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SCHEDULE 14A

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ARBITRON INC.

(Name of Registrant as Specified In Its Charter)

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Dear Stockholder:

 

On behalf of the Board of Directors of Arbitron Inc. (“Arbitron”), I am pleased to invite you to attend the annual meeting of stockholders. The meeting will be held at the Four Seasons Hotel, New York, 57 East 57th Street, New York, New York 10022, on Tuesday, May 24, 2011, at 9:00 AM local time.

 

The Notice of Annual Meeting of Stockholders and the proxy statement that follow include information about the proposals recommended by Arbitron’s Board of Directors to elect nine (9) individuals to serve as directors of Arbitron, to hold an advisory vote on executive compensation, to hold an advisory vote on the frequency of holding an advisory vote on executive compensation, and to ratify the appointment of KPMG LLP as the independent registered public accounting firm of Arbitron for the fiscal year ending December 31, 2011.

 

Our Board of Directors believes that a favorable vote for the proposal to elect the nine (9) directors, the compensation of Arbitron’s named executive officers, and for ratification of KPMG as Arbitron’s independent registered public accounting firm for the 2011 fiscal year at the annual meeting is in the best interests of Arbitron and its stockholders, and unanimously recommends a vote FOR the proposals. Additionally, our Board of Directors believes that an annual vote on executive compensation is in the best interests of Arbitron and its stockholders. Accordingly, we urge you to review the accompanying materials carefully and to vote your shares promptly.

 

It is important that your shares be represented at the meeting. I encourage you to vote your shares promptly using Internet or telephone voting, or by following the instructions on the accompanying proxy card to ensure that your vote is counted at the meeting.

 

We look forward to seeing you at the meeting.

 

Sincerely,

 

William T. Kerr

President and Chief Executive Officer

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

May 24, 2011

 

 

The matters listed above are fully discussed in the proxy statement accompanying this notice. A copy of our 2010 Annual Report also accompanies this notice.

 

Stockholders are entitled to one vote for each share of common stock held of record on the record date listed above. A Notice of Internet Availability of Proxy Materials or the proxy statement and the accompanying proxy card will be first mailed to stockholders on or about April 14, 2011.

 

It is important that your shares be represented and voted at the meeting. You can vote your shares by completing and returning the accompanying proxy card. Most stockholders can also vote their shares over the Internet or by telephone. If Internet or telephone voting is available to you, voting instructions are printed on the accompanying proxy card. You can revoke a proxy at any time prior to its exercise at the meeting by following the instructions in the accompanying proxy statement. We appreciate your cooperation.

 

By Order of the Board of Directors

 

Timothy T. Smith

Executive Vice President, Business Development

  and Strategy, Chief Legal Officer, and Secretary

 

April 14, 2011

 

TABLE OF CONTENTS

 

ARBITRON INC.
9705 Patuxent Woods Drive
Columbia, Maryland 21046
April 14, 2011

PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 24, 2011

 

We will begin mailing our Notice of Internet Availability of Proxy Materials to our stockholders on or about April 14, 2011.

 

We are furnishing this proxy statement to our stockholders in connection with a solicitation of proxies by our Board of Directors for use at our 2011 annual meeting of stockholders to be held on Tuesday, May 24, 2011, at 9:00 AM local time at the Four Seasons Hotel, New York, 57 East 57th Street, New York, New York 10022 (the “Annual Meeting”).

 

The Notice of Annual Meeting and proxy statement are available at http://www.arbitron.com/downloads/proxy_2011.pdf, and our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and our 2011 Stockholder Information letter are available at http://www.arbitron.com/downloads/annual_2010.pdf.

 

In accordance with rules and regulations of the Securities and Exchange Commission (the “SEC”), instead of mailing a printed copy of our proxy materials, including our annual report to stockholders, to each stockholder of record, we may furnish proxy materials, including our annual report to stockholders, to our stockholders on the Internet. On or about April 14, 2011 we will send electronically a Notice of Internet Availability of Proxy Materials (the “E-Proxy Notice”) to those stockholders who have previously requested to receive their proxy materials on the Internet. Also on or about April 14, 2011, we will begin mailing the E-Proxy Notice to all other stockholders. If you received the E-Proxy Notice by mail, you will not automatically receive a printed copy of the proxy materials or the annual report to stockholders. Instead, the E-Proxy Notice instructs you as to how you may access and review all of the important information contained in the proxy materials, including our annual report to stockholders. If you have previously signed up on the Internet to receive proxy materials and other stockholder communications on the Internet instead of by mail, you will be receiving the E-Proxy Notice electronically as well. The E-Proxy Notice also instructs you as to how you may submit your proxy on the Internet. If you received the E-Proxy Notice by mail and would like to receive a printed copy of our proxy materials, including our annual report to stockholders, you should follow the instructions for requesting such materials included in the E-Proxy Notice. We may choose to mail written proxy materials, including our annual report to stockholders, to one or more stockholders.

 

If you held any of our common stock at the close of business on March 31, 2011, the record date for the Annual Meeting, you are entitled to receive notice of and to vote at our 2011 Annual Meeting. On that date, there were 27,126,845 shares of common stock outstanding. Our common stock constitutes the only class of securities entitled to vote at the meeting. Stockholders who have not exchanged their Ceridian Corporation common stock certificates for Arbitron Inc. (the “Company”) common stock certificates in connection with the spin-off of Ceridian Corporation by the Company on March 30, 2001, will not be eligible to vote at the Annual Meeting.

 

All holders of our common stock at the close of business on March 31, 2011, the record date for the Annual Meeting, or their duly appointed proxies, are authorized to attend the Annual Meeting. If you attend the meeting, you may be asked to present valid picture identification, such as a driver’s license or passport,

before being admitted. Cameras, recording devices and other electronic devices will not be permitted at the meeting.

 

Please also note that if you hold your shares in “street name” (that is, through a bank, broker or other nominee), you will need to bring a copy of the brokerage statement reflecting your stock ownership as of March 31, 2011, the record date for the Annual Meeting.

 

The presence of a majority of the outstanding shares of our common stock entitled to vote, in person or by proxy, is necessary to constitute a quorum and conduct business at the Annual Meeting. Abstentions and “broker non-votes” will be considered present at the meeting for purposes of determining a quorum. A broker non-vote occurs when a broker holding common stock for a beneficial owner does not vote on a particular matter because the broker does not have discretionary voting power with respect to that item and has not received voting instructions from the beneficial owner.

 

Each share of our common stock that you hold entitles you to one vote on all matters that come before the Annual Meeting. Inspectors of election will count votes cast at the Annual Meeting.

 

The affirmative vote of a plurality of all the votes cast at the Annual Meeting, assuming a quorum is present, is necessary for the election of a director. Therefore, the nine individuals with the highest number of affirmative votes will be elected to the nine directorships. Stockholders who do not wish their shares to be voted for a particular nominee may indicate that in the space provided on the proxy card or by following the telephone or Internet instructions. For purposes of the election of directors, broker non-votes, abstentions and other shares not voted (whether by broker non-vote or otherwise) will not be counted as votes cast and will have no effect on the result of the vote.

 

If you hold your shares through a broker, it is important that you cast your vote if you want it to count in the election of directors, the advisory vote on executive compensation, and the advisory vote on the frequency of holding an advisory vote on executive compensation. Recent regulatory changes have eliminated the ability of your broker to vote your uninstructed shares in the election of directors, the advisory vote on executive compensation, and the advisory vote on the frequency of holding an advisory vote on executive compensation on a discretionary basis. Thus, if you hold your shares in street name and you do not instruct your broker how to vote with respect to these proposals, no votes will be cast on your behalf.

 

A broker non-vote occurs when a broker or other nominee does not receive voting instructions from the beneficial owner and does not have the discretion to direct the voting of the shares. Broker non-votes will be counted for purposes of calculating whether a quorum is present at the Annual Meeting, but will not be counted for purposes of determining the number of votes present in person or represented by proxy and entitled to vote with respect to a particular proposal. Thus, a broker non-vote will not impact our ability to obtain a quorum and will not otherwise affect the outcome of the vote on a proposal that requires a plurality of votes cast, a majority of votes cast, or the approval of a majority of the votes present in person or represented by proxy and entitled to vote.

 

The approval of the advisory resolution on the Company’s executive compensation requires the affirmative vote of a majority of the shares of common stock present, in person or by proxy, at the Annual Meeting and entitled to vote. Abstentions have the same effect as a vote against the advisory resolution. Broker non-votes will have no effect on the outcome of the advisory vote. The results of this vote are not binding on the Board of Directors.

 

The advisory vote on the frequency of holding an advisory vote on the Company’s executive compensation will be determined based on a plurality of the votes cast. This means that the option that receives the most votes will be recommended by the stockholders to the Board of Directors. Abstentions and broker non-votes are not counted for the advisory vote on frequency of advisory votes on the Company’s executive

compensation and, therefore, will have no effect on the outcome of the proposal. The results of this vote are not binding on the Board of Directors.

 

The affirmative vote of the holders of at least a majority of the votes cast at the Annual Meeting is necessary to approve the ratification of the appointment of the Company’s independent registered public accounting firm. Abstentions and broker non-votes will not be counted as votes cast and will have no effect on the outcome of the vote on the ratification of the appointment of the Company’s independent registered public accounting firm.

