DEFINITIVE PROXY STATEMENT
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.     )

Filed by the Registrant    x

Filed by a Party other than the Registrant    ¨

Check the appropriate box:

 

 

¨    Preliminary Proxy Statement

 

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

 

x    Definitive Proxy Statement

 
¨    Definitive Additional Materials  
¨    Soliciting Material Under Rule 14a-12  

Altria Group, Inc.

 

(Name of Registrant as Specified in Its Charter)

 

  

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 

  x No fee required.

 

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

 

  (1) Title of each class of securities to which transaction applies:

  

 

 

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  ¨ Fee paid previously with preliminary materials:

 

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

 

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  (4) Date Filed: April 9, 2015

 


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LOGO


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LOGO

6601 West Broad Street

Richmond, Virginia 23230

 

Dear Fellow Shareholder:

 

It is my pleasure to invite you to join us at the 2015 Annual Meeting of Shareholders of Altria Group, Inc. to be held on Wednesday, May 20, 2015 at 9:00 a.m., Eastern Time, at the Greater Richmond Convention Center, 403 North 3rd Street, Richmond, Virginia 23219.

 

At this year’s meeting, we will vote on the election of 11 directors, two compensation plans, the ratification of the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm and, if properly presented, three shareholder proposals. We will also conduct a non-binding advisory vote to approve the compensation of the Company’s named executive officers. There also will be a report on the Company’s business, and shareholders will have an opportunity to ask questions.

 

To attend the meeting, an admission ticket and government-issued photo identification are required. To request an admission ticket, please follow the instructions on page 9 in response to Question 16. One immediate family member who is 21 years of age or older may accompany a shareholder as a guest.

 

LOGO

We use the U.S. Securities and Exchange Commission rule that allows companies to furnish proxy materials to their shareholders over the Internet. We believe this expedites shareholders receiving proxy materials, lowers costs and conserves natural resources. We thus are mailing to many shareholders a Notice of Internet Availability of Proxy Materials (“Notice”), rather than a paper copy of the Proxy Statement and our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. The Notice explains how to access the proxy materials online, vote online and obtain a paper copy of our proxy materials.

 

Your vote is very important. I encourage you to complete, sign and return your proxy card, or use telephone or Internet voting prior to the meeting, so that your shares will be represented and voted at the meeting even if you cannot attend.

 

April 9, 2015

 

Sincerely,

 

LOGO

Martin J. Barrington

Chairman, Chief Executive Officer and President

 

 

 

 

 

 

 

For further information about the 2015 Annual Meeting,

please call 1-804-484-8838

 

 


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LOGO

 

NOTICE OF 2015 ANNUAL MEETING OF

SHAREHOLDERS OF ALTRIA GROUP, INC.

 

DATE AND TIME:

Wednesday, May 20, 2015 at 9:00 a.m., Eastern Time

 

PLACE:

The Greater Richmond Convention Center

403 North 3rd Street

Richmond, Virginia 23219

 

ITEMS OF BUSINESS:

1)

To elect as directors the 11 nominees named in the accompanying Proxy Statement.

 

  2) To approve the 2015 Performance Incentive Plan.

 

  3) To approve the 2015 Stock Compensation Plan for Non-Employee Directors.

 

  4) To ratify the selection of PricewaterhouseCoopers LLP as independent registered public accounting firm for the Company for the fiscal year ending December 31, 2015.

 

  5) To hold a non-binding advisory vote to approve the compensation of the Company’s named executive officers.

 

  6) To vote on three shareholder proposals, if properly presented at the meeting.

 

  7) To transact other business properly coming before the meeting.

 

WHO CAN VOTE:

You are entitled to vote if you were a shareholder of record at the close of business on Monday, March 30, 2015.

 

VOTING:

We urge you to participate in the meeting, either by attending and voting in person or by voting through other acceptable means as promptly as possible. You may vote by telephone, through the Internet or by mailing your completed and signed proxy card (or voting instruction form, if you hold your shares through a broker, bank or other nominee). Each share is entitled to one vote on each matter to be voted upon at the annual meeting. Your vote is important and we urge you to vote.

 

MEETING ADMISSION:

If you plan to attend the meeting, you must request an admission ticket in advance. To request an admission ticket, please follow the instructions on page 9 in response to Question 16 of the accompanying Proxy Statement.

 

2014 ANNUAL REPORT:

A copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 accompanies this Proxy Statement.

 

DATE OF DISTRIBUTION:

This Notice, the Proxy Statement and proxy card are first being made available or mailed to shareholders on or about April 9, 2015.

 

By Order of the Board of Directors,

 

LOGO

W. Hildebrandt Surgner, Jr.
Corporate Secretary

April 9, 2015

Richmond, Virginia

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS

FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 20, 2015

The Company’s Notice of Annual Meeting, Proxy Statement and Annual Report on Form 10-K

for the fiscal year ended December 31, 2014 are available, free of charge, at www.altria.com/proxy.


