Mr. Filby’s employment offer, and vests after a period of one year.

 

The 2010 stock award value for Mr. Scarfone reflects a restricted stock grant made under the Company’s 2008 Stock Incentive Plan in recognition of foregone value associated with previously awarded equity compensation.  The 2010 grant vested over a period of two years.

 

(3)   The amounts in this column reflect the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718 for awards of stock options during the fiscal year ended December 31, 2012, 2011, and 2010.    Assumptions used in the calculation of these amounts are included in Note 10 to the Company’s Consolidated Financial Statements in our Annual Reports on Form 10-K for the years ended December 31, 2012, 2011, and 2010, as applicable.

 

(4)   Amounts listed in this column reflect cash amounts paid to the Named Executive Officers under the AIP and CPP.  As explained earlier in this proxy statement, CPP payouts (if any) appear in this table upon completion of the multi-year performance period attached to the award.  The CPP was first introduced as part of the long-term incentive program in 2009, as a replacement for restricted stock, with 2011 being the first year of potential payouts under the CPP.  As explained elsewhere in the proxy statement, there was no payout under the 2010 CPP for the period ending 2012.  As described in the Compensation Discussion and Analysis section and note 2 to this table, recipients of awards under the AIP may elect to receive all or a portion of their incentive compensation in the form of restricted stock units.  If an election is made to receive restricted stock units, the amount of the cash foregone is increased (or matched) at a rate established by the Compensation Committee in determining the number of units awarded.  The FASB ASC Topic 718 aggregate grant date fair value attributable to awards taken as restricted stock units is listed in the “Stock Awards” column, while the portion of AIP compensation paid in cash is included in this column.  The estimated possible threshold, target and maximum values for the 2012 AIP, including the 50 percent match based on the individual elections made by each Named Executive Officer prior to the start of the plan period, are included in the “Grants of Plan-Based Awards in 2012” table.  For 2010 and 2012, the amounts reported relate entirely to the AIP, as there were no CPP payments for these years.  For 2011, the amounts include cash received under the AIP and CPP as follows: Mr. Schram, AIP ($747,383) CPP ($720,900);  Mr. Peterson,  AIP ($81,161) CPP ($72,090);  Mr. McRoberts,  AIP ($149,184) CPP ($84,105);  Mr. Scarfone,  AIP ($192,648) CPP ($168,210).  For 2012, 2011 and 2010, Mr. Peterson elected to defer a portion of his AIP compensation in the form of restricted stock units.  The cash portion of Mr. Peterson’s 2012 AIP ($128,103), 2011 AIP ($81,161), and 2010 AIP ($82,276) is included in this column.  The deferred stock unit portion of his 2012 AIP ($288,180), 2011 AIP ($182,559), and 2010 AIP ($185,054) reported in the “Stock Awards” column includes a 50 percent match as established by the Compensation Committee.

 

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For 2012, Mr. McRoberts elected to defer a portion of his AIP compensation in the form of restricted stock units.  The cash portion of Mr. McRobert’s 2012 AIP ($169,464) is included in this column.  The deferred stock unit portion of his 2012 AIP ($108,920) reported in the “Stock Awards” column includes a 50 percent match as established by the Compensation Committee.  For 2012, Mr. Scarfone elected to defer a portion of his AIP compensation in the form of restricted stock units.  The cash portion of Mr. Scarfone’s 2012 AIP ($240,291) is included in this column.  The deferred stock unit portion of his 2012 AIP ($63,593) reported in the “Stock Awards” column includes a 50 percent match as established by the Compensation Committee.

 

(5)   A detailed description of the amounts listed in this column is contained in the “2012 All Other Compensation Supplemental Table” immediately following this table.

 

(6)   Mr. Filby was hired in 2012 as Senior Vice President, Financial Services and began his service on April 30, 2012.

 

(7)   Mr. McRoberts changed positions on March 1, 2011 from Senior Vice President, Chief Information and Technology Officer to Senior Vice President, Small Business Services.

 

2012 ALL OTHER COMPENSATION SUPPLEMENTAL TABLE

 

Name

 

Perks and
Other
Personal
Benefits(1)
$

 

Tax
Reimbursement (2)
$

 

Company
Contributions
to Defined
Contribution
Plans
$

 

Dividends or
Earnings on
Stock or
Option
Awards(3)
$

 

Other(4)
$

 

Total
$

 

Lee J. Schram

 

 

11,270

 

 

0

 

 

13,000

 

 

0

 

 

9,503

 

 

33,773

 

Terry D. Peterson

 

 

30,000

 

 

0

 

 

13,000

 

 

15,401

 

 

2,564

 

 

60,965

 

John D. Filby

 

 

20,000

 

 

21,704

 

 

0

 

 

7,244

 

 

73,430

 

 

122,378

 

Malcolm J. McRoberts

 

 

30,000

 

 

0

 

 

13,000

 

 

0

 

 

2,338

 

 

45,338

 

Anthony C. Scarfone

 

 

30,000

 

 

0

 

 

13,000

 

 

0

 

 

1,765

 

 

44,765

 

 


(1)         Amounts for Mr. Schram reflect the premium paid by the Company for a supplemental long-term disability insurance policy to provide him with coverage equal to two-thirds of his base salary in the event of a disability meeting the requirements of the policy. Amounts for all other Named Executive Officers reflect a Personal Choice Program cash allowance.  There is no tax gross-up for the supplemental coverage or the Personal Choice Program.

 

(2)         Amount for Mr. Filby consists of a tax gross-up on relocation expenses associated with his becoming employed by the Company and relocating to Company headquarters.

 

(3)         Amounts reflect dividends and dividend equivalents paid on restricted stock and restricted stock units, respectively.  Dividend equivalents are paid at the same rate and at the same time as regularly declared dividends.

 

(4)         Amounts listed are ERISA excess and benefit plan equivalent amounts, and for Mr. Filby, an additional $72,437 in reimbursement of relocation expenses associated with his becoming employed by the Company and relocating to Company headquarters.