 

If you own Arbitron common stock as a participant in one or more of our employee benefit plans, you will receive a single proxy card that covers both the shares credited to your name in your plan account(s) and shares you own that are registered in your name. If any of your plan accounts are not in the same name as your shares of record, you will receive separate proxy cards for your record and plan holdings. Proxies submitted by plan participants in our 401(k) plan will serve as voting instructions to the trustees for the plan whether provided by mail, telephone or the Internet. In the absence of voting instructions from participants in the 401(k) plan, the trustees of the plan will vote the undirected shares in the same proportion as the directed shares.

 

You may vote your shares as follows:

 

 

If you vote by proxy, the individuals named on the proxy card (your proxies) will vote your shares in the manner you indicate. You may specify whether your shares should be voted for, against, withhold (in the election of directors), or abstain with respect to all, some or none of the matters submitted for stockholder approval.

 

If your shares are not registered in your own name and you plan to attend the Annual Meeting and vote your shares in person, you should contact your broker or agent in whose name your shares are registered to obtain a proxy executed in your favor and bring it to the Annual Meeting in order to vote.

 

No other matters are to be presented for action at the Annual Meeting other than the items described in this proxy statement. The enclosed proxy will, however, confer discretionary authority with respect to any other matter that may properly come before the meeting. The persons named in the enclosed proxy intend to vote as recommended by the Board of Directors or, if no recommendation is given, in accordance with their judgment on any matters that may properly come before the meeting.

 

It is our policy that the individual stockholder votes are kept confidential prior to the final tabulation of the vote at our stockholders meeting if the stockholder requests confidential treatment. The only exceptions to this policy involve applicable legal requirements and proxy solicitations in opposition to the Board. Access to proxies and individual stockholder voting records is limited to the independent election inspectors (Broadridge Financial Services, Inc.), who may inform us at any time whether or not a particular stockholder has voted.

 

If you submit a proxy, you can revoke it at any time before it is exercised by giving written notice to our Corporate Secretary prior to the Annual Meeting or by timely delivery of a properly exercised, later-dated proxy (including an Internet or telephone vote). You may also attend the Annual Meeting in person and vote by ballot, which would cancel any proxy that you previously submitted.

 

You should rely only on the information provided in this proxy statement. We have not authorized anyone to provide you with different or additional information. You should not assume that the information in this proxy statement is accurate as of any date other than the date of this proxy statement or, where information relates to another date set forth in this proxy statement, then as of that date. Unless the context requires otherwise, in this proxy statement, references to “the Company,” “we,” “us,” “our,” “its” or similar terms are to Arbitron Inc. and its subsidiaries.

 

Because our Board of Directors and its committees are committed to strong and effective corporate governance and oversight and mitigation of risk, they regularly monitor our corporate governance policies and practices to ensure we meet or exceed the requirements of applicable laws, regulations, and the New York Stock Exchange’s listing standards. For fiscal year 2010 and during fiscal year 2011, the Board’s Compensation and Human Resources Committee made substantial changes to our corporate governance policies and practices including:

 

 

In November 2010, the entire Board of Directors participated in a director continuing education program. During fiscal year 2011, the Board of Directors revised our Policy and Procedure on Trading Securities While in Possession of Material Non-Public Information to expressly prohibit speculation in and hedging of shares of our common stock by persons subject to the policy.

 

Corporate Governance Policies and Guidelines.  We have adopted corporate governance policies and guidelines, which serve as principles for the conduct of the Board of Directors. Our corporate governance policies and guidelines, which meet the requirements of the New York Stock Exchange listing standards, address a number of topics, including, among other things, director qualification standards, director responsibilities, the responsibilities and composition of the Board committees, director access to management and independent advisers, director compensation, management succession, and evaluations of the performance of the Board.

 

Codes of Ethics.  We have adopted a Code of Ethics and Conduct, which applies to all of our employees, officers and directors, and meets the requirements for such code as set forth in the New York Stock Exchange listing standards. We have also adopted a Code of Ethics for the Chief Executive Officer and Financial Managers, which applies to our Chief Executive Officer, Chief Financial Officer, and all managers in our financial organization, and meets the requirements of a “code of ethics” as defined by the rules and regulations of the SEC.

 

Where You Can Find These Documents.  Our corporate governance policies and guidelines, Code of Ethics and Conduct and Code of Ethics for the Chief Executive Officer and Financial Managers are available on our Web site at www.arbitron.com, and are also available in print to any stockholder who sends a written request to the Treasury Manager at Arbitron Inc., 9705 Patuxent Woods Drive, Columbia, Maryland 21046.

 

The Board’s role in the Company’s risk oversight process includes receiving regular reports from members of senior management on areas of risk material to the Company, including operational, financial, legal and regulatory, and strategic and reputational risks. The full Board (or the appropriate Committee in the case of risks that are under the purview of a particular Committee) receives these reports from the appropriate “risk owner” within the organization to enable it to understand our risk identification, risk management, and risk mitigation strategies.

 

The Board discusses risks related to the Company’s business strategies at strategic planning meetings and at other meetings as appropriate. The Board’s administration of the risk oversight function has not affected the leadership structure of the Board.

 

The Audit Committee considers risks associated with our overall financial reporting and disclosure process and legal compliance, as well as reviewing the Company’s financial risk exposures and the steps management has taken to monitor, control, and report such exposures. The Audit Committee reviews with management the Company’s guidelines and policies to govern the process by which risk assessment and risk management are undertaken as well as to monitor and control the Company’s exposure to risk. In addition to its regularly scheduled meetings, the Audit Committee meets with the Company’s registered independent public accounting firm in executive sessions at least quarterly.

 

In consideration of risk associated with executive compensation, the Compensation & Human Resources Committee has designed the Company’s executive compensation programs with the goal of striking a reasonable balance between annual and long-term performance, with a significant portion of compensation being delivered in the form of long-term equity incentives. The Compensation & Human Resources Committee has the ability to exercise its negative discretion to reduce annual cash incentives earned by the executives based on the quality of earnings, individual performance and other factors that are appropriate influences on compensation. Additionally, some of the equity grants contain clawback provisions, which we believe discourage inappropriate risk-taking.

 

Under the listing standards of the New York Stock Exchange, and pursuant to our corporate governance policies and guidelines, we are required to have a majority of “independent” directors and a nominating/corporate governance committee, compensation committee, and audit committee, each composed solely of independent directors. In determining director independence, the Board broadly considers all relevant facts and circumstances, including the rules of the New York Stock Exchange. The Board considers these issues not merely from the standpoint of a director, but also from that of persons or organizations with which the director has an affiliation. An independent director is free of any relationship with Arbitron or its management that may impair the director’s ability to make independent judgments.

 

The Board of Directors has evaluated the status of each director and affirmatively determined that Mss. Archambeau and Farber and Messrs. Guarascio, Devonshire, Dimling, Kittelberger, Nogales, and Post are independent. Mr. Kerr is not independent because he is an employee of the Company. In addition, although Mr. Devonshire serves on the audit committee of more than three publicly-traded companies, the Board of Directors has affirmatively determined that such simultaneous service does not impair his ability to serve on our Audit Committee. Each current member of our Compensation and Human Resources Committee, our Nominating and Corporate Governance Committee, and our Audit Committee is independent.

 

We separate the roles of CEO and Chairman of the Board in order to promote independence, manage the relationship between the Board and the CEO, promote oversight of risk, and mitigate potential conflicts of interest. The CEO is responsible for setting the strategic direction for the Company and the day to day leadership and performance of the Company, while the Chairman of the Board provides guidance to the CEO, sets the agenda for Board meetings, and presides over meetings of the full Board and the executive sessions of nonmanagement directors described below.

ELECTION OF DIRECTORS
(Proposal 1)

 

Our business is managed under the direction of our Board of Directors (the “Board”), which currently is composed of nine directors. Our bylaws provide for the annual election of directors. The current terms of office of all of our directors expire at the 2011 Annual Meeting. Our Board has renominated each of the nine directors currently serving on the Board to serve as directors for a one-year term until the 2012 annual meeting of stockholders. Each of the nominees has consented to serve if elected.

 

The Board of Directors recommends a vote FOR and solicits proxies in favor of each of the nominees named below. Proxies cannot be voted for more than nine people. Our Board has no reason to believe that any of the nominees for director will be unable or unavailable to serve. However, if any nominee should for any reason become unable or unavailable to serve, proxies will be voted for another nominee selected by the Board. Alternatively, proxies, at our Board’s discretion, may be voted for a fewer number of nominees as a result of a director’s inability or unavailability to serve. Each person elected will hold office until the 2012 annual meeting of stockholders and until his or her successor is duly elected and qualified, or until earlier resignation or removal.

 

The following is biographical information concerning the nine nominees for election as directors of Arbitron:

 

Shellye L. Archambeau, age 48

 

 

Ms. Archambeau has leadership experience as a chief executive and as a sales and marketing officer. Ms. Archambeau’s executive experience includes active supervision of individuals engaged in preparing and analyzing complex financial statements, which experience is valuable as a member of our audit committee. Ms. Archambeau’s marketing experience enables her to provide strategic insights for our business.