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PROXY STATEMENT – TABLE OF CONTENTS

 

PROXY STATEMENT SUMMARY

 

 

1

QUESTIONS AND ANSWERS ABOUT THE 2015 ANNUAL MEETING AND VOTING

 

 

5
BOARD AND GOVERNANCE MATTERS 11

Board Responsibility, Meetings and Composition

11

Board Leadership Structure and Governance

12

Advancement Planning and CEO Succession

12

Governance Guidelines, Policies and Codes

12

Committees of the Board of Directors

13

The Board’s Risk Oversight Role

14

Directors

16

Process for Nominating Directors

16

Director Qualifications and Board Diversity

16

Director Independence Determinations

17

Director Compensation

19

Stock Ownership Guidelines for Non-Employee Directors and Prohibition on Hedging

 

 

21
AUDIT COMMITTEE MATTERS 22

Audit Committee Report for the Year Ended December 31, 2014

22

Independent Registered Public Accounting Firm’s Fees

23

Pre-Approval Policy

 

 

23
COMPENSATION COMMITTEE MATTERS 24

Introduction

24

Compensation Committee Interlocks and Insider Participation

24

Compensation Committee Procedures

24

Compensation Committee Report for the Year Ended December 31, 2014

 

 

25
EXECUTIVE COMPENSATION 26

Compensation Discussion and Analysis

27

Introduction

27

Executive Summary

27

Compensation Philosophy

27

Say on Pay

27

Shareholder Engagement

27

Company Financial Performance

28

Pay For Performance

30

2014 Operating and Service Company Highlights

30

Other 2014 Highlights

31

2014 Performance of NEOs

31

Executive Compensation Design

33

Decision-Making Process

36

2014 Executive Compensation Program Decisions

37

Other Considerations

43

Stock Ownership Guidelines and Prohibition on Hedging

43

Tax and Accounting Considerations

43

“Clawback” Policy Regarding the Adjustment or Recovery of Compensation

43

 

ALTRIA GROUP, INC. – Proxy Statement    i  


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PROXY STATEMENT – TABLE OF CONTENTS

 

   

Compensation Tables

44

Summary Compensation Table

44

Grants of Plan-Based Awards during 2014

46

Outstanding Equity Awards as of December 31, 2014

47

Stock Option Exercises and Stock Vested during 2014

48

Pension Benefits

49

Non-Qualified Deferred Compensation

52

Payments upon Change in Control or Termination of Employment

 

 

53
PROPOSALS REQUIRING YOUR VOTE 56

Proposal 1 – Election of Directors

56

Proposal 2 – Approval of the 2015 Performance Incentive Plan

62

Proposal 3 – Approval of the 2015 Stock Compensation Plan for Non-Employee Directors

70

Proposal 4 – Ratification of the Selection of Independent Registered Public Accounting Firm

75

Proposal 5 –  Non-Binding Advisory Vote to Approve the Compensation of the Company’s Named Executive Officers

76

Proposal 6 –  Shareholder Proposal Regarding Policy on Migrant Labor in the Tobacco Supply Chain

78

Proposal 7  – Shareholder Proposal Regarding Preparation of Health Effect and Cessation Materials for Poor and Less Formally Educated Tobacco Consumers

80

Proposal 8  – Shareholder Proposal Regarding Report on Actions Taken to Reduce the Risk of Green Tobacco Sickness

 

 

82
OWNERSHIP OF EQUITY SECURITIES OF THE COMPANY 84

Directors and Executive Officers

84

Certain Other Beneficial Owners

85

Section  16(a) Beneficial Ownership Reporting Compliance

 

 

85

RELATED PERSON TRANSACTIONS AND CODE OF CONDUCT

 

 

86

QUESTIONS AND ANSWERS ABOUT COMMUNICATIONS, COMPANY DOCUMENTS AND SHAREHOLDER PROPOSALS

 

 

87

OTHER BUSINESS

 

 

89

EXHIBIT A – 2015 PERFORMANCE INCENTIVE PLAN

 

 

A-1

EXHIBIT B – 2015 STOCK COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS

 

 

B-1

EXHIBIT C – ALTRIA GROUP, INC. NON-GAAP FINANCIAL MEASURES

 

 

C-1

PRE-REGISTRATION FORM FOR 2015 ANNUAL MEETING OF SHAREHOLDERS

 

 

 

 

ii    ALTRIA GROUP, INC. – Proxy Statement


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PROXY STATEMENT SUMMARY

This summary highlights information about Altria Group, Inc. (the “Company,” “Altria,” “we,” “our” or “us”) and certain information contained elsewhere in this proxy statement (“Proxy Statement”) for Altria’s 2015 Annual Meeting of Shareholders (the “2015 Annual Meeting” or the “meeting”). This summary does not contain all of the information that you should consider in voting your shares. You should read the entire Proxy Statement carefully before voting.