 

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GRANTS OF PLAN-BASED AWARDS IN 2012

 

 

 

 

 

Estimated Future Payouts Under Non-Equity Incentive Plan
Awards(1)

 

Estimated Future Payouts Under
Equity Incentive Plan
Awards(2)

 

All Other
Stock
Awards:
Number
of
Shares
of Stock

 

All Other
Option
Awards:
Number of
Securities
Underlying

 

Exercise
or Base
Price of
Option

 

Grant
Date Fair
Value of
Stock and
Option

 

 

 

 

 

Threshold

 

Target

 

Maximum

 

Threshold

 

Target

 

Maximum

 

or Units(3)

 

Options(4)

 

Awards

 

Awards(5)

 

Name

 

Grant Date

 

($)

 

($)

 

($)

 

($)

 

($)

 

($)

 

(#)

 

(#)

 

($/Sh)

 

($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lee J. Schram

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-Term Incentive Program

 

2/16/2012

 

284,625

 

862,500

 

1,293,750

 

 

 

 

 

106,000

 

25.45

 

974,140

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annual Incentive Plan

 

2/16/2012

 

444,950

 

889,900

 

1,779,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Terry D. Peterson

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-Term Incentive Program

 

2/16/2012

 

90,090

 

273,000

 

409,500

 

 

 

 

 

33,500

 

25.45

 

307,865

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annual Incentive Plan

 

2/16/2012

 

44,400

 

88,800

 

177,600

 

99,900

 

199,800

 

399,600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

John D. Filby

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-Term Incentive Program

 

4/30/2012

 

79,200

 

240,000

 

360,000

 

 

 

 

9,659

 

28,776

 

23.81

 

469,685

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annual Incentive Plan

 

4/30/2012

 

97,750

 

195,500

 

391,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Malcolm J. McRoberts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-Term Incentive Program

 

2/16/2012

 

75,900

 

230,000

 

345,000

 

 

 

 

 

28,200

 

25.45

 

259,158

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annual Incentive Plan

 

2/16/2012

 

56,875

 

113,750

 

227,500

 

36,563

 

73,125

 

146,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Anthony C. Scarfone

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-Term Incentive Program

 

2/16/2012

 

71,115

 

215,500

 

323,250

 

 

 

 

 

26,500

 

25.45

 

243,535

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annual Incentive Plan

 

2/16/2012

 

88,740

 

177,480

 

354,960

 

23,490

 

46,980

 

93,960

 

 

 

 

 

 

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(1)         Long-Term Incentive Program: The Long-Term Incentive Program consists of a Cash Performance Plan (“CPP”) and stock options.  The CPP is a non-equity incentive plan, and stock options are addressed in footnote 4.  The Long-Term Incentive Program is further described in the Compensation Discussion and Analysis section of this proxy statement. The amounts listed in the designated row for each Named Executive Officer reflect the estimated future cash payouts under the CPP at the time the performance targets were established in 2012 for the three-year Performance Period ending December 31, 2014.

 

Annual Incentive Plan: The amounts listed in the designated row for each Named Executive Officer reflect the estimated future cash payouts under the Annual Incentive Plan (“AIP”) for 2012 at the time the performance targets were established, based on each Named Executive Officer’s advance election to receive any such payouts in cash (i.e., non-equity), restricted stock units (i.e., equity), or a combination of the two.  The actual payouts under the Annual Incentive Plan for 2012 are reflected in the “Summary Compensation Table” and a more complete explanation of the AIP appears in the Compensation Discussion and Analysis portion of this proxy statement.

 

(2)         The amounts listed here reflect the estimated equity payout under the AIP for 2012 based on the executive’s election to receive all, or a portion, of his payout in restricted stock units, which includes the 50% match provided on portions of the AIP payout elected to be received by the executive in the form of restricted stock units.  Restricted stock units vest on the second anniversary of the grant date.  In the event an executive’s employment is terminated for reasons other than cause prior to the expiration of the restriction period, the executive would receive the base amount allocated to restricted stock units prior to the 50% match (“Base Amount”).  If the executive resigns prior to expiration of the restriction period, they would receive the lesser of the Base Amount or the then current value of the units originally attributable to the Base Amount.  A termination for cause would result in forfeiture of the full award.

 

(3)         Upon joining the Company in 2012, Mr. Filby received a restricted stock grant with a vesting period of one year in recognition of foregone value associated with previously awarded equity compensation from his former employer.

 

(4)         Stock options have seven-year terms and vest 33-1/3 percent per year over three years on successive anniversaries of the grant date.  The exercise price of all options is the closing price of the Company’s stock on the grant date.  The stock options are awarded as part of the Company’s Long-Term Incentive Program.

 

(5)         The grant date fair value of options is based on the stock price at the time of grant multiplied by the Black-Scholes value.  The Black-Scholes value on February 16, 2012 was 36.09 percent, or approximately $9.19 per option and on April 30, 2012 was 34.97 percent, or approximately $8.33 per option.  As discussed in the Compensation Discussion and Analysis section of this proxy statement, the Compensation Committee utilizes a 50-day average trading price methodology in determining the number of options that will deliver the targeted award value.  As a result, depending on fluctuations in the stock price immediately preceding the grant date, the values reported in this table (which are based on the grant date closing price) will be somewhat higher or lower than the targeted option value (which is based on an average price methodology).  For Mr. Filby, the April 30, 2012 restricted stock grant value was $23.81 per share.

 

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OUTSTANDING EQUITY AWARDS AT 2012 FISCAL YEAR-END

 

 

 

OPTION AWARDS

 

STOCK AWARDS

 

Name

 

Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable

 

Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable

 

Option
Exercise
Price
($)

 

Option
Expiration
Date

 

Number of Shares
or Units of Stock
Held That Have
Not Vested
(#)

 

Market Value of 
Shares or Units of
Stock That Have
Not Vested (1)
($)

 

Lee J. Schram

 

193,200

 

 

 

32.65

 

2/13/2014

 

 

 

 

 

117,400

 

 

 

22.52

 

2/20/2015

 

 

 

 

 

88,800

 

44,400

(2)

18.28

 

2/17/2017

 

 

 

 

 

36,133

 

72,267

(3)

25.59

 

2/16/2018

 

 

 

 

 

 

 

106,000

(4)

25.45

 

2/16/2019

 

 

 

 

 

Terry D. Peterson

 

15,400

 

 

 

32.65

 

2/13/2014

 

7,606

(7)

245,217

 

 

 

13,300

(2)

18.28

 

2/17/2017

 

7,795

(8)

251,311

 

4,073

 

22,867

(3)

25.59

 

2/16/2018

 

 

 

 

 

 

 

33,500

(4)

25.45

 

2/16/2019

 

 

 

 

 

John D. Filby

 

 

 

28,776

(5)

23.81

 

4/30/2019

 

9,659

(9)

311,406

 

Malcolm J. McRoberts

 