 

David W. Devonshire, age 65

 

 

 

Mr. Devonshire brings finance, accounting, and financial reporting experience as a public company chief financial officer. Mr. Devonshire currently also serves on the audit committees of several public companies. Mr. Devonshire’s significant financial experience uniquely enables him to provide analysis and insight to our audit committee as well as our finance, strategic planning, accounting, and internal audit functions.

 

John A. Dimling, age 73

 

 

Mr. Dimling has a deep understanding of the media audience ratings marketplace as well as experience running a leading publicly-traded ratings company. Mr. Dimling’s experience and insight gained as a chief executive of a media audience ratings company is particularly important as we work to develop new services and enhance existing services.

 

Erica Farber, age 58

 

 

Ms. Farber has extensive experience in the communications industry, including radio, television, and publishing. Ms. Farber’s experience in the communications industry, including through her current radio consulting career, assists her in providing valuable advice and insight to the Company regarding its current operations and potential areas of expansion.

 

Philip Guarascio, age 69

 

 

 

Mr. Guarascio has extensive experience in the advertising and marketing industries, including as a senior executive with General Motors Corporation. Mr. Guarascio’s advertising, marketing, and strategic expertise allow him to provide valuable insight on matters important to our customers and other users of our services as well as strategic plans relating to our business.

 

William T. Kerr, age 69

 

 

Having served as the chairman, president and chief executive officer of Meredith Corporation, Mr. Kerr has a wealth of executive management experience leading a publicly-traded media company. Mr. Kerr also has extensive experience serving as a director of the boards of large public companies. His executive leadership experience, his experience as a director, as well as his familiarity with our Company makes him particularly well-suited to be a member of the Board of Directors.

 

Larry E. Kittelberger, age 62

 

 

 

Mr. Kittelberger has a history of demonstrated leadership as a senior executive of technology and manufacturing companies. His significant experience with technology companies is particularly valuable for us as he can provide strategic input on developing, enhancing, and exploiting our technologies.

 

Luis G. Nogales, age 67

 

 

Mr. Nogales has an extensive background in the media and broadcasting sector. Mr. Nogales provides a unique perspective as a private equity investor who intimately understands the concerns of stockholders as well as from his experience as a director of other public companies.

 

Richard A. Post, age 52

 

 

Mr. Post has extensive experience in the finance and corporate development areas, including as a chief financial officer as well as the chief executive officer of a publicly-traded company. This experience allows Mr. Post to provide guidance and counsel in his role as chairman of our audit committee and in our strategic planning activities.

 

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE NOMINEES SET FORTH ABOVE.

 

Consistent with the New York Stock Exchange listing standards, our corporate governance policies and guidelines provide that, in order to promote open discussion among nonmanagement directors, the Board will devote a portion of each regularly scheduled Board meeting to executive sessions without management participation. Our corporate governance policies and guidelines provide that if the group of nonmanagement directors includes directors who are not independent, as defined in the New York Stock Exchange listing standards, it is the Company’s policy that at least one such executive session convened per year shall include only independent directors.

 

Interested third parties may communicate with the Board of Directors by e-mailing correspondence directly to our Chair of the Board of Directors at nonmanagementdirectors@arbitron.com. Our Chair will decide what action should be taken with respect to any such communication, including whether such communication will be reported to the Board of Directors.

 

The Board of Directors held 12 meetings in 2010, including meetings by telephone conference, and acted by unanimous written consent three times in 2010. Each director attended at least 75% of the meetings of the Board of Directors and applicable committees on which they served during the period that they served on the Board of Directors or such committees. In addition, pursuant to our corporate governance policies and guidelines, directors are expected to attend the annual meetings of stockholders. Last year, all of our then current directors attended the annual meeting of stockholders.

 

The Board of Directors has established five standing committees to consider designated matters: (i) Audit; (ii) Compensation and Human Resources; (iii) Executive; (iv) Nominating and Corporate Governance; and (v) Technology Strategy. In March 2010, the Board of Directors established the special Growth Strategy Committee. After determining that the Growth Strategy Committee had served the purpose for which it had been formed, effective February 9, 2011, the Board discontinued the committee. All committees, with the exception of the Growth Strategy Committee and Technology Strategy Committee, are comprised solely of independent directors, as defined in the New York Stock Exchange listing standards and as affirmatively determined by our Board of Directors. The Board annually selects, from its members, the members and chairperson of each committee. The following table sets forth the number of Board and committee

meetings (including teleconference meetings) held in 2010, the members of each committee and the chairman of each committee:

 

 

Mr. Kerr joined the Executive Committee in January 2010. The Executive Committee acts on matters that arise between Board meetings and require immediate action. All actions taken by this committee are reported to, and ratified by, the Board of Directors at its next regularly scheduled meeting.

 

As required by the charter of the Audit Committee, our corporate governance guidelines, and the New York Stock Exchange listing standards, all members of the Audit Committee qualify as independent directors within the meaning of the New York Stock Exchange listing standards and Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are financially literate within the meaning of the New York Stock Exchange listing standards, and meet the experience and financial expertise requirements of the New York Stock Exchange listing standards. The Board of Directors has determined that Mr. Post is an “audit committee financial expert” as defined by the rules and regulations of the SEC. The principal purposes of the Audit Committee are to:

 

 

 

 

The Audit Committee operates under a written Charter adopted by the Board of Directors. However, it is the responsibility of management and the independent registered public accounting firm to plan and conduct audits and determine that the Company’s financial statements and disclosures are presented fairly in all material respects in accordance with generally accepted accounting principles. A copy of the amended and

restated written charter for the Audit Committee is available on our Web site at www.arbitron.com and is available in print, free of charge, to any stockholder who requests it. You may obtain such a print copy by contacting the Treasury Manager at Arbitron Inc., 9705 Patuxent Woods Drive, Columbia, Maryland 21046.

 

Each member of the Compensation and Human Resources Committee qualifies as an independent director under the New York Stock Exchange listing standards. Mr. Kerr served as chair of the Compensation and Human Resources Committee until he resigned as chair and as a member of the Committee on January 11, 2010 upon being appointed President and CEO. The principal responsibilities of the Compensation and Human Resources Committee are to:

 

 

The Compensation and Human Resources Committee has retained the firm of Frederic W. Cook & Co., Inc. as its compensation consultant to assist in the continual development and evaluation of compensation policies and the Compensation and Human Resources Committee’s determinations of compensation awards. The role of Frederic W. Cook & Co., Inc. is to provide independent, third-party advice and expertise on executive and non-employee director compensation issues, including providing assistance with respect to CEO compensation and the terms and conditions of our employment agreement with Mr. Kerr, the sizing of the new equity plan share reserve, and updates on executive compensation trends and regulatory developments, as described in the “Compensation Discussion and Analysis” section below. Frederic W. Cook & Co., Inc. maintains no other direct or indirect relationship with the Company.

 

During 2010, the Compensation and Human Resources Committee delegated authority to the CEO under the Company’s 2008 Equity Compensation Plan and 2001 Broad Based Incentive Plan to make incentive awards to non-executive employees of the Company in an aggregate amount not to exceed $2,500,000 annually and not more than 5,000 shares per participant per calendar year.

 

The Board of Directors has adopted an amended and restated written charter for the Compensation and Human Resources Committee, a copy of which is available on our Web site at www.arbitron.com and is available in print, free of charge, to any stockholder who requests it. You can obtain such a print copy by contacting the Treasury Manager at Arbitron Inc., 9705 Patuxent Woods Drive, Columbia, Maryland 21046.

 

Each member of the Nominating and Corporate Governance Committee qualifies as an “independent” director under the New York Stock Exchange listing standards. Mr. Kerr served as a member of the Nominating and Corporate Governance Committee until he resigned on January 11, 2010 upon being

appointed President and CEO. The principal purposes of the Nominating and Corporate Governance Committee are to:

 

 

The Nominating and Corporate Governance Committee has approved, and the Board of Directors has adopted, policies and procedures to be used for considering potential director candidates to continue to ensure that our Board of Directors consists of a diversified group of qualified individuals who function effectively as a group. These policies and procedures provide that qualifications and credentials for consideration as a director nominee may vary according to the particular areas of expertise being sought as a complement to the existing composition of the Board of Directors. However, at a minimum, candidates for director must possess: (1) strength of character; (2) an ability to exercise independent thought, practical wisdom and mature judgment; (3) an ability to make independent analytical inquiries; (4) a willingness and ability to devote adequate time and resources to diligently perform Board of Director duties; and (5) a reputation, both personal and professional, consistent with the image and reputation of Arbitron.

 

In addition to the aforementioned minimum qualifications, the Nominating and Corporate Governance Committee also believes that there are other factors that, while not prerequisites for nomination, should be taken into account when considering whether to recommend a particular person. These factors include: (1) whether the person possesses specific media and marketing expertise and familiarity with general issues affecting Arbitron’s business; (2) whether the person’s nomination and election would enable the Board of Directors to have a member that qualifies as an “audit committee financial expert” as such term is defined by the Securities and Exchange Commission; (3) whether the person would qualify as an “independent” director under the New York Stock Exchange listing standards and the Company’s corporate governance policies and guidelines; (4) the importance of continuity of the existing composition of the Board of Directors; and (5) the importance of a diversified Board membership, in terms of both the individuals involved and their various experiences and areas of expertise. The Nominating and Corporate Governance Committee annually reviews and assesses the adequacy of the Company’s policy regarding qualification and nomination of director candidates.