VOTING MATTERS AND BOARD RECOMMENDATIONS

 

 Proposal        

Board Vote

Recommendation

  

Page

Reference

Proposal 1 –

 

Election of Directors

 

   FOR each nominee    56

Proposal 2 –

 

Approval of the 2015 Performance Incentive Plan

 

   FOR    62

Proposal 3 –

 

Approval of the 2015 Stock Compensation Plan for Non-Employee Directors

 

   FOR

 

   70

 

Proposal 4 –

 

Ratification of the Selection of Independent Registered Public Accounting Firm

 

   FOR

 

   75

 

Proposal 5 –

 

Non-Binding Advisory Vote to Approve the Compensation of the Company’s Named Executive Officers

 

   FOR

 

   76

 

Proposal 6 –

 

Shareholder Proposal Regarding Policy on Migrant Labor in the Tobacco Supply Chain

 

   AGAINST

 

   78

 

Proposal 7 –

 

Shareholder Proposal Regarding Preparation of Health Effect and Cessation Materials for Poor and Less Formally Educated Tobacco Consumers

 

   AGAINST

 

   80

 

Proposal 8 –

 

Shareholder Proposal Regarding Report on Actions Taken to Reduce the Risk of Green Tobacco Sickness

 

   AGAINST

 

   82

 

CASTING YOUR VOTE

 

     How to Vote   

Shareholders of Record

(Shares registered in your name with
Altria’s transfer agent, Computershare)
and Employee Benefit Plan Participants

  

Street Name Holders

(Shares held through a Broker,

Bank or Other Nominee)

LOGO

   Mobile Device

  Scan the QR Code to vote using your mobile device:   

LOGO

 

  

Refer to voting

instruction form.

 

LOGO

   Internet

  Visit the applicable voting website:    www.investorvote.com/altria    www.proxyvote.com

 

LOGO

   Telephone

  Within the United States, U.S. Territories and Canada, call toll-free:    1-800-652-VOTE (8683)   

Refer to voting

instruction form.

LOGO

   Mail

  Complete, sign and mail your proxy card or voting instruction form in the self-addressed envelope provided.

LOGO

   In Person

  For instructions on attending the 2015 Annual Meeting in person, please see Question 16 on page 9.

 

 

ALTRIA GROUP, INC. – Proxy Statement    1      


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PROXY STATEMENT SUMMARY

 

 

 

BOARD NOMINEES

You are being asked to vote on the following 11 nominees for director. All directors are elected annually by a majority of the votes cast. Information about each director’s experiences, qualifications, attributes and skills can be found beginning on page 56.

 

  Name

  Age  

Director

Since

  Principal Occupation   Independent   

Board

Committee

Membership*

  Gerald L. Baliles

  74   2008  

Retired Director and Chief Executive Officer, Miller Center of Public Affairs

 

  Yes    CC, EC, IC, NC

  Martin J. Barrington

  61   2012  

Chairman, Chief Executive Officer and President, Altria Group, Inc.

 

  No    EC

  John T. Casteen III

  71   2010  

President Emeritus, University of Virginia

 

  Yes    AC, IC, NC

  Dinyar S. Devitre

  67   2008  

Special Advisor, General Atlantic LLC

 

  Yes    FC, IC

  Thomas F. Farrell II

  60   2008  

Chairman, President and Chief Executive Officer, Dominion Resources, Inc.

 

  Yes    CC, EC, NC

  Thomas W. Jones

  65   2002  

Senior Partner, TWJ Capital LLC

 

  Yes    AC, CC, EC, FC

  Debra J. Kelly-Ennis

  58   2013  

Retired President and Chief Executive Officer, Diageo Canada, Inc.

 

  Yes    AC, IC, NC

  W. Leo Kiely III

  68   2011  

Retired Chief Executive Officer, MillerCoors LLC

 

  Yes    CC, EC, FC, IC

  Kathryn B. McQuade

  58   2012  

Retired Executive Vice President and Chief Financial Officer, Canadian Pacific Railway Limited

 

  Yes    AC, CC, FC

  George Muñoz

  63   2004  

Principal, Muñoz Investment Banking Group, LLC and Partner, Tobin & Muñoz

 

  Yes    AC, EC, FC, NC

  Nabil Y. Sakkab

  67   2008  

Retired Senior Vice President, Corporate Research and Development, The Procter & Gamble Company

 

  Yes    EC, FC, IC, NC

 

* AC    Audit Committee

   CC    Compensation Committee

   

EC    Executive Committee

FC    Finance Committee

   

IC      Innovation Committee

NC    Nominating, Corporate Governance & Social Responsibility Committee

CORPORATE GOVERNANCE HIGHLIGHTS

 