17,414

 

 

 

22.92

 

5/19/2015

 

 

 

 

 

 

 

5,166

(2)

18.28

 

2/17/2017

 

 

 

 

 

4,200

 

8,400

(3)

25.59

 

2/16/2018

 

 

 

 

 

1,633

 

3,267

(6)

25.11

 

3/1/2018

 

 

 

 

 

 

 

28,200

(4)

25.45

 

2/16/2019

 

 

 

 

 

Anthony C. Scarfone

 

45,000

 

 

 

32.65

 

2/13/2014

 

 

 

 

 

27,400

 

 

 

22.52

 

2/20/2015

 

 

 

 

 

20,667

 

10,333

(2)

18.28

 

2/17/2017

 

 

 

 

 

9,033

 

18,067

(3)

25.59

 

2/16/2018

 

 

 

 

 

 

 

26,500

(4)

25.45

 

2/16/2019

 

 

 

 

 

 


(1)         Based on the closing price of Deluxe common stock on the NYSE on December 31, 2012 ($32.24 per share).

 

(2)        Stock options granted on February 17, 2010, that will vest on February 17, 2013.

 

(3)         Stock options granted on February 16, 2011, that will vest in two equal installments on February 16, 2013 and February 16, 2014.

 

(4)         Stock options granted on February 16, 2012, that will vest in three equal installments on February 16, 2013, February 16, 2014 and February 16, 2015.

 

(5)         Stock options granted on April 30, 2012, that will vest in three equal installments on April 30, 2013, April 30, 2014 and April 30, 2015.

 

(6)         Stock options granted on March 1, 2011, that will vest in two equal installments on March 1, 2013 and March 1, 2014.

 

(7)         Restricted stock units granted on January 25, 2011, that will vest on January 25, 2013.

 

(8)         Restricted stock units granted on January 24, 2012, that will vest on January 24, 2014.

 

(9)         Restricted stock granted on April 30, 2012, that will vest on April 30, 2013.

 

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Table of Contents

 

2012 OPTION EXERCISES AND STOCK VESTED

 

 

 

Option Awards

 

Stock Awards

 

Name

 

Number of
Shares
Acquired
on
Exercise
(#)

 

Value
Realized on
Exercise
($)

 

Number of
Shares
Acquired
on Vesting
(#)

 

Value
Realized on
Vesting
($)

 

Lee J. Schram (1)

 

292,466

 

3,238,549

 

0

 

0

 

Terry D. Peterson (2)

 

59,718

 

501,679

 

8,099

 

199,640

 

John D. Filby

 

0

 

0

 

0

 

0

 

Malcolm J. McRoberts (3)

 

29,634

 

417,254

 

0

 

0

 

Anthony C. Scarfone (4)

 

64,700

 

861,957

 

14,550

 

367,970

 

 


(1)         Mr. Schram exercised 182,000 stock options (exercise price of $23.50 per share) on August 28, 2012 at a value of $28.12 per share, and 110,466 stock options (exercise price of $9.73 per share) on November 1, 2012 at a value of $31.44 per share.

 

(2)         Mr. Peterson exercised 5,500 stock options (exercise price of $9.73 per share) and 22,345 stock options (exercise price of $18.28 per share) on July 30, 2012 at a value of $28.16 per share.  Mr. Peterson exercised 2,013 stock options (exercise price of $18.28 per share), 11,700 stock options (exercise price of $22.52 per share), 7,360 stock options (exercise price of $25.59 per share) and 10,800 stock options (exercise price of 26.58 per share) on November 20, 2012 at a value of $29.97 per share. On January 26, 2012, 8,099 restricted stock units vested at a value of $24.65 per share.

 

(3)         Mr. McRoberts exercised 19,300 stock options (exercise price of $9.73 per share) on February 21, 2012 at a value of $25.24 per share, and 10,334 stock options (exercise price of $18.28 per share) on September 6, 2012 at a value of $29.69 per share.

 

(4)         Mr. Scarfone exercised 26,100 stock options (exercise price of $26.58 per share) on September 7, 2012 at a value of $29.71 per share, and 38,600 stock options (exercise price of $9.73 per share) on November 20, 2012 at a value of $29.97 per share. On February 18, 2012, 14,550 shares of restricted stock vested at a value of $25.29 per share.

 

Deferred Compensation Plan

 

Deluxe’s Deferred Compensation Plan permits eligible employees to defer annually the receipt of up to 100 percent of base salary, and up to 50 percent of bonuses. In connection with this Plan, Deluxe has created a non-qualified grantor trust (commonly known as a “Rabbi Trust”) through which Deluxe’s obligations under the Plan are funded. No assets are set aside for individual participants in the Plan, and the trust assets remain subject to the claims of Deluxe’s creditors. Amounts deferred under the Plan are payable on the earliest to occur of a change of control of Deluxe, the participant’s termination of employment, disability or death, or the date for payment selected by the participant, unless a delay in payments is otherwise required by Section 409A.  Deferred amounts are credited with gains and losses based on the performance of deemed investment options (i.e., phantom funds) selected by the participant.  Deluxe also may make ERISA excess payments and/or contributions of benefit plan equivalents to participants’ accounts if IRS limits or the deferrals made by a participant under this Plan have the effect of reducing the contributions they otherwise would receive from Deluxe under the Company’s qualified benefit plans.

 

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Table of Contents

 

NON-QUALIFIED DEFERRED COMPENSATION

 

 

 

Aggregate Earnings in Last FY(1)

 

Aggregate Balance at Last FYE(2)

 

Name

 

($)

 

($)

 

Lee J. Schram

 

 

111

 

 

77,200

 

Terry D. Peterson

 

 

29

 

 

20,223

 

John D. Filby

 

 

0

 

 

0

 

Malcolm J. McRoberts

 

 

1

 

 

731

 

Anthony C. Scarfone

 

 

59,843

 

 

566,581

 

 


(1)         Company contributions in the form of ERISA excess payments and benefit plan equivalents are made after the end of the year to which they relate.  No Company contributions were made in 2012 (relating to 2011), nor were any other amounts deferred by the Named Executive Officers in 2012.  Amounts represent earnings on contributions and deferrals made in prior years.  Participants in this plan allocate their deferrals into phantom funds similar to the funds available under the Company’s qualified retirement plans.  Amounts reported reflect the performance of these phantom funds.