 

Nominees are not discriminated against on the basis of race, religion, national origin, sexual orientation, disability or any other basis proscribed by law. The Nominating and Corporate Governance Committee retains third-party executive search firms to identify and review candidates upon request of the Nominating and Corporate Governance Committee from time to time.

 

The Nominating and Corporate Governance Committee seeks to identify director candidates based on input provided by a number of sources, including (i) Nominating and Corporate Governance Committee members, (ii) other directors of the Company, and (iii) stockholders of the Company. The Nominating and Corporate Governance Committee also has the authority to consult with or retain advisers or search firms to assist in the identification of qualified director candidates.

 

As part of the identification process, the Nominating and Corporate Governance Committee takes into account the number of expected director vacancies and whether existing directors have indicated a willingness to continue to serve as directors if renominated. Once a director candidate has been identified, the Nominating and Corporate Governance Committee then evaluates this candidate in light of his or her qualifications and

credentials, and any additional factors that it deems necessary or appropriate. Existing directors who are being considered for renomination will be reevaluated as part of the Nominating and Corporate Governance Committee’s process of recommending director candidates.

 

The Nominating and Corporate Governance Committee considers candidates recommended by stockholders in the same manner as all other director candidates. Stockholders who wish to suggest qualified candidates must comply with the advance notice provisions and other requirements of Article II, Section 13 of our bylaws. These notice provisions require that recommendations for directors must be received not less than 90 days nor more than 120 days prior to the date of the annual meeting of stockholders for the preceding year. The notice must follow the guidelines set forth in this proxy statement under the heading, “Other Matters — Director Nominations.”

 

After completing the identification and evaluation process described above, the Nominating and Corporate Governance Committee recommends to the Board of Directors the nomination of a number of candidates equal to the number of director vacancies that will exist at the annual meeting of stockholders. The Board of Directors then selects director nominees for stockholders to consider and vote upon at the stockholders’ meeting.

 

The Board of Directors has adopted an amended and restated written charter for the Nominating and Corporate Governance Committee, a copy of which is available on our Web site at www.arbitron.com and is available in print, free of charge, to any stockholder who requests it. You can obtain a copy in print by contacting the Treasury Manager at Arbitron Inc., 9705 Patuxent Woods Drive, Columbia, Maryland 21046.

 

The principal purposes of the Technology Strategy Committee are to:

 

 

The principal purposes of the Growth Strategy Committee were to assist the Board and the Company’s management by providing strategic direction regarding business development and expansion opportunities, and such other matters as are consistent with the Committee’s purpose.

 

The Growth Strategy Committee was formed in March 2010. The Board terminated the Growth Strategy Committee in February 2011 after determining that the Growth Strategy Committee had provided strategic direction to management and had completed its principal purposes.

 

The table below provides information concerning the compensation of our directors for the most recently completed fiscal year. Except as noted below, all of our directors are paid at the same rate. The differences among directors in the table below are a function of additional compensation for chairing a committee, varying numbers of meetings attended and corresponding payments of meeting fees, and the form in which each director elects to receive retainer and meeting fees.

 

Each director who is not also an employee of Arbitron or its subsidiaries is entitled to receive an annual board retainer fee of $30,000, which is paid in quarterly installments. Since April 2009, our Non-Executive Chairman has received a supplemental annual cash retainer of $85,000. During 2010, the non-employee chairs of the Audit Committee and the Technology Strategy Committee were entitled to receive supplemental annual cash retainers of $20,000; non-employee chairs of the Compensation and Human Resources Committee and the Nominating and Corporate Governance Committee were entitled to receive a supplemental annual cash

retainer of $10,000. For each Board meeting attended, in person or by telephone, participating non-employee directors are entitled to receive $1,500. For each committee meeting attended in person, participating non-employee directors are entitled to receive $1,500 and for each committee meeting attended by telephone, participating non-employee directors are entitled to receive $750.

 

Additionally, in connection with the formation of the Growth Strategy Committee on March 31, 2010, the non-employee chair received a one-time grant of 15,000 stock options, which vested on the first anniversary of the date of grant. The non-employee directors on the Growth Strategy Committee were compensated for attending meetings on the same basis as for other committees. Effective January 1, 2011, the non-employee chair of the Compensation and Human Resources Committee and Nominating and Corporate Governance Committee are entitled to receive a supplemental annual cash retainer of $15,000.

 

Since 2008, each newly elected non-employee director has received a one-time grant of 4,500 deferred stock units (“DSUs”), which DSUs vest in three equal installments of 1,500 DSUs beginning on the first anniversary of the date of grant and were payable following the director’s termination of service as a director of the Company. While we previously made annual grants of stock options to continuing non-employee directors, effective January 1, 2010 and beginning the year after initial election to the Board of Directors, each continuing non-employee director will receive an annual grant of $100,000 worth of DSUs, which DSUs will vest in three equal installments beginning on the first anniversary of the date of grant, and will be payable no sooner than six months following the director’s termination of service as a director of the Company.

 

The Company previously adopted a Non-employee Director Incentive Program, which permitted non-employee directors to receive, at their discretion, either options or DSUs in lieu of their annual cash retainers and meeting fees. A director who elected to receive options received a number of options based on a calculation approved by the Compensation and Human Resources Committee. The formula for determining the number of option shares was to divide the cash fees earned in the quarter by the closing price of Arbitron common stock on the date of the grant, which was the last trading day of the quarter. This amount was then multiplied by four to arrive at the number of option shares granted. Beginning in 2010, non-employee directors were no longer permitted to elect options in lieu of their annual cash retainers and meeting fees.

 

A director who elects to receive DSUs receives a number of units based on a calculation approved by the Compensation and Human Resources Committee. The formula for determining the number of DSUs is to divide 100% of the cash fees earned in the quarter by the closing price of Arbitron common stock on the date of the grant, which is the last trading day of the quarter.

 

DSUs granted to our directors convert to shares of our common stock after termination from the Board of Directors, based upon a schedule elected by the directors prior to the end of the year in which the compensation is earned and, in the case of DSUs earned on or after January 1, 2010, not sooner than six months following termination of service as a director. In the event that a director elects to receive DSUs, the director will receive dividend equivalent rights on such DSUs to the extent dividends are issued on our common stock. Dividend equivalents are deemed reinvested in additional DSUs (or fractions thereof). The amounts set forth in the table below for each director in the column “Fees Earned or Paid in Cash” represent the cash payment of annual retainers and fees or, if the director elected to receive equity-based compensation in lieu of all or a portion of such retainers and fees, the amount of cash the director would have received if the director had not elected to receive such equity-based compensation. If the director elected to receive equity-based compensation in lieu of annual cash retainers and fees, we report in the column “Stock Awards,” as applicable, the grant date fair value of the equity-based compensation received in lieu of annual cash retainers such director would have received had the director not elected to receive equity-based compensation.

 

It is also the philosophy of the Company that directors should have a meaningful equity ownership in the Company. In 2004, the Board established stock ownership guidelines covering directors. The Board reviewed the guidelines during 2010. The guidelines require each director to own shares with a value of four times the annual board retainer. These guidelines are expected to be achieved over five years from joining the Board and include all owned shares, as well as DSUs credited to directors. However, outstanding and unexercised stock

options are not counted toward the stock ownership guidelines. As of April 1, 2011, all applicable directors met the stock ownership guidelines.

 

2010 Director Compensation

 

 

 

 

 

Information concerning the persons who currently serve as our executive officers is provided below. Each of the named persons has been elected to the office indicated opposite the person’s name. The executive officers serve at the discretion of the Board of Directors. Officers generally are elected at the meeting of the Board of Directors held immediately following the annual meeting of stockholders. The Board of Directors may elect additional executive officers from time to time.

 

William T. Kerr, age 69, President and Chief Executive Officer since January 2010

 

 

Sean R. Creamer, age 46, Executive Vice President, U.S. Media Services since April 2010

 

 

Richard J. Surratt, age 50, Executive Vice President, Finance and Chief Financial Officer since February 2011

 

 

 

Timothy T. Smith, age 47, Executive Vice President, Business Development and Strategy, Chief Legal Officer, and Secretary since June 2010

 

 

Carol Hanley, age 44, Executive Vice President, Chief Sales and Marketing Officer since June 2010

 

 

Scott Henry, age 49, Executive Vice President, Technology Solutions and Chief Information Officer since February 2005

 

 

Marilou Legge, age 57, Executive Vice President, Organization Effectiveness and Corporate Communications since June 2010

 

 

Gregg Lindner, age 54, Executive Vice President, Service Innovation and Chief Research Officer since January 2011

 

 

Steven M. Smith, 50, Executive Vice President, Survey Operations, since August 2008

 

 

This section describes the compensation programs for our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) in fiscal year 2010, our former Chief Executive Officer, each of our three most highly compensated executive officers employed at the end of fiscal year 2010, and one additional person who would have been included but for the fact that he was not serving as an executive officer at the end of fiscal year 2010, all of whom we refer to collectively as our named executive officers or NEOs. Our named executive officers for fiscal year 2010 are:

 

 

On January 11, 2010, Mr. Skarzynski resigned as President and CEO. Mr. Skarzynski received compensation in accordance with his Settlement Agreement and General Release. On September 30, 2010, Mr. Bouvard’s employment with the Company terminated. Mr. Bouvard received severance compensation in accordance with his Executive Retention Agreement.