  ¡   Annual election of directors

 

  ¡   Directors elected by majority voting

 

  ¡   10 of our 11 director nominees are independent

 

  ¡   Resignation policy for directors in failed elections

 

  ¡   Director retirement guidelines

 

  ¡   Independent presiding director

 

  ¡   All NYSE-required Board committees consist solely of independent directors
¡   Regular executive sessions of independent directors

 

¡   Over 95% average Board and Committee meeting attendance in 2014

 

¡   Annual Board and Committee self-evaluations

 

¡   Comprehensive Code of Conduct and Corporate Governance Guidelines

 

¡   No shareholder rights plan or “poison pill”
¡   Robust political activity disclosure and compliance program

 

¡   Board participation in executive succession planning

 

¡   Stock ownership guidelines for directors and executive officers  

 

¡   Policy prohibiting hedging of our shares  

 

¡   Compensation “clawback” policy

 

¡   Strong pay-for-performance philosophy
 

 

 

      2    ALTRIA GROUP, INC. – Proxy Statement


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PROXY STATEMENT SUMMARY

 

SHAREHOLDER ENGAGEMENT

We value our shareholders’ perspective on our businesses and each year interact with shareholders through numerous shareholder engagement activities. In 2014, these included three investor road shows, eight investor conferences and our 2014 Annual Meeting of Shareholders (“2014 Annual Meeting”). We also discussed with several large institutional investors their perspectives on our executive compensation program as we developed our 2015 Performance Incentive Plan and 2015 Stock Compensation Plan for Non-Employee Directors. These engagement activities, and the perspectives we learn, are informative and helpful to us.

Our Investor Relations department is the contact point for shareholder interaction with the Company. Shareholders may also access investor information about the Company through our website at www.altria.com/investors. For questions concerning Investor Relations, please call 804-484-8222 or e-mail us from the Contact Us section available on our website (www.altria.com/ContactUs).

2014 BUSINESS HIGHLIGHTS

Altria delivered excellent results and returns for its shareholders in 2014 on the strength of its diverse business model and solid performance by its core tobacco businesses. Altria also took important steps in 2014 to develop and commercialize innovative tobacco products for adult tobacco consumers. Highlights from 2014 include the following:

 

  ¡   Full-year adjusted diluted earnings per share (“EPS”),(1) which excludes the impact of special items, grew 8.0% to $2.57.

 

  ¡   Altria’s 2014 total shareholder return (“TSR”) was 34.5%, which outperformed both the S&P 500 and the S&P Food, Beverage & Tobacco Index.

 

  ¡   Altria’s three-year TSR was 93.3%, which outperformed the three-year TSR of both the S&P 500 and the S&P Food, Beverage & Tobacco Index.

 

  ¡   Altria paid $3.9 billion in dividends in 2014.

 

  ¡   In August 2014, Altria’s Board of Directors increased the regular quarterly dividend by 8.3%, which was Altria’s 48th dividend increase in the last 45 years.

 

  ¡   In the third quarter 2014, Altria completed its 2013 share repurchase program and announced a new $1 billion share repurchase program. During 2014, Altria repurchased 22.5 million shares of its common stock for a total cost of approximately $939 million under these programs.

 

  ¡   The smokeable products segment grew adjusted operating companies income (“OCI”) (1) by 6.7% and Philip Morris USA Inc. (“PM USA”) grew the retail share of Marlboro by 0.1 share point to 43.8%.

 

  ¡   The smokeless products segment grew adjusted OCI by 3.3% and U.S. Smokeless Tobacco Company LLC (“USSTC”) grew the combined retail share of Copenhagen and Skoal by 0.5 share points to 51.2%.

 

  ¡   Ste. Michelle Wine Estates Ltd. (“Ste. Michelle”) grew adjusted OCI by 13.6% and is one of the fastest growing premium wine companies in the United States.

 

  ¡   Nu Mark LLC (“Nu Mark”) achieved national distribution of MarkTen, which is now available in over 130,000 retail stores. Nu Mark also evolved MarkTen’s product offerings. Additionally, Nu Mark acquired the e-vapor business of Green Smoke, Inc. and its affiliates (“Green Smoke”), adding technology, supply chain capability and experienced talent to Nu Mark’s resources.

For more information regarding Altria’s 2014 performance, please review our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 (“2014 Annual Report on Form 10-K”).

 

 

(1) Adjusted diluted EPS and adjusted OCI are financial measures that are not consistent with generally accepted accounting principles in the United States (“GAAP”). See Exhibit C to this Proxy Statement for information regarding non-GAAP financial measures used in this Proxy Statement and reconciliations of such non-GAAP financial measures to the most directly comparable GAAP financial measures.