 

(2)         The aggregate amounts reported in previous years’ Summary Compensation Tables and deferred into this Plan were $76,757 for Mr. Schram; $19,989 for Mr. Peterson; $0 for Mr. Filby; $529 for Mr. McRoberts; and $218,253 for Mr. Scarfone.

 

Severance, Retention and Change of Control Arrangements

 

Deluxe has standard severance arrangements or agreements with each of its Named Executive Officers.  Mr. Schram’s employment agreement contains provisions with respect to severance, and the other Named Executive Officers are subject to separate severance agreements (collectively “severance arrangements”).    The severance arrangements are intended to facilitate each executive’s attention to the affairs of Deluxe and to recognize their key role within the Company.  Under Mr. Schram’s employment agreement, he would be eligible to receive severance benefits if his employment is terminated without Cause by Deluxe or by him with Good Reason.  “Good Reason” includes (1) a material reduction in authority, duties or responsibilities without his written consent; (2) a material reduction in his total compensation or a failure by the Company to comply with his employment agreement; (3) a termination of his employment by the Company in a manner that does not comply with his employment agreement; or (4) a request by the Company that he act or omit to act in a way that violates the Company’s ethical guidelines or practices.  Mr. Schram’s employment agreement provides the following benefits if he is terminated by Deluxe without Cause or he terminates his employment for Good Reason:  (1) 12 monthly payments of his then current monthly base salary; (2) for a period of 12 months following completion of the initial 12 months of salary continuation, an additional monthly payment equal to the amount, if any, that his monthly base pay as of termination exceeds any monthly compensation he may earn from subsequent employment in that month; (3) executive level outplacement services for up to 12 months; and (4) an additional lump-sum payment of $13,000 to assist with expenses incurred in connection with his transition.

 

The severance arrangements with the other Named Executive Officers contain a similar definition of “Good Reason” and add, as an additional basis for resigning with Good Reason, a requirement to relocate more than 50 miles from his or her then current location.  If these executives are terminated by Deluxe without Cause or the executive terminates his or her employment for Good Reason, he or she will receive payments calculated on the same basis as the payments that Mr. Schram would receive, except that any additional monthly payment following the first 12 months of salary continuation would last for only up to six months.  Receipt of these benefits by Mr. Schram or any other Named Executive Officers is

 

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conditioned upon the executive entering into a release.  The Named Executive Officers are required by their severance arrangements to maintain the confidentiality of Company confidential information for a period of two years after their termination.  Mr. Schram’s employment agreement also requires that for two years after he ceases to be employed by Deluxe he will not engage in any business that competes with Deluxe, will not hire any Company employee or induce an employee to provide confidential information to a third party, and will not induce any customer or supplier to stop doing business with the Company.  Mr. Filby and Mr. McRoberts also are subject to agreements that contain similar restrictions for a one-year period after they cease to be employed by Deluxe.

 

The severance arrangements are not effective if the executive’s employment is terminated following a change of control under circumstances that would entitle them to receive benefits under the retention agreements described below (“Retention Agreements”).

 

The Company maintains Retention Agreements with Mr. Schram and other members of the Executive Leadership Team named to their positions prior to 2010 (hereinafter, “Executives”) that are designed to ensure that Deluxe will receive the continued service of the Executive in the event of a change of control, by reducing the distraction that could be caused by personal uncertainty about their compensation and benefits under those circumstances.  Under the Retention Agreements, each of the participating Executives agrees to remain employed by Deluxe, and Deluxe agrees to continue to employ each Executive, until the second anniversary following a “Change of Control” (as that term is defined in the Retention Agreements).  During the two-year period (the “Employment Period”), each Executive is entitled to maintain a position, authority, duties and responsibilities at least commensurate with the most significant of those held by the Executive during the 180-day period prior to the date (the “Effective Date”) of the Change of Control.  The annual base salary of an Executive may not be reduced below that earned by the Executive during the twelve-month period preceding the Effective Date, provided, however, that the annual base salary may be reduced to an amount that is not less than 90 percent of the base salary in effect on the Effective Date pursuant to an across-the-board reduction of base salary similarly affecting all executive officers of Deluxe.  In determining any increase in an Executive’s base salary during the Employment Period, the Executive is to be treated in a manner consistent with other peer executives. The Executives are also entitled to receive annual incentive payments during the Employment Period on the same basis as other peer executives. During the Employment Period, each Executive is also entitled to participate in Deluxe’s stock incentive, retirement, and other benefit plans on the same basis as Deluxe’s other Executives, and the benefits to the Executives under such plans generally may not be reduced from those provided during the one-year period prior to the Effective Date.

 

If, during the Employment Period, Deluxe terminates a participating Executive’s employment other than for “Cause” or “Disability,” or the Executive terminates his or her employment for “Good Reason” (as those terms are defined in the Retention Agreements), the Executive is entitled to a lump-sum payment equal to the sum of any unpaid base salary, deferred compensation and accrued vacation pay through the date of termination, plus a pro-rated annual incentive payment for the year of termination based on the greater of (1) the Executive’s target bonus under Deluxe’s Annual Incentive Plan in respect of the year in which the termination occurs or, if greater, for the year in which the Change of Control occurs (the “Target Bonus”) and (2) the annual incentive payment that the Executive would have earned for the year in which the termination occurs based upon projecting to the end of that year Deluxe’s actual performance through the termination date.  In addition, the Executive is entitled to receive a lump-sum payment equal to a multiple of the sum of the Executive’s annual base salary and the higher of the Target Bonus or the average of the Executive’s annual incentive payments for the last three full fiscal years prior to the Effective Date, plus the amount that would have been contributed by Deluxe or its affiliates to the retirement and supplemental retirement plans in which the Executive participated prior to his or her termination.  This multiple (hereinafter “payment multiple”) is three times for the CEO,  two times for the Senior Vice Presidents and one time for the Vice Presidents.  Certain resignations and terminations in anticipation of a Change of Control also constitute qualifying terminations.  After a qualifying termination of employment, the Executives are also entitled to the continuation of their medical, disability, life and other health insurance benefits for the number of years corresponding to the applicable payment multiple and to certain out-placement services.

 

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The Retention Agreements generally eliminate a tax gross-up payment to the Executive if the after-tax benefit, including a gross-up payment, does not equal at least $50,000 when contrasted with a reduction in the payments under the Retention Agreement to a level that would not result in an excise tax under Section 4999 of the Internal Revenue Code.  No new Retention Agreements were entered into by the Company in 2012, nor were any pre-existing Retention Agreements amended during the year.