 

In June 2010 Mr. Creamer was promoted to Executive Vice President, U.S. Media Services and his duties were expanded. Effective February 28, 2011 Richard J. Surratt was appointed Chief Financial Officer of the Company. Accordingly, Mr. Creamer no longer serves as our Chief Financial Officer.

 

We design our compensation programs to: (1) support our corporate strategy and business plan by clearly communicating the level of performance we expect from our executives in terms of goals and results and by rewarding achievement against those goals; (2) facilitate our recruitment and retention of the best-qualified executive talent; and, (3) align our named executive officers’ interests with those of our long-term stockholders by rewarding performance that meets or exceeds the goals the Compensation and Human Resources Committee (referred to as the “Committee” in the remainder of this section) establishes with the objective of increasing stockholder value, while mitigating the incentive for excessive risk taking. Consistent with our pay for performance philosophy, the total compensation received by our named executive officers will vary from year to year based on overall corporate performance measured against annual and long-term performance goals. Our named executive officers’ total compensation is comprised of a mix of base salary, annual incentive compensation and long-term incentive awards.

 

We design our annual and long-term incentive programs to support and promote our key strategic business objectives of growing our radio audience measurement business and expanding our information services to multiple media and a broader range of media, including broadcast television, cable, out-of-home media, satellite radio and television, Internet, and mobile media.

 

Our fiscal 2010 corporate performance was a key factor in the compensation decisions and outcomes for the fiscal year. Diluted earnings per share was a key performance goal set by the Committee under the 2010 Non-Equity Incentive Plan, which the Committee weighted at 50%. In February 2011, the Company reported diluted earnings per share for fiscal year 2010 of $1.64. These earnings per share exceeded the GAAP diluted earnings per share of $1.58 reported for fiscal year 2009, which included a one-time tax benefit of

approximately $0.17 per share (diluted), and also exceeded the Committee’s target diluted earnings per share target for 2010. Excluding the 2009 tax benefit from full year 2009 results, earnings per share (diluted) increased approximately 16 percent for full year 2010. During 2010 we also successfully executed our PPM and Diary market commercialization and operational improvement programs while substantially exceeding the various financial goals associated with those programs and completed multiple comprehensive corporate strategic assessments. As a result of the Company’s performance relative to these factors and other operational and strategic objectives, annual bonus payments to our NEOs were above target for 2010.

 

We made several adjustments to our compensation programs for fiscal years 2010 and 2011 to further align our executive compensation structure with our stockholders’ interests and current market practices. For example, we increased the weighting of performance-based awards in our 2010 non-equity incentive plan and long term incentive plan, by including performance cash awards that provide compensation to executives at the end of a three year period only if and to the extent that our cumulative diluted earnings per share over that period exceeds targets set by the Committee, and by awarding performance restricted stock units that will expire without vesting unless our return on invested capital exceeds our weighted average cost of capital. We also added clawback provisions to our performance cash awards and new executive retention agreements, which will allow the Company to recover any excess incentive compensation paid to our named executive officers and other key members of our executive team if the financial results on which the awards were based are materially restated due to fraud or misconduct of the executive.

 

The changes we made to our compensation program for fiscal years 2010 and 2011 build upon our solid compensation and governance framework and strong pay for performance philosophy, which are exemplified by:

 

 

For more information regarding the recent changes to our corporate governance policies and practices, see “Corporate Governance — Corporate Governance Changes for Fiscal Year 2010 and Fiscal Year 2011” above.

 

We seek to achieve the objectives of our compensation program through the following five key compensation elements:

 

 

In making decisions with respect to any component of a NEO’s compensation, we consider the total compensation that may be awarded to the NEO, including the foregoing and any post-termination compensation. Our goal is to award total compensation that is reasonable when all elements of potential compensation are considered.

 

When making decisions with respect to each component of compensation, the Committee considers the competitive market when recruiting new executives and also looks at the compensation of our CEO and the other NEOs relative to the compensation paid to similarly-situated executives at companies that we consider to be our peers. We believe, however, that a comparison to peer group compensation information should be one reference point for consideration, but not the determinative factor for setting our executives’ compensation. The purpose of the comparison is to augment, and not to supplant, the analyses of relative pay among our NEOs and individual performance that we consider when making compensation decisions. Because we experienced a CEO succession in 2010 under highly unusual circumstances, the Committee considered the competitive market and determined that it would be to the benefit of the Company and its stockholders to set ongoing compensation levels and opportunities in the median to 75th percentile range to secure the services of our new CEO, who was intimately familiar with us and uniquely qualified to lead the company during a particularly volatile period.

 

We refer to the current group of 15 comparable media, market-research, and information-based business services companies considered by the Committee in 2010, collectively, as our “Compensation Peer Group.” With the assistance of its compensation consultant, the Committee reviews the composition of the Compensation Peer Group periodically to ensure that such comparison companies are relevant and appropriate.

 

The Committee selected the Compensation Peer Group companies based primarily on the following criteria:

 

 

Our 2010 Compensation Peer Group consisted of the following companies:

 

 

The 2010 Compensation Peer Group consists of 15 companies that were included in the prior year peer group. First Advantage Corporation and Omniture, Inc. were not included in the 2010 Compensation Peer Group due to their acquisition. The Company’s revenue was between the 25th percentile and median of the Compensation Peer Group companies as of December 2010. The Company’s market cap approximated the median of the Compensation Peer Group companies as of December 2010.

 

Because comparative compensation information is just one of several analytic tools the Committee uses in setting executive compensation, the Committee has discretion in determining the nature and extent of its use. Moreover, given the limitations associated with comparative pay information for setting individual executive compensation, the Committee may elect to not use the comparative compensation information at all in the course of making individual compensation decisions. Other factors considered when making individual executive compensation decisions include the individual’s contribution and performance, reporting structure, relative pay among executives, impact on financial results, importance of role and responsibilities, leadership, professional growth potential, and, for new hires, compensation at the prior employer. The Committee makes all executive compensation decisions after input from the CEO (except with regard to his own compensation) and review with the Committee’s independent consultant.

 

The purpose of base salary is to reflect job responsibility, experience, value to the Company and individual performance. During 2010, the minimum salary for Messrs. Kerr and Skarzynski was specified in their respective employment agreement. The Committee determines the salaries for our other NEOs based on the following:

 

 

We compete with many larger companies for top executive talent. As such, we periodically consider the base salary component relative to our Compensation Peer Group in an attempt to ensure it is competitive with the market for such executive talent. However, recruiting, retaining, and recognizing performance of specific executives may result in some variation from this market review. Salaries are generally reviewed annually.

 

Base salary is the foundation of our executive compensation program and is designed to compensate executives for services rendered during the year. Base salary is the only fixed element of the executive’s compensation, and it represents a portion of total target direct compensation, with the annual incentive and long-term incentive representing approximately 75% of target total direct compensation for Mr. Kerr, and approximately 50-60% of target total direct compensation for other NEOs.

 

Our compensation program provides for annual cash incentive awards that are based on Company performance and adjusted by the Committee for individual contributions. Our objective is to compensate executives based on the achievement of specific goals that we intend to correlate closely with growth of long-term stockholder value.

 

We design our annual non-equity incentive plan to reward executives for achieving corporate goals and provide significant upside for exceeding such goals. Early in the fiscal year, the Committee, working with our CEO, CFO, and the Committee’s independent consultant, sets overall performance goals for the Company. The annual non-equity incentive plan compensation for which our executives other than the CEO are eligible is equal to between 50% and 60% of salary at the “target” performance level for full achievement of the performance goals, and up to two times “target” for superior performance. During 2010 the Committee had discretion to grant non-equity incentive payments in excess of the “superior” level of performance in order to reward actual performance that exceeds the “superior” level. If performance goals do not meet the “threshold” level of performance, no compensation will be awarded for the specific performance category; however, if performance goals are achieved at threshold levels, but not at target levels, the Committee has discretion to award non-equity incentive compensation in an amount between 50% of the target level and the target level, based on the Committee’s assessment of the value of the relevant performance. During 2010, pursuant to the terms of his Executive Employment Agreement, Mr. Kerr was eligible to receive a non-equity incentive payment equal to 100% of his annual base salary. The Committee had discretion to increase this payment up to 200% of Mr. Kerr’s annual base salary for performance exceeding the applicable performance criteria, but was not contractually obligated to pay Mr. Kerr any non-equity incentive depending up the Company’s performance.