 

 

ALTRIA GROUP, INC. – Proxy Statement    3      


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PROXY STATEMENT SUMMARY

 

COMPENSATION PROGRAM HIGHLIGHTS

 

  ¡   Annual incentive and equity awards for the executive officers named in the Summary Compensation Table on page 44 (“named executive officers” or “NEOs”) reflect Altria’s excellent 2014 business performance and are consistent with or slightly higher than last year’s awards.

 

  ¡   At the 2014 Annual Meeting, nearly 94% of the votes cast approved, on a non-binding advisory basis, the compensation of the NEOs, demonstrating strong alignment of shareholder interests with our executive compensation program and philosophy.

 

  ¡   Altria’s current 2010 Performance Incentive Plan provides that no new awards can be granted after April 30, 2015. The Board is recommending that shareholders approve the new 2015 Performance Incentive Plan, which incorporates several changes that further align plan provisions with shareholder interests. The 2015 Performance Incentive Plan is discussed under “Proposal 2 – Approval of the 2015 Performance Incentive Plan” beginning on page 62.

Key Governance Features of Our Executive Compensation Program

The following summary of our executive compensation program highlights our commitment to executive compensation practices that align the interests of our executives and shareholders:

 

What We Do    What We Don’t Do
ü

Pay for Performance - A significant portion of the compensation for our NEOs is in the form of at-risk variable compensation.

 

û No Excessive Perquisites - Perquisites represent less than 2% of our NEOs’ compensation.
ü

Multiple Performance Metrics - Variable compensation is based on more than one measure to encourage balanced incentives.

 

û No Individual Supplemental Executive Retirement Plans
ü

Stock Ownership Guidelines - All NEOs exceed Altria’s robust stock ownership requirements.

 

û No Hedging - Our policy prohibits our NEOs from engaging in hedging activities with Altria stock.
ü

“Clawback” Provisions - Our policy provides for the adjustment or recovery of compensation in certain circumstances.

 

û No Pledging - Our NEOs do not pledge their Altria shares.
ü

Award Caps - All our variable compensation plans have caps on plan formulas.

 

û No Employment Agreements - All of our NEOs are employed on an at-will basis.
ü

Confidentiality & Non-Compete Agreements - All NEOs are subject to confidentiality and non-compete agreements.

 

û No Tax Gross-ups
ü

Tally Sheets - The Compensation Committee reviews tally sheets at least annually as part of making individual compensation decisions.

 

ü

Below Average Share Utilization - The Company has below average run rates for equity compensation as compared to S&P 500 companies.

 

 

 

      4    ALTRIA GROUP, INC. – Proxy Statement


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QUESTIONS AND ANSWERS ABOUT THE 2015 ANNUAL MEETING AND VOTING

 

 

QUESTIONS AND ANSWERS

ABOUT THE 2015 ANNUAL MEETING AND VOTING

 

1. WHY DID I RECEIVE THESE PROXY MATERIALS?

 

 

Our Board of Directors (“Board of Directors” or “Board”) is furnishing to you this Proxy Statement to solicit proxies on its behalf to be voted at the 2015 Annual Meeting on May 20, 2015 at 9:00 a.m., Eastern Time, at the Greater Richmond Convention Center, 403 North 3rd Street, Richmond, Virginia 23219. The proxies also may be voted at any adjournments or postponements of the meeting.

All properly executed written proxies, and all properly completed proxies submitted by telephone or by the Internet, that are delivered pursuant to this solicitation will be voted at the meeting in accordance with the directions given in the proxy, unless the proxy is revoked before the completion of voting at the meeting.

 

 

2. WHAT IS A PROXY?

 

 

It is your legal designation of another person to vote the stock you own. That other person is called a proxy. If you designate someone as your proxy in a written document, that document also is called a proxy or a proxy card.

The Board of Directors has designated Martin J. Barrington and Denise F. Keane as proxies for the 2015 Annual Meeting.

 

 

3. WHAT IS THE RECORD DATE AND WHAT DOES IT MEAN?

 

 

The record date for the 2015 Annual Meeting is March 30, 2015 (the “record date”). The record date is established by the Board of Directors as required by Virginia law. Only shareholders of record at the close of business on the record date are entitled to:

 

(a) receive notice of the meeting; and
(b) vote at the meeting and any adjournments or postponements of the meeting.

Each shareholder of record on the record date is entitled to one vote for each share of common stock held. On the record date, there were 1,967,255,646 shares of common stock outstanding.

 

 

4. WHAT IS THE DIFFERENCE BETWEEN A SHAREHOLDER OF RECORD AND A SHAREHOLDER WHO HOLDS STOCK IN STREET NAME?

 

 

If your shares of stock are registered in your name on the books and records of our transfer agent, Computershare Trust Company, N.A., you are a shareholder of record.

If your shares of stock are held for you in the name of your broker, bank or other nominee, your shares are held in street name. The answer to Question 12 describes brokers’ discretionary voting authority and when your broker, bank or

other nominee is permitted to vote your shares of stock without instructions from you.