 

Deluxe also has used standard forms of stock option, restricted stock and cash performance award agreements in conjunction with its long-term incentive program that provide for vesting of the awards, in whole or in part, upon certain events, including termination of the employee without Cause or following a Change of Control.  Generally speaking, for equity awards issued prior to 2007, stock options vest in full, and restricted stock vests pro rata, upon termination without Cause or a Change of Control.  For equity awards issued in 2007 and later, vesting upon a Change of Control only will occur if the acquiring or surviving entity fails to honor the award agreements with comparable equity, or if the employee is terminated without “Cause” or resigns for “Good Reason” (as those terms are defined in the applicable award agreement) following the Change of Control.  For cash performance awards, if the employee is terminated without Cause or resigns for Good Reason more than one year into the performance period, they will be entitled to a pro rata payment of any payment to which they would otherwise have been entitled had their employment continued through the term of the agreement.  If the termination without Cause or resignation for Good Reason is in connection with or following a Change of Control, the employee will receive, within forty-five days of their termination or resignation, a pro rata payment of the target award amount provided for in their agreement.

 

The foregoing summary is qualified in its entirety by reference to the complete text of Mr. Schram’s employment agreement, and the forms of Retention Agreement, severance agreement, stock option, restricted stock and cash performance award agreements, all of which are filed as exhibits to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

 

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The following table illustrates the benefits that would be received by the current Named Executive Officers under the severance arrangements described above, assuming a hypothetical qualifying severance occurring on the last business day of the prior fiscal year.

 

SEVERANCE CALCULATIONS

 

Name

 

Salary
Continuation(1)
($)

 

Outplacement(2)
($)

 

Stock Option
Acceleration(3)
($)

 

Restricted Stock
Acceleration(4)
($)

 

Other(5)
($)

 

Total
($)

 

Lee J. Schram

 

 

1,618,000

 

 

38,500

 

 

1,820,140

 

 

0

 

 

13,000

 

 

3,489,640

 

Terry D. Peterson

 

 

610,500

 

 

38,500

 

 

565,199

 

 

0

 

 

13,000

 

 

1,227,199

 

John D. Filby

 

 

690,000

 

 

38,500

 

 

242,582

 

 

207,503

 

 

13,000

 

 

1,191,675

 

Malcolm J. McRoberts

 

 

600,000

 

 

38,500

 

 

342,749

 

 

0

 

 

13,000

 

 

994,249

 

Anthony C. Scarfone

 

 

532,500

 

 

38,500

 

 

444,329

 

 

0

 

 

13,000

 

 

1,028,329

 

 


(1)         Salary continuation benefits include twelve months of full salary, plus the difference in compensation otherwise earned by the individual after termination and their base salary at termination from Deluxe for an additional (a) twelve months for the CEO, and (b) six months for the other executives.  Amounts shown assume no employment is secured after the initial twelve months, and therefore reflect maximum amounts payable.

 

(2)         Estimated cost of outplacement services for twelve months.

 

(3)         Accelerated vesting on stock options at the time of termination, with three months to exercise.  The value is based on the closing price of Deluxe common stock on the NYSE on December 31, 2012 ($32.24 per share).

 

(4)         Pro-rata acceleration of vesting on restricted stock based on the date of termination.  Value based on the closing price of Deluxe common stock on the NYSE on December 31, 2012 ($32.24 per share).

 

(5)         Lump-sum payment to assist with transition expenses.

 

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The following tables illustrate the benefits that would be received by the current Named Executive Officers under applicable agreements, assuming a hypothetical change of control occurring on the last business day of the prior fiscal year.

 

CHANGE OF CONTROL CALCULATIONS

 

Name*

 

Type of Compensation

 

Due on Change of
Control followed by
termination by Company
without Cause or by
Executive for Good
Reason ($)

 

Due on
Change of
Control
($)

 

 

 

 

 

 

 

 

 

Lee J. Schram

 

Severance(1)

 

5,056,972

 

0

 

Pro-Rata Bonus(2)

 

889,900

 

0

 

Long-Term Cash Performance Plan(3)

 

400,000

 

0

 

Vesting of Options(4)

 

1,820,137

 

0

 

Vesting of Restricted Stock(5)

 

0

 

0

 

Benefit Continuation(6)

 

76,944

 

0

 

Outplacement(7)

 

38,500

 

0

 

Total Payments Before Excise Tax

 

 

8,282,453

 

0

 

Excise Tax Gross-Up(8)

 

0

 

0

 

Total

 

 

8,282,453

 

0

 

 

 

 

 

 

 

 

 

Terry D. Peterson

 

Severance(1)

 

1,302,400

 

0

 

Pro-Rata Bonus(2)

 

244,200

 

0

 

Long-Term Cash Performance Plan(3)

 

126,667

 

0

 

Vesting of Options(4)

 

565,196

 

0

 

Vesting of Restricted Stock(5)

 

496,528

 

496,528

 

Benefit Continuation(6)

 

26,054

 

0

 

Outplacement(7)

 

38,500

 

0

 

Total Payments Before Excise Tax

 

 

2,799,545

 

 

496,528

 

Excise Tax Gross-Up(8)

 

375,056

 

0

 

Total

 

 

3,174,601

 

 

496,528

 

 


*As reported earlier in this proxy statement, no Retention Agreements have been provided to executives since 2010.  As a result, Mr. Filby, who was hired in 2012, does not have a Retention Agreement. Messrs. Schram, Peterson, McRoberts, and Scarfone have Retention Agreements because each was hired into a position eligible for a Retention Agreement prior to 2010.