 

During 2010, we determined that overall corporate financial targets as well as continuous improvement of our electronic and Diary-based radio ratings services, including continued execution of our PPM commercialization and improvement program, execution of our cross-platform services strategic plan, and completion of a comprehensive strategic assessment represented the most significant corporate priorities for the year. Because these priorities required our executives to focus collaboratively on overall corporate initiatives, we determined that 2010 annual non-equity incentive payments for all NEOs should be based entirely on the achievement of corporate goals, subject to the Committee’s discretion to adjust payments based on the individual performance of the executives.

 

The Committee established 2010 non-equity incentive plan performance goals to provide for an annual cash payment that is performance linked based upon our diluted earnings per share (weighted 50%), Portable People Meter commercialization and improvement program (weighted 20%), Diary market improvement program (weighted 10%), cross-platform services strategic plan execution (weighted at 10%), and completion of a comprehensive corporate strategic assessment (weighted at 10%).

 

We selected the earnings per share financial target in order to motivate executives to achieve the Company’s overall financial objectives of profitable growth through prudent deployment of the Company’s capital, promotion of growth of the business, and cost containment. We emphasized earnings per share in order to focus executives’ attention on a financial measure that we believe aligns the interests of management with those of long-term stockholders and rewards management for creating value for such long-term stockholders. We chose to focus the remaining 50% on strategic targets. The ratings service commercialization and improvement programs were weighted at a combined 30%, given the importance of maintaining and enhancing these services in order to deliver on the value proposition for our customers and, thereby, drive stockholder value. We included the cross-platform services strategic plan assessment because we believe leveraging our technologies to expand our ratings services to new and multiple media platforms is an important initiative with the potential to position the Company for future growth and drive stockholder value. Additionally, we selected the completion of a comprehensive corporate strategic assessment because we believe the Company and the media audience measurement business are each in a period of unique opportunity and we believe it is important to focus the executive’s attention on strategic planning to position us for long-term growth.

The Committee ultimately exercises its discretion in assessing corporate performance under the plan. In evaluating performance, the Committee reviews performance against the goals utilizing a number of metrics and assigns a performance factor for each goal. If the Committee determines that actual performance for any goal fell below the threshold level, it assigns a performance factor of zero for that goal. While the Committee exercises its discretion in each case, there is a presumption with respect to each individual goal that performance (i) at the threshold level will result in a performance factor of 0.5, (ii) at the target level will result in a performance factor of 1.0, and (iii) performance at the superior level will result in a performance factor of 2.0. For performance either between threshold and target or between target and superior, the Committee uses its discretion to assign a performance factor generally utilizing the guidelines set forth above.

 

In determining the extent to which the financial performance or other goals are met or exceeded, the Committee exercises its business judgment whether to reflect or exclude the impact of extraordinary, unusual, or infrequently occurring events.

 

After determining a performance factor for each goal, the Committee multiplies the performance factor by the percentage weight it assigned to that goal for the year to determine an overall percentage assessment for corporate performance. This overall performance is then applied to each executive’s non-equity incentive potential for the year.

 

Notwithstanding its overall assessments of corporate performance against the goals, the Committee also has positive and negative discretion to authorize a greater or lesser amount to the extent it determines appropriate and in the best interests of the Company and its stockholders based upon its evaluation of a combination of other quantitative and qualitative considerations, including individual executive performance, stock price, and achievement of fundamental organizational change, as determined by the Committee in exercise of its business judgment. See below for specific factors utilized by the Committee in exercising discretion.

 

The Committee also considered the recommendation of the CEO (for executive officers other than himself) in exercising its judgment. Following consideration of a variety of data regarding 2010 results, and following the guidelines set forth above, the Committee approved the following overall assessment of 2010 corporate performance, with intermediate amounts determined using straight-line interpolation:

 

 

For fiscal 2010, the Company reported 2010 diluted earnings per share of $1.64. Accordingly, the Committee determined that performance was between Target and Superior. As a result, the Committee assigned a performance factor of 1.08 for the Earnings Per Share goal.

 

 

The Committee determined that in 2010, the Company (i) had maintained MRC accreditation in Houston-Galveston, Minneapolis-St. Paul, and Riverside-San Bernardino, but had not obtained any new accreditations; (ii) completed the planned commercialization of the PPM ratings service; (iii) achieved an annualized average

of 97% for key performance indicators; (iv) met customer commitments for cell-phone and sample increase; and (v) settled outstanding disputes with the PPM Coalition. Accordingly, the Committee determined that performance was between Target and Superior. As a result, the Committee assigned a performance factor of 1.5 for the PPM Commercialization and Improvement Program goal.

 

 

The Committee determined that in 2010, the Company had lost MRC accreditation for its RADAR service, but had retained current business and achieved an average of 15% cell-phone household sampling on schedule and under budget. Accordingly, the Committee determined that performance was at Target. The Committee assigned a performance factor of 1.0 for the Diary Market Improvement Program goal.

 

Cross-Platform Services Strategic Plan Execution (weighted 10%)

 

This performance objective required the Company to define and execute a cross-platform strategy plan designed to achieve growth objectives.

 

The Committee determined that in 2010, the Company had defined and executed a cross-platform strategy designed to achieve growth objectives. Accordingly, the Committee assessed performance at the target level and assigned a performance factor of 1.0 for the Cross-Platform Objective goal.

 

Corporate Strategic Assessment (weighted at 10%)

 

This performance objective required the Company to complete a comprehensive strategic assessment designed to position the Company for long-term growth in overall stockholder value.

 

The Committee determined that in 2010, the Company had in fact completed a comprehensive strategic assessment. Accordingly, the Committee determined that performance was between Target and Superior. The Committee assigned a performance factor of 1.2 for the Corporate Strategic Assessment goal.

 

 

The Committee determined to pay Mr. Kerr a bonus of $1,000,000, or 125% of his base salary, and to grant Mr. Kerr 900 deferred stock units in consideration of his strong leadership during 2010 in light of extraordinary circumstances facing the Company and the overall corporate performance. In consideration of the foregoing assessments, the Committee approved an overall corporate assessment of 116.0% of target for the 2010 Non-Equity Incentive Plan for all other executives. As a result of these determinations, the Company awarded 2010 non-equity incentive plan payments in the amounts set forth in the Summary Compensation Table.

 

On February 8, 2011, the Committee approved a non-equity incentive plan for the Company’s executive officers for 2011, which would be payable in early 2012 (the “2011 Incentive Plan”).

 

Compensation under the 2011 Incentive Plan is intended to be performance-based compensation within the meaning of Section 162(m) of the Code. Provided that the Company’s return on invested capital exceeds the Company’s weighted average cost of capital for 2011, the Committee will have discretion to award up to $2,000,000 to the CEO and up to $750,000 to each other NEO. If the threshold performance target is met the Committee will exercise its negative discretion by assessing performance against the following performance measures, and other factors it deems relevant, to determine the actual award payable to each executive. The 2011 Incentive Plan provides for an annual cash bonus opportunity that is linked to performance based upon the Company’s diluted earnings per share (weighted 60%), quality of the Company’s ratings services (weighted 20%), as well as a personal component, which is tied directly to each individual executive’s performance during the year (weighted 20%). For each component the Committee established threshold performance goals. The 2011 Incentive Plan provides for a target cash bonus opportunity for each executive officer, expressed as a percentage of base salary. The target 2011 Incentive Plan bonus opportunity for Mr. Kerr is equal to 100% of his base salary pursuant to the February 8, 2011 amendment to his employment agreement (described below under “Retention and Employment Agreements”), and the target 2011 Incentive Plan bonus opportunities for other executive officers range from 50-60% of base salary. Awards under the 2011 Incentive Plan can vary, subject to minimum thresholds of performance and depending on the Committee’s assessment of performance against the goals. The Committee has negative discretion to eliminate or reduce the amount of any award under the 2011 Incentive Plan.

 

The long-term incentive program provides a periodic award (typically annual) that is based on competitive grant guidelines and adjusted for individual contributions. The objectives of this program are to align compensation for NEOs over a multiyear period with the interests of stockholders by motivating and rewarding creation and preservation of long-term stockholder value. The level of long-term incentive compensation for each NEO is determined based on an evaluation of competitive factors in conjunction with total compensation provided to NEOs and the other goals of the compensation program described above. The Committee meetings at which grants are determined are normally scheduled well in advance and are not scheduled with regards to announcements of material information regarding the Company.

 

On March 4, 2010, the Committee established the performance objectives and other terms of the Company’s 2010 Long-Term Incentive Plan (the “2010 LTI Plan”) for officers and other eligible employees of the Company. The targeted opportunity for the Company’s executive officers is divided into the following three components, with each component representing approximately 33% of the total opportunity: (i) non-qualified stock options, (ii) performance-based restricted stock units, and (iii) performance cash awards. This mix of grant types was determined by the Committee to most effectively balance risk and reward for future stockholder value creation with ownership and retention objectives of the executive compensation program.

 

The target 2010 LTI Plan opportunity for executive officers ranged from 50% of 2010 base salary to 187.5% of 2010 base salary.

 

These three types of awards reward stockholder value creation in different ways. Stock options (which have exercise prices equal to the fair market value of the common stock on the date of grant) reward executives only if the stock price increases. Stock option grants to named executive officers vest ratably over three years, beginning on the first anniversary of the date of grant and have a term of 10 years.