It is important that you vote your shares if you are a shareholder of record and, if you hold shares in street name, that you provide appropriate voting instructions to your broker, bank or other nominee as discussed in the answer to Question 12.

 

 

5. WHAT ARE THE DIFFERENT METHODS THAT I CAN USE TO VOTE MY SHARES OF COMMON STOCK?

 

 

By Telephone or Internet: All shareholders of record may vote their shares of common stock by telephone (within the United States, U.S. territories and Canada, there is no charge for the call) or by the Internet, using the procedures and instructions described on the proxy card and other enclosures. Street name holders may vote by telephone or the Internet if their brokers, banks or other nominees make those methods available. If that is the case, each broker, bank or other nominee will enclose instructions with the Proxy Statement. The telephone and Internet voting procedures, including the use of control numbers, are designed to authenticate shareholders’ identities, to allow shareholders to vote their shares and to confirm that their instructions have been properly recorded.

In Writing: All shareholders also may vote by mailing their completed and signed proxy card (in the case of shareholders of record) or their completed and signed voting instruction form (in the case of street name holders).

In Person: All shareholders of record may vote in person at the meeting. Street name holders must obtain a legal proxy from their broker, bank or other nominee and bring the legal proxy to the meeting in order to vote in person at the meeting.

See also “Proxy Statement Summary – Casting Your Vote” on page 1.

 

 

ALTRIA GROUP, INC. – Proxy Statement    5


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QUESTIONS AND ANSWERS ABOUT THE 2015 ANNUAL MEETING AND VOTING

 

 

6. WHAT ITEMS WILL BE VOTED ON AT THE 2015 ANNUAL MEETING?

 

 

 Proposal

Voting Choices, Board Recommendation and Voting Requirement

 Proposal 1 –

 Election of Directors

 (pages 56 – 61)

Voting Choices

•    Vote for a nominee;

•    Vote against a nominee; or

•    Abstain from voting on a nominee.

 

Board Recommendation

The Board recommends a vote “FOR” each of the nominees named in the Proxy Statement.

 

Voting Requirement

Directors will be elected by a majority of the votes cast. A majority of the votes cast means that the number of votes “FOR” a nominee must exceed the number of votes “AGAINST” that nominee.

 

Any director who receives a greater number of votes “AGAINST” his or her election than votes “FOR” such election is required to offer promptly in writing to submit his or her resignation to the Board in accordance with the Company’s Corporate Governance Guidelines. The Nominating, Corporate Governance and Social Responsibility Committee will consider the offer and recommend to the Board whether to accept the offer. The full Board will consider all factors it deems relevant to the best interests of the Company, make a determination and publicly disclose its decision and rationale within 90 days after confirmation of the election results.

 

 Proposal 2 –

 Approval of the 2015

 Performance Incentive Plan

 (pages 62 – 69)

Voting Choices

•    Vote for the plan;

•    Vote against the plan; or

•    Abstain from voting.

 

Board Recommendation

The Board recommends a vote “FOR” this proposal.

 

Voting Requirement

The plan will be approved by the affirmative vote of a majority of the votes cast.

 

 Proposal 3 –

 Approval of the 2015

 Stock Compensation Plan

 for Non-Employee

 Directors

 (pages 70 – 73)

Voting Choices

•    Vote for the plan;

•    Vote against the plan; or

•    Abstain from voting.

 

Board Recommendation

The Board recommends a vote “FOR” this proposal.

 

Voting Requirement

The plan will be approved by the affirmative vote of a majority of the votes cast.

 

 Proposal 4 –

 Ratification of the Selection

 of Independent Registered

 Public Accounting Firm

 (page 75)

Voting Choices

•    Vote for the ratification;

•    Vote against the ratification; or

•    Abstain from voting.

 

Board Recommendation

The Board recommends a vote “FOR” this proposal.

 

Voting Requirement

The selection of the independent registered public accounting firm will be ratified if the votes cast “FOR” exceed the votes cast “AGAINST.”

 

6    ALTRIA GROUP, INC. – Proxy Statement


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QUESTIONS AND ANSWERS ABOUT THE 2015 ANNUAL MEETING AND VOTING

 

 

 Proposal

Voting Choices, Board Recommendation and Voting Requirement

 Proposal 5 –

 Non-Binding Advisory

 Vote to Approve the

 Compensation of the

 Company’s Named

 Executive Officers

 (pages 76 – 77)

Voting Choices

•    Vote for the compensation of the Company’s named executive officers;

•    Vote against the compensation of the Company’s named executive officers; or

•    Abstain from voting.

 

Board Recommendation

The Board recommends a vote “FOR” this proposal.

 

Voting Requirement

The compensation of the Company’s named executive officers will be approved on an advisory basis if the votes cast “FOR” exceed the votes cast “AGAINST.”