 

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Name

 

Type of Compensation

 

Due on Change of
Control followed by
termination by Company
without Cause or by
Executive for Good
Reason ($)

 

Due on
Change of
Control
($)

 

 

 

 

 

 

 

 

 

John D. Filby

 

Severance(1)

 

690,000

 

0

 

Pro-Rata Bonus(2)

 

0

 

0

 

Long-Term Cash Performance Plan(3)

 

0

 

0

 

Vesting of Options(4)

 

242,582

 

0

 

Vesting of Restricted Stock(5)

 

311,406

 

0

 

Benefit Continuation(6)

 

13,000

 

0

 

Outplacement(7)

 

38,500

 

0

 

Total Payments Before Excise Tax

 

 

1,295,488

 

0

 

Excise Tax Gross-Up(8)

 

0

 

0

 

Total

 

 

1,295,488

 

0

 

 

 

 

 

 

 

 

 

Malcolm J. McRoberts

 

Severance(1)

 

1,180,524

 

0

 

Pro-Rata Bonus(2)

 

200,000

 

0

 

Long-Term Cash Performance Plan(3)

 

66,667

 

0

 

Vesting of Options(4)

 

342,756

 

0

 

Vesting of Restricted Stock(5)

 

0

 

0

 

Benefit Continuation(6)

 

25,826

 

0

 

Outplacement(7)

 

38,500

 

0

 

Total Payments Before Excise Tax

 

 

1,854,273

 

0

 

Excise Tax Gross-Up(8)

 

0

 

0

 

Total

 

 

1,854,273

 

0

 

 

 

 

 

 

 

 

 

Anthony C. Scarfone

 

Severance(1)

 

1,136,000

 

0

 

Pro-Rata Bonus(2)

 

213,000

 

0

 

Long-Term Cash Performance Plan(3)

 

100,000

 

0

 

Vesting of Options(4)

 

444,332

 

0

 

Vesting of Restricted Stock(5)

 

0

 

0

 

Benefit Continuation(6)

 

26,344

 

0

 

Outplacement(7)

 

38,500

 

0

 

Total Payments Before Excise Tax

 

 

1,958,176

 

0

 

Excise Tax Gross-Up(8)

 

0

 

0

 

Total

 

 

1,958,176

 

0

 

 

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(1)         Severance applicable under the Retention Agreements is equal to three times for Mr. Schram, and two times for Messrs. Peterson, McRoberts, and Scarfone, the total of (a) current base salary, plus (b) the higher of the individual’s target annual bonus or the average actual bonus earned for each of the prior three years.  For Mr. Filby, severance benefits would be provided under the severance arrangement previously described, and are equal to twelve months of base salary plus the difference in compensation he would earn after severance and his base salary at termination from Deluxe for up to an additional six months.

 

(2)         For executives with Retention Agreements, the greater of pro-rata bonus at expected performance or pro-rata target bonus.

 

(3)         No payout on Cash Performance Plan awards prior to completion of the first year of the performance period; termination following the first year of performance but prior to the end of the performance period results in a pro-rata payout assuming target performance.  As a result and reflected above, the 2012 plan does not pay out and the 2011 plan pays out pro-rata at target.

 

(4)         Currently outstanding stock options do not vest upon a Change of Control unless the surviving entity fails to honor award agreements with comparable equity (i.e., a double trigger).  Therefore, no accelerated vesting is assumed in the column titled “Due on Change of Control”.  The amount listed in the column titled “Due on Change of Control followed by termination by Company without Cause or by Executive for Good Reason” reflects full acceleration of options.

 

(5)         Currently outstanding restricted stock awards do not vest upon a Change of Control unless the surviving entity fails to honor award agreements with comparable equity (i.e., a double trigger).  Therefore, no accelerated vesting is assumed in the column titled “Due on Change of Control”.  The amounts listed for Mr. Peterson reflect accelerated vesting of restricted stock units elected to be received in lieu of a portion of Mr. Peterson’s cash bonuses under the Annual Incentive Plan.

 

(6)         Assumes annual Medical, Life, Dental & Vision (and Disability for Schram) for three years for Mr. Schram, and two years for Messrs. Peterson, McRoberts and Scarfone under Retention Agreements.  For Mr. Filby, payment would be provided under his severance arrangement.

 

(7)         Assumes full use of the 12-month executive outplacement program at an amount not to exceed $38,500.

 

(8)         The excise tax imposed by the Internal Revenue Code (“Code”) on excess “parachute payments” is 20 percent.  This excise tax, together with any corresponding tax gross-up, applies only if the total value of change of control payments calculated under Section 280G of the Code equals or exceeds three times the average annual compensation attributable to the executive’s employment with Deluxe over the prior five-year period.  As a result, the gross-up amount shown reflects the executive’s unique earnings history with Deluxe and can vary significantly from year to year.

 

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FISCAL YEAR 2012 AUDIT
AND INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Audit Committee Report

 

The following is the report of the Audit Committee with respect to Deluxe’s audited financial statements presented in its Annual Report to Shareholders for the fiscal year ended December 31, 2012, which include the consolidated balance sheets of Deluxe as of December 31, 2012 and 2011, and the related consolidated statements of income, shareholders’ equity, comprehensive income and cash flows for each of the three years in the period ended December 31, 2012, and the notes thereto.  The information contained in this Audit Committee Report shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that Deluxe specifically incorporates it by reference in such filing.

 

The Audit Committee of the Board of Directors currently is comprised of the four undersigned directors, all of whom have been determined by the Board to be independent under the rules of the SEC and the NYSE.  The Audit Committee acts under a written charter approved by the Board of Directors. The Audit Committee reviews the adequacy of that charter on an annual basis. A complete copy of the Committee’s charter is posted on the Investor Relations website of Deluxe at www.deluxe.com/investor under the “Corporate Governance” caption.

 

As stated in its charter, the Audit Committee assists the Board in monitoring the integrity of Deluxe’s financial statements, the effectiveness of the internal audit function and independent registered public accounting firm, and Deluxe’s compliance systems.  In carrying out these responsibilities, the Audit Committee met with Deluxe management periodically during the year to consider the adequacy of Deluxe’s internal controls and the objectivity of its financial reporting.  The Audit Committee discussed these matters with PricewaterhouseCoopers LLP, Deluxe’s independent registered public accounting firm, and with the appropriate financial personnel and internal auditors, and met privately on a regular basis with both the independent registered public accounting firm and with the internal auditors, each of whom reports to and has unrestricted access to the Audit Committee.

 

The Audit Committee reviewed with management and the independent registered public accounting firm Deluxe’s 2012 audited financial statements and met with both management and the independent registered public accounting firm to discuss those financial statements and reports prior to issuance.  Management has the primary responsibility for Deluxe’s financial statements and the overall reporting process, including Deluxe’s system of internal controls.  Management has represented, and PricewaterhouseCoopers LLP has indicated in its opinion to the Audit Committee, that Deluxe maintained, in all material respects, effective internal control over its financial reporting as of December 31, 2012, and that the financial statements were prepared in accordance with generally accepted accounting principles and fairly present, in all material respects, the financial condition and results of operations of Deluxe.

 

The Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by AU Section 380, Communication with Audit Committees.