 

Performance-Based Restricted stock contains a one year performance period and expires without vesting if the one-year performance goal is not satisfied by the first anniversary of the date of grant. If the performance goal is met, Performance-Based Restricted stock units granted to NEOs vest in equal annual installments over the first four anniversaries of the grant date, based on continued employment. The performance goal requires return on invested capital (as defined in the 2010 LTI Plan) to exceed 12%, which

is an approximation of the Company’s weighted average cost of capital. The Committee selected this performance goal to ensure that the Company is creating value for stockholders. In March 2011, the Committee determined that, based on the Company’s audited consolidated financial statements, the performance goal was satisfied. Performance-Based Restricted stock is also impacted by all stock price changes and, therefore, the value to NEOs is affected by both increases and decreases in stock price. Except as provided in an Executive Retention Agreement or individual employment agreement, all unvested restricted stock units are forfeitable upon termination of employment prior to vesting. See “Potential Payments Upon Termination or Change in Control — Executive Retention Agreements”, “Potential Payments Upon Termination or Change in Control — Kerr Executive Employment Agreement” and “Potential Payments Upon Termination or Change in Control — Skarzynski Executive Employment Agreement” below for more information regarding these Executive Retention Agreements and individual employment agreements. The restricted stock units do not provide voting or dividend rights until the units are vested and converted into common stock.

 

The performance cash award is based on the Company’s achievement of cumulative earnings per share over a three year performance period, and the amount of the performance cash award ranges from 0% to 150% based on the achievement of specified results. The Committee considered cumulative earnings per share to be a driver of the Company’s stock price since it measures the Company’s growth, profitability, and financing decisions.

 

In determining long-term incentive grants, the Committee considers other components of compensation paid by the Company, any contractual requirements, individual performance, market data on total compensation packages, the retentive effect of long-term incentive grants, recommendations of the Committee’s compensation consultant regarding the value of long-term incentive grants at targeted companies within the Compensation Peer Group, total stockholder return, share usage and stockholder dilution and, except in the case of the award to the CEO, the recommendations of the CEO.

 

Also on February 8, 2011, the Committee established the performance objectives and other terms of the Company’s 2011 Long-Term Incentive Plan (the “2011 LTI Plan”) for officers of the Company. The targeted opportunity for the Company’s executive officers, other than Mr. Kerr, is divided into the following three components, with each component representing approximately 33% of the total opportunity: (i) non-qualified stock options, (ii) performance-based restricted stock units, and (iii) performance cash awards. The terms of those awards are substantially similar to those for the 2010 LTI Plan. The targeted opportunity for Mr. Kerr is divided into the following components: (i) 67% performance-based deferred stock units and (ii) 33% performance cash award and differs from the other executive officers due to his retirement eligibility. The target 2011 LTI Plan opportunity for executive officers other than Mr. Kerr range from 100% to 125% of 2011 base salary. Pursuant to the Amendment described above, the 2011 LTI Plan opportunity for Mr. Kerr is equal to 200% of his 2011 base salary.

 

Consistent with the Company’s philosophy, our NEOs are provided benefits and perquisites that are substantially the same as those offered to other employees of the Company, with the following limited exceptions. We reimburse or pay executive officers for the cost of an annual physical examination. We also offer a supplemental long-term disability program for executives, which provides for an additional 10 percent coverage over that which eligible full-time employees receive. Under certain circumstances, our NEOs may travel in first or business class, which is different than for most employees. Mr. Kerr may travel in first or business class at any time.

 

Ms. Hanley participates in a defined benefit pension plan, which has been closed to new participants since January 2, 1995. See “2010 Pension Benefits Table” below for a further explanation of the defined

benefit pension plan. The amounts payable under such retirement plan to Ms. Hanley are determined by the plan’s benefit formula, which we describe in the section “Pension Benefits Table” below. The amount of benefit is determined based upon the terms of the plan, the executive’s years of service with us, and the executive’s compensation.

 

We offer a qualified 401(k) Plan to provide our employees tax-advantaged savings vehicles. We make matching contributions to the 401(k) Plan to encourage employees to save money for their retirement. This plan and our contributions to it enhance the range of benefits we offer to executives, encourage retirement savings in a cost and tax-efficient way, and further our ability to attract and retain employees.

 

Under the terms of the 401(k) Plan, employees may defer at least 1% of their eligible earnings, and we make a matching contribution of 50% of before-tax employee contributions up to a maximum of 3% or 6% of eligible employee earnings. We may also make an additional discretionary matching contribution of 0% to 30% of before-tax employee contributions up to a maximum of 3% or 6% of eligible employee earnings (depending on the Company’s profitability). The 3% maximums referred to in the previous sentences relate to employees who are pension participants and the 6% maximums relate to employees who are not pension participants.

 

Our matching contributions to the 401(k) Plan for each NEO are set forth in the Summary Compensation Table below. See also “Summary of Cash and Certain Other Compensation and Other Payments to the NEOs — 401(k) Plan.”

 

See “Potential Payments Upon Termination or Change in Control” below for a discussion of potential payments to be made under each contract, agreement, plan or arrangement that provides for payments to a NEO at, following, or in connection with any termination of employment including by resignation, retirement, disability or a constructive termination of a NEO, or our change in control or a change in the NEO’s responsibilities.

 

In August 2008, we entered into Executive Retention Agreements with certain members of our senior executive management, including each of Messrs. Bouvard, Creamer, Henry, and Smith, that provide for: (i) severance payments under some circumstances, including termination without cause or resignation as a result of position diminishment, (ii) enhanced severance following a change in control, and (iii) accelerated vesting with respect to stock options and restricted stock grants upon a termination during a specified period following a change in control. These agreements have a fixed five-year term and replace prior executive retention agreements, which otherwise would have remained in place indefinitely. Ms. Hanley has also entered into an Executive Retention Agreement on substantially similar terms, but Ms. Hanley’s agreement does not provide for severance compensation as a result of position diminishment.

 

We entered into the Executive Retention Agreements because we do not want our executives distracted by a rumored or actual change in control of the Company. Further, if a change in control should occur, we want our executives to be focused on the business of the organization and the interests of stockholders. In addition, we believe it is important that our executives should react neutrally to a potential change in control and not be influenced by personal financial concerns. We believe our Retention Agreements assist us in retaining our executive talent. The material terms of the Executive Retention Agreements are discussed in the section “Potential Payments Upon Termination or Change in Control — Executive Retention Agreements” below.

 

On February 11, 2010, the Company entered into an Executive Employment Agreement (the “Agreement”) with William T. Kerr relating to Mr. Kerr’s employment as President and Chief Executive Officer of

the Company. Pursuant to the terms of the Agreement, Mr. Kerr’s employment commenced on January 10, 2010 and was scheduled to end on January 10, 2012 (the “Initial Term”).

 

On February 8, 2011, the Company entered into an Amended and Restated Executive Employment Agreement (the “Amendment”) with William T. Kerr relating to Mr. Kerr’s employment as President and Chief Executive Officer of the Company. The Amendment replaces the Agreement and extends the expiration of the term of Mr. Kerr’s employment from the Initial Term until January 10, 2013 (the “Extended Term”). The material terms and conditions of the Agreement and Amendment are set forth below.

 

Salary and Bonus or Incentive Compensation

 

Pursuant to the Agreement, Mr. Kerr’s base salary was $800,000. His base salary remains $800,000 under the Amendment. Pursuant to the terms and conditions of the Agreement, Mr. Kerr is eligible to receive an annual incentive bonus equal to 100% of his annual base salary upon meeting applicable performance criteria set by the Committee. For performance exceeding such applicable performance criteria, the annual incentive bonus could be increased up to a maximum of 200% of annual base salary, at the sole discretion of the Committee. The Committee will review the base salary no less frequently than annually.

 

Equity Awards

 

Initial Grant

 

Pursuant to the Agreement, on February 11, 2010 the Committee also approved an initial equity award to Mr. Kerr of 45,254 stock options and 60,144 deferred stock units (DSUs), each with respect to the Company’s common stock, par value $0.50 (the “Common Stock”) (collectively, the “Initial Grant”) to induce Mr. Kerr to accept the CEO position and replace amounts that he would forfeit at prior employer and boards of directors upon becoming CEO of Arbitron. These stock options and DSUs were granted under the Company’s 2008 Equity Compensation Plan (the “2008 Plan”) and subject to its terms.

 

Assuming continued employment, the stock options under the Initial Grant will vest in equal amounts on an annual basis over a three year period following the date of grant (beginning with one-third on the first anniversary), and otherwise contain substantially the same terms and conditions as the Company’s standard form of nonqualified stock option agreement adopted for use under the 2008 Plan, except as described below with regard to potential payments upon early termination. Assuming continued employment, the DSUs under the Initial Grant will vest in equal amounts over a four year period following the date of grant (beginning with one-quarter on the first anniversary) and otherwise contain substantially the same terms and conditions as the Company’s standard form of deferred stock unit agreement adopted for use under the 2008 Plan, except as described below with regard to potential payments upon early termination.