 

This vote is not binding upon the Company, the Board or the Compensation Committee. Nevertheless, the Compensation Committee values the opinions expressed by shareholders in their vote on this proposal and will consider the outcome of the vote when making future compensation decisions for the Company’s named executive officers.

 

 Proposal 6 –

 Shareholder Proposal

 Regarding Policy on

 Migrant Labor in the

 Tobacco Supply Chain

 (pages 78 – 79)

Voting Choices

•    Vote for the proposal;

•    Vote against the proposal; or

•    Abstain from voting.

 

Board Recommendation

The Board recommends a vote “AGAINST” this shareholder proposal.

 

Voting Requirement

The shareholder proposal will be approved if the votes cast “FOR” exceed the votes cast “AGAINST.”

 

 Proposal 7 –

 Shareholder Proposal

 Regarding Preparation of

 Health Effect and Cessation

 Materials for Poor and Less

 Formally Educated Tobacco

 Consumers

 (pages 80 – 81)

Voting Choices

•    Vote for the proposal;

•    Vote against the proposal; or

•    Abstain from voting.

 

Board Recommendation

The Board recommends a vote “AGAINST this shareholder proposal.

 

Voting Requirement

The shareholder proposal will be approved if the votes cast “FOR” exceed the votes cast “AGAINST.”

 

 Proposal 8 –

 Shareholder Proposal

 Regarding Report on

 Actions Taken to Reduce

 the Risk of Green Tobacco

 Sickness

 (pages 82 – 83)

Voting Choices

•    Vote for the proposal;

•    Vote against the proposal; or

•    Abstain from voting.

 

Board Recommendation

The Board recommends a vote “AGAINST” this shareholder proposal.

 

Voting Requirement

The shareholder proposal will be approved if the votes cast “FOR” exceed the votes cast “AGAINST.”

 

ALTRIA GROUP, INC. – Proxy Statement    7


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QUESTIONS AND ANSWERS ABOUT THE 2015 ANNUAL MEETING AND VOTING

 

 

7. ARE VOTES CONFIDENTIAL?

 

 

We will continue our long-standing practice of holding the votes of each shareholder in confidence from directors, officers and employees, except: (a) as necessary to meet applicable legal requirements and to assert or defend claims for or against the Company; (b) in the case of a contested

proxy solicitation; (c) if a shareholder makes a written comment on the proxy card or otherwise communicates his or her vote to the Company; or (d) to allow the independent inspectors of election to certify the results of the vote.

 

 

8. WHO COUNTS THE VOTES?

 

 

We will continue, as we have for many years, to retain an independent tabulator to receive and tabulate the proxies and

appoint independent inspectors of election to certify the results.

 

 

9. WHAT IF I DO NOT SPECIFY A CHOICE FOR A MATTER WHEN RETURNING A PROXY?

 

 

Shareholders should specify their voting choice for each matter on the accompanying proxy. If no specific choice is made for one or more matters, proxies that are signed and returned will be voted “FOR” the election of each of the nominees for director, “FOR” the approval of the 2015 Performance Incentive Plan, “FOR” the approval of the 2015 Stock Compensation Plan for Non-Employee Directors,

“FOR” the proposal to ratify the selection of PricewaterhouseCoopers LLP (“PricewaterhouseCoopers”), “FOR” the non-binding advisory vote to approve the compensation of the Company’s named executive officers and “AGAINST” each of the three shareholder proposals.

 

 

10. HOW DO I VOTE IF I PARTICIPATE IN THE DIVIDEND REINVESTMENT PLAN?

 

 

The proxy card that you have received includes your dividend reinvestment plan shares. The answer to Question 5

above explains how you can vote.

 

 

11. WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?

 

 

It means that you have multiple accounts with brokers and/or our transfer agent. Please vote all of these shares.

We recommend that you contact your broker or our transfer agent to consolidate as many accounts as possible under the same name and address. Our transfer agent is Computershare

Trust Company, N.A. Computershare’s address is P.O. Box 43078, Providence, Rhode Island 02940-3078; you can reach Computershare at 1-800-442-0077 (from within the United States or Canada) or 1-781-575-3572 (from outside the United States or Canada).

 

 

12. WILL MY SHARES BE VOTED IF I DO NOT PROVIDE MY PROXY?

 

 

Shareholders of Record: If you are a shareholder of record (see Question 4), your shares will not be voted if you do not provide your proxy unless you vote in person at the meeting. It is important that you vote your shares.