 

The Audit Committee also received from, and discussed with, the independent registered public accounting firm the written disclosures and letter required by applicable requirements of The Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and has discussed with the independent registered public accounting firm its independence.  As part of its efforts to ensure the independence of Deluxe’s independent registered public accounting firm, the Committee maintains a policy requiring the pre-approval by the Committee of all services to be provided by the independent registered public accounting firm, and reviews all services actually performed by the independent registered public accounting firm in connection with its discussions regarding the independent registered public accounting firm’s continued independence.

 

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Based on the review and discussions referred to above, the Committee recommended to Deluxe’s Board of Directors that Deluxe’s audited financial statements be included in Deluxe’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

 

 

MEMBERS OF THE AUDIT COMMITTEE

 

 

 

Mary Ann O’Dwyer, Chair

 

Cheryl E. Mayberry McKissack

 

Stephen P. Nachtsheim

 

Martyn R. Redgrave

 

 

Fees Paid to Independent Registered Public Accounting Firm

 

Aggregate fees for professional services rendered for Deluxe by PricewaterhouseCoopers LLP during the years ended December 31, 2012 and 2011 were as follows:

 

 

 

2012

 

2011

 

Audit Fees

 

$

1,758,076

 

$

1,929,273

 

 

 

 

 

 

 

Audit-Related Fees

 

$

88,487

 

$

91,600

 

 

 

 

 

 

 

Tax Fees

 

$

12,900

 

$

0

 

 

 

 

 

 

 

All Other Fees

 

$

1,800

 

$

12,262

 

 

 

 

 

 

 

Total Fees

 

$

1,861,263

 

$

2,033,135

 

 

Audit Fees billed for the years ended December 31, 2012 and 2011 were for professional services rendered for audits of the annual consolidated financial statements and the Company’s internal controls over financial reporting, reviews of the related quarterly financial statements included in Deluxe’s quarterly reports on Form 10-Q filed with the SEC, review of responses to SEC comment letters and consultations regarding accounting or disclosure treatment of transactions which were directly part of the audit, and an audit of the separate financial statements of one of the Company’s subsidiaries.  Also included in 2011 fees were services in connection with the filing of SEC registration statements.

 

Audit-Related Fees in 2012 and 2011 related to independent testing of our Information Technology (IT) General Controls at Deluxe data centers and related reporting pursuant to American Institute of Certified Public Accountants (AICPA) standards.

 

Tax Fees in 2012 consisted of fees for miscellaneous tax consulting.

 

All Other Fees consisted of license fees for the use of a technical accounting research tool for both 2012 and 2011.  Also included in the 2011 amount were fees related to assisting the Company in assessing its readiness for further reporting on our compliance with financial industry standards for security controls.

 

The Audit Committee approved all of the services and fees described above.

 

Policy on Audit Committee Pre-Approval of Accounting Firm Fees and Services

 

In order to assure that our independent registered public accounting firm is engaged only to provide audit and non-audit services that are compatible with maintaining their independence, the Audit Committee has adopted a policy which requires the Audit Committee to review and approve all services to be provided

 

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by PricewaterhouseCoopers LLP before the firm is engaged to provide such services.  The Audit Committee may delegate its pre-approval authority to one or more members of the Audit Committee; provided, however, that a full report of any such delegated approvals must be given at the next Audit Committee meeting.  The Audit Committee is required to specifically approve the fee levels for all services.  Requests for approval of services must be jointly submitted to the Audit Committee by the independent registered public accounting firm, Deluxe’s Chief Financial Officer and Deluxe’s Vice President of Internal Audit, and must include (1) a joint statement as to whether, in their view, the request is consistent with the SEC’s rules on auditor independence and (2) a reasonably detailed description of the proposed services.  The complete text of our Audit and Non-Audit Services Pre-Approval Policy is posted on the Investor Relations website at www.deluxe.com/investor under the “Corporate Governance” caption.  A copy of the Policy is available in print free of charge to any shareholder who submits a request to:  Corporate Secretary, Deluxe Corporation, 3680 Victoria Street North, Shoreview, Minnesota 55126.

 

ITEM 3: RATIFICATION OF THE APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

 

The Audit Committee has appointed PricewaterhouseCoopers LLP as Deluxe’s independent registered public accounting firm to examine Deluxe’s financial statements and internal controls over financial reporting for the fiscal year ending December 31, 2013.  PricewaterhouseCoopers LLP has acted as Deluxe’s independent registered public accounting firm since 2001.

 

Pursuant to the Audit Committee’s charter, the Board of Directors is submitting the appointment of PricewaterhouseCoopers LLP as Deluxe’s independent registered public accounting firm for fiscal year ending December 31, 2013 to the shareholders for ratification.  Shareholder approval of this appointment is not required, but the Board is submitting the selection of PricewaterhouseCoopers LLP for ratification in order to obtain the views of the Company’s shareholders.  If the appointment is not ratified, the Audit Committee will reconsider its selection.  Deluxe anticipates that representatives of PricewaterhouseCoopers LLP will be present at the meeting, will have the opportunity to make a statement if they so desire and will be able to respond to appropriate questions from shareholders.

 

The Board of Directors recommends that you vote FOR the ratification of the selection of PricewaterhouseCoopers LLP as Deluxe’s independent registered public accounting firm.

 

2014 SHAREHOLDER PROPOSALS

 

Any shareholder proposals intended to be included in the proxy statement for the annual meeting of shareholders in 2014 must be received by Deluxe’s Corporate Secretary at 3680 Victoria Street North, Shoreview, Minnesota 55126-2966 no later than the close of business on November 11, 2013.  Proposals received by that date will be included in Deluxe’s 2014 proxy statement only if the proposals are proper for consideration at an annual meeting and are required for inclusion in the proxy statement by, and conform to, the rules of the SEC.

 

In accordance with the notice provisions contained in Deluxe’s Bylaws, a shareholder may present a proposal at the 2014 annual meeting of shareholders that is not included in Deluxe’s proxy statement if proper written notice is given to Deluxe’s Chief Executive Officer or Corporate Secretary at the Company’s principal executive offices no later than the close of business on January 1, 2014.  The notice must contain the information required by Deluxe’s Bylaws.  You may obtain a copy of the Bylaws by writing to Deluxe’s Corporate Secretary.