 

Long-Term Incentive

 

Pursuant to the Agreement and as approved by the Committee, the Company granted to Mr. Kerr a long-term incentive award valued at $1,500,000 on the date of grant and which was divided into substantially the same mix of stock options, performance-based cash, and performance-based restricted stock units as other senior executives (and with the restricted stock units also performance-based to the extent grants to other senior executives are subject to performance conditions) but with the restricted stock units in the form of DSUs payable only after Mr. Kerr’s separation from service. The long-term incentive award to Mr. Kerr is subject to the accelerated vesting terms described below with regard to potential payment upon early termination.

 

The Committee, at its sole discretion, will consider the grant of additional compensatory stock awards to Mr. Kerr no less frequently than annually.

 

In connection with the Amendment, the Committee has granted to Mr. Kerr a 2011 long-term incentive award with a value equal to $1,600,000 on the date of grant, to be divided into 33% performance-based cash and 67% performance-based deferred stock units which will vest only upon satisfaction of applicable performance objectives established by the Committee and which will be payable only after Mr. Kerr’s

separation from service. The long-term incentive award to Mr. Kerr also is subject to the accelerated vesting terms described below with regard to potential payment upon early termination.

 

The long term incentive awards will vest and/or become exercisable in accordance with the Company’s customary terms. However, to the extent more favorable to Mr. Kerr (except in the case of a termination for Cause) the following special acceleration terms will apply. Upon termination of employment as a result of Mr. Kerr’s death or disability outstanding equity awards will accelerate. Upon a termination of Mr. Kerr’s employment by the Company without Cause, upon Mr. Kerr’s Retirement (as defined below), or upon Mr. Kerr ceasing to be employed for any reason (other than Cause) after the Extended Term, any performance-based awards will require satisfaction of the applicable performance objectives but will not be prorated for partial years of service. Upon Mr. Kerr’s resignation before the end of the Extended Term other than in connection with his Retirement, all unvested awards will be forfeited. Upon any termination of Mr. Kerr’s employment by the Company for Cause, all vested and unvested awards will be forfeited. The new terms apply only to awards made on or after February 8, 2011.

 

For purposes of the Amendment, “Retirement” means Mr. Kerr’s voluntary resignation upon his replacement as Chief Executive Officer and his completion of a post-replacement transition period of 90 days or a shorter period at the Board’s request; provided, however, that Mr. Kerr may not initiate his resignation before the Board approves his replacement and have such resignation treated as Retirement and “Retirement” for this purpose only applies on or before January 10, 2012. For purposes of the Amendment, “Position Diminishment” means a material reduction in Mr. Kerr’s responsibilities, duties, or authority as in effect immediately before a Change in Control or as of the effective date of the Amendment where such reduction occurs on or after January 11, 2012 and before the end of the Extended Term.

 

Benefits

 

Mr. Kerr, to the extent eligible, is entitled to participate at a level commensurate with his position in all employee welfare, benefit, and retirement plans and programs the Company provides to its executives in accordance with Company policies.

 

Non-Competition, Non-Recruitment, and Non-Disparagement

 

The Agreement contains provisions pursuant to which Mr. Kerr has agreed that, while employed and for 12 months following termination of employment for any reason, he will not directly or indirectly, subject to certain de minimis exceptions involving the ownership of publicly traded securities, compete with any part of the Company’s business. Mr. Kerr has agreed during employment and for 12 months thereafter not to initiate or actively participate in any other employer’s recruitment or hiring of Company employees. The Agreement also contains non-disparagement provisions.

 

On January 11, 2010 and in connection with Mr. Skarzynski’s resignation, we entered into a Settlement Agreement and General Release (the “Skarzynski Agreement”) with Mr. Skarzynski. The Skarzynski Agreement superseded the Executive Employment Agreement that the Company entered into with Mr. Skarzynski. The material terms of the Skarzynski Agreement are as follows:

 

 

 

The non-competition, non-recruitment and non-disparagement provisions set forth in Mr. Skarzynski’s Executive Employment Agreement will survive his resignation, and Mr. Skarzynski has agreed to continue to abide by those provisions.

 

As a result of his resignation, the equity awards made to Mr. Skarzynski on January 13, 2009 pursuant to his Executive Employment Agreement were forfeited.

 

During 2004, the Nominating and Corporate Governance Committee recommended and the Board established stock ownership requirements for our executive officers. In August 2009, the Nominating and Corporate Governance Committee revised the stock ownership guidelines to include a market volatility provision in the event there is a significant decline in our stock price that causes a director’s or executive officer’s holdings to fall below the applicable threshold. If there is a significant decline, the director or executive officer will not be required to purchase additional shares to meet the applicable threshold, but such director or executive officer will not be able to sell or transfer any shares until the applicable threshold has again been achieved. These officers are expected, over time, to acquire and hold Company stock (including restricted stock units) equal in value to at least the following:

 

 

These guidelines are expected to be achieved within three years of becoming an executive officer, and include owned shares of common stock, restricted shares, and restricted stock units or DSUs that only can be settled in common stock. However, no outstanding unexercised stock options are taken into account for purposes of satisfying these guidelines. The purpose of stock ownership requirements is to more closely align our key executives’ interests with our stockholders. As of April 1, 2011, all NEOs who had been in their positions for more than three years had either satisfied or exceeded the applicable stock ownership guidelines.

 

The role of our management in executive compensation is to provide reviews and recommendations for the Committee’s consideration, and to manage our executive compensation programs, policies, and governance. Direct responsibilities include the following:

 

 

Section 162(m) of the Internal Revenue Code of 1986, as amended (“Section 162(m)”), disallows any tax deductions for compensation exceeding $1 million and paid in a taxable year to any NEO other than the CFO,

all of whom are “covered employees” under Section 162(m). However, certain performance-based compensation, determined under pre-established objective performance goals, can be deducted even in excess of the $1 million limit. The Committee considers the potential impact of Section 162(m) as one factor to be taken into account in setting total compensation and its component elements. However, the Committee believes that it must retain flexibility, in observing its overall compensation philosophy and objectives, to structure total compensation to include components, such as service-vesting restricted stock units, that would not be treated as performance-based compensation under the Section, both in order to attract and retain top talent and to appropriately gauge the performance of executives. Achieving the desired flexibility in the design and delivery of total compensation, therefore, may result in some compensation not being deductible for federal income tax purposes. In this regard, we estimate that approximately $713,000 of Mr. Kerr’s compensation in 2010 was not deductible for federal income tax purposes.

 

The Compensation and Human Resources Committee reviewed and discussed the Compensation Discussion and Analysis included in this Proxy Statement with management. Based on such review and discussion, the Compensation and Human Resources Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement for filing with the Securities and Exchange Commission.

 

Submitted by the Compensation and
Human Resources Committee of the
Board of Directors

 

Larry E. Kittelberger, Chair
John A. Dimling
Erica Farber
Philip Guarascio
Luis G. Nogales

 

The following table provides information concerning the compensation of our NEOs for our most recently completed fiscal year.

 

In the column “Salary,” we disclose the amount of base salary paid to the NEO during the fiscal year.

 

In the columns “Stock Awards” and “Option Awards,” SEC regulations require us to disclose the aggregate grant date fair value of the awards granted during the fiscal year computed in accordance with FASB ASC Topic 718.

 

In the column “Change in Pension Value and Nonqualified Deferred Compensation Earnings,” we disclose the sum of the dollar value of (1) the aggregate change in the actuarial present value of the NEO’s accumulated benefit under all defined benefit and actuarial pension plans (including supplemental plans) in 2010; and (2) any above-market or preferential earnings on nonqualified deferred compensation, including on nonqualified defined contribution plans.

 

In the column “All other compensation,” we disclose the sum of the dollar value of:

 

 

2010 Summary Compensation Table

 

 

 

 

 

 

 

The following table sets forth certain information concerning plan-based awards granted to the named executive officers during 2010. No options were re-priced or materially modified during the fiscal year.

 

In this table, we provide information concerning each grant of an award made to a NEO in the most recently completed fiscal year under any plan. In the “All Other Stock Awards: Number of shares of Stock or Units” column, we report the number of restricted stock units granted in the fiscal year. In the “Grant Date Fair Value of Stock and Option Awards” column, we report the aggregate grant date fair value of all awards made in 2010. In all cases, the grant date fair value was equal to the closing market price of our common stock on the grant date, which was the date on which the Compensation and Human Resources Committee approved the grant, which price we report in the tenth column.

 

2010 Grants of Plan-Based Awards

 

 

 

 

The following table provides information concerning unexercised options and stock that has not vested outstanding as of the end of our most recently completed fiscal year for each NEO. Each outstanding award is represented by a separate row, which indicates the number of securities underlying the award, including awards that have been transferred other than for value (if any).

 

For option awards, the table discloses the number of shares underlying both exercisable and unexercisable options, as well as the exercise price and the expiration date. For stock awards, the table provides the total number of shares of stock that have not vested and the aggregate market value of shares of stock that have not vested.

 

We computed the market value of stock awards by multiplying the closing market price of our stock at the end of the most recently completed fiscal year ($41.52) by the number of shares or units of stock.

 

Outstanding Equity Awards At Fiscal Year-End 2010