Street Name Holders: If your shares are held in street name (see Question 4) and you do not provide your voting instructions to your bank, broker or other nominee, your shares may be voted by your broker, bank or other nominee but only under certain circumstances. Specifically, under the New York Stock Exchange (“NYSE”) rules, shares held in the name of your broker, bank or other nominee may be voted by your broker, bank or other nominee on certain “routine” matters if you do not provide voting instructions. Only the ratification of the selection of PricewaterhouseCoopers as the Company’s independent registered public accounting firm is considered a “routine”

matter for which brokers, banks or other nominees may vote uninstructed shares. The other proposals to be voted on at the meeting (specifically, the election of director nominees, the approval of the 2015 Performance Incentive Plan, the approval of the 2015 Stock Compensation Plan for Non-Employee Directors, the non-binding advisory vote to approve the compensation of the Company’s named executive officers and the three shareholder proposals) are not considered “routine” under NYSE rules, so the broker, bank or other nominee cannot vote your shares on any of these proposals unless you provide to the broker, bank or other nominee voting instructions for each of these matters. If you do not provide voting instructions on a matter, your shares will not be voted on that matter, which is referred to as a “broker non-vote.” It is, therefore, important that you vote your shares.

 

 

8    ALTRIA GROUP, INC. – Proxy Statement


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QUESTIONS AND ANSWERS ABOUT THE 2015 ANNUAL MEETING AND VOTING

 

 

13. ARE ABSTENTIONS AND BROKER NON-VOTES COUNTED?

 

 

For purposes of all proposals other than the proposals to approve the 2015 Performance Incentive Plan and the 2015 Stock Compensation Plan for Non-Employee Directors, abstentions and broker non-votes will not be considered votes cast and, therefore, will have no effect on the results of the vote. For purposes of the proposals to approve the 2015 Performance Incentive Plan and the 2015 Stock Compensation Plan for Non-Employee Directors,

(a) abstentions will be considered votes cast under the rules of the NYSE and will have the effect of a vote against these proposals for purposes of the rules of the NYSE and (b) broker non-votes will not be considered votes cast and, therefore, will have no effect on the results of the vote.

Broker non-votes are described more particularly in Question 12 above.

 

 

14. HOW CAN I REVOKE A PROXY OR CHANGE MY VOTE?

 

 

If you are a shareholder of record, you can revoke a proxy or change your vote before the completion of voting at the meeting by:

 

(a) giving written notice to the Corporate Secretary of the Company;
(b) delivering a later-dated proxy; or

 

(c) voting in person at the meeting.

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

 

 

15. WHO WILL PAY THE COST OF THIS PROXY SOLICITATION?

 

 

The cost of this solicitation of proxies will be paid by the Company. In addition to the use of the mail, some of the officers and regular employees of the Company or its subsidiaries may solicit proxies by telephone or e-mail and will request brokerage houses, banks and other custodians, nominees and fiduciaries to forward soliciting material to the beneficial owners of common stock held of record by such

persons. The Company will reimburse such persons for expenses incurred in forwarding such soliciting material. It is contemplated that additional solicitation of proxies will be made in the same manner under the engagement and direction of our proxy solicitor, D.F. King & Co., Inc., 48 Wall Street, New York, New York 10005, at an anticipated cost of $24,000, plus reimbursement of out-of-pocket expenses.

 

 

16. HOW DO I OBTAIN ADMISSION TO THE 2015 ANNUAL MEETING?

 

 

If you plan to attend the meeting, you must request an admission ticket in advance.

Please submit your request for an admission ticket by completing the Pre-Registration Form located on the last page of this Proxy Statement and submitting it, along with your proof of ownership as of the record date for the meeting (March 30, 2015), no later than May 15, 2015, using one of the means identified on the Pre-Registration Form.

If your shares are held for you in the name of your broker, bank or other nominee, please provide evidence of your stock ownership as of the record date for the meeting (such as your voting instruction form, a current letter from your broker, bank or other nominee or a photocopy of a brokerage or other account statement).

If you are a duly appointed proxy for a shareholder, you must provide proof of your appointment and proof of share ownership for the shareholder for whom you are a proxy.

You may bring only one immediate family member as a guest. All immediate family member guests must be 21 years of age or older. If you are a duly appointed proxy for a shareholder, you may not bring a guest.

All meeting attendees must present government-issued photo identification, such as a driver’s license or passport, at the meeting.

The meeting facilities will open at 8:00 a.m., Eastern Time, to facilitate your registration and security clearance. For your security, you will not be permitted to bring any packages, briefcases, large pocketbooks or bags into the meeting. Also, cellular and digital phones, audio tape recorders, video and still cameras, pagers, laptops and other portable electronic devices will not be permitted into the meeting. We thank you in advance for your patience and cooperation with these rules.

 

 

ALTRIA GROUP, INC. – Proxy Statement    9


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QUESTIONS AND ANSWERS ABOUT THE 2015 ANNUAL MEETING AND VOTING

 

 

17. MAY SHAREHOLDERS ASK QUESTIONS AT THE 2015 ANNUAL MEETING?

 

 

Yes. The Chairman will answer shareholders’ questions during the question and answer period of the meeting. In order to provide an opportunity