 

OTHER BUSINESS

 

The Board of Directors does not intend to present any business at the meeting other than the matters specifically set forth in this proxy statement and knows of no other business scheduled to come before the meeting. If any other matters are brought before the meeting, the persons named as proxies will

 

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vote on such matters in accordance with their judgment of the best interests of Deluxe and its shareholders. The proxies solicited by Deluxe will confer discretionary authority on the persons named therein as proxies to vote on any matter presented at the meeting of which the Board of Directors did not have knowledge a reasonable time before Deluxe printed and mailed these proxy materials.

 

ANNUAL REPORT TO SHAREHOLDERS AND FORM 10-K

 

Shareholders who wish to obtain a copy of our 2012 Annual Report and/or a copy of the Form 10-K filed with the SEC for the year ended December 31, 2012, may do so without charge by viewing these documents on our Investor Relations website at www.deluxe.com/investor or by writing to:  Corporate Secretary, Deluxe Corporation, 3680 Victoria Street North, Shoreview, Minnesota 55126.

 

 

By order of the Board of Directors

 

 

 

 

 

 

Anthony C. Scarfone

 

Corporate Secretary

 

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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: Signature (Joint Owners) Signature [PLEASE SIGN WITHIN BOX] Date Date To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. 0000162303_1 R1.0.0.51160 For Withhold For All All All Except The Board of Directors recommends you vote FOR ALL of the the following nominees: 1. Election of Directors Nominees 01 Ronald C. Baldwin 02 Charles A. Haggerty 03 C.E. Mayberry McKissack 04 Don J. McGrath 05 Neil J. Metviner 06 Stephen P. Nachtsheim 07 Mary Ann O'Dwyer 08 Martyn R. Redgrave 09 Lee J. Schram DELUXE CORPORATION 3680 VICTORIA STREET NORTH SHOREVIEW, MINNESOTA 55126 VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. The Board of Directors recommends you vote FOR proposals 2. and 3.: For Against Abstain 2. To cast an advisory (non-binding) vote on the compensation of our Named Executive Officers (a Say-on-Pay vote). 3. To consider and act upon a proposal to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the year ending December 31, 2013. NOTE: To take action on any other business that may properly come before the meeting and any adjournment thereof. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer.

 


0000162303_2 R1.0.0.51160 Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual Report, Notice & Proxy Statement is/ are available at www.proxyvote.com . DELUXE CORPORATION This proxy is solicited by the Board of Directors The undersigned appoints Martyn R. Redgrave, Lee J. Schram and Anthony C. Scarfone as proxies (the "Named Proxies"), each with the power to act alone and to appoint his substitute, and authorizes each of them to represent and to vote, as designated on the other side of this proxy card, all shares of common stock of Deluxe Corporation held of record by the undersigned on March 5, 2013, at the annual meeting of shareholders to be held on May 1, 2013, and at any adjournment thereof. This proxy, when properly executed, will be voted as designated on the other side. If no choice is specified, this proxy will be voted "FOR" the nominees and proposals set forth in Items 1, 2, and 3. Also, by signing this proxy, you revoke all prior proxies and authorize the above Named Proxies to vote in their discretion upon such other business as may properly come before the meeting. Deluxe Corporation anticipates that no other business will be conducted at the meeting. The undersigned hereby acknowledges receipt of the proxy statement for the annual meeting of shareholders. Continued and to be signed on reverse side

 

 


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See the reverse side of this notice to obtain proxy materials and voting instructions. *** Exercise Your Right to Vote *** Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on. You are receiving this communication because you hold shares in the above named company. This is not a ballot. You cannot use this notice to vote these shares. This communication presents only an overview of the more complete proxy materials that are available to you on the Internet. You may view the proxy materials online at www.proxyvote.com or easily request a paper copy (see reverse side). We encourage you to access and review all of the important information contained in the proxy materials before voting. Meeting Information Meeting Type: For holders as of: Date: Time: Location: 0000162302_1 R1.0.0.51160 DELUXE CORPORATION DELUXE CORPORATION 3680 VICTORIA STREET NORTH SHOREVIEW, MINNESOTA 55126 Annual Meeting March 05, 2013 May 01, 2013 May 01, 2013 2:00 PM CDT 3680 Victoria Street North Shoreview, Minnesota 55126

 


Please Choose One of the Following Voting Methods Vote In Person: Many shareholder meetings have attendance requirements including, but not limited to, the possession of an attendance ticket issued by the entity holding the meeting. Please check the meeting materials for any special requirements for meeting attendance. At the meeting, you will need to request a ballot to vote these shares. Vote By Internet: To vote now by Internet, go to www.proxyvote.com. Have the information that is printed in the box marked by the arrow available and follow the instructions. Vote By Mail: You can vote by mail by requesting a paper copy of the materials, which will include a proxy card. How To Vote . XXXX XXXX XXXX Before You Vote How to Access the Proxy Materials Proxy Materials Available to VIEW or RECEIVE: How to View Online: Have the information that is printed in the box marked by the arrow (located on the following page) and visit: www.proxyvote.com. How to Request and Receive a PAPER or E-MAIL Copy: If you want to receive a paper or e-mail copy of these documents, you must request one. There is NO charge for requesting a copy. Please choose one of the following methods to make your request: 1) BY INTERNET: www.proxyvote.com 2) BY TELEPHONE: 1-800-579-1639 3) BY E-MAIL*: sendmaterial@proxyvote.com * If requesting materials by e-mail, please send a blank e-mail with the information that is printed in the box marked by the arrow (located on the following page) in the subject line. . XXXX XXXX XXXX . XXXX XXXX XXXX 0000162302_2 R1.0.0.51160 1. Annual Report 2. Notice & Proxy Statement Requests, instructions and other inquiries sent to this e-mail address will NOT be forwarded to your investment advisor. Please make the request as instructed above on or before April 17, 2013 to facilitate timely delivery.

 


Voting items 0000162302_3 R1.0.0.51160 The Board of Directors recommends you vote FOR ALL of the the following nominees: 1. Election of Directors Nominees 01 Ronald C. Baldwin 02 Charles A. Haggerty 03 C.E. Mayberry McKissack 04 Don J. McGrath 05 Neil J. Metviner 06 Stephen P. Nachtsheim 07 Mary Ann O'Dwyer 08 Martyn R. Redgrave 09 Lee J. Schram The Board of Directors recommends you vote FOR proposals 2. and 3.: 2. To cast an advisory (non-binding) vote on the compensation of our Named Executive Officers (a Say-on-Pay vote). 3. To consider and act upon a proposal to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the year ending December 31, 2013. NOTE: To take action on any other business that may properly come before the meeting and any adjournment thereof.

 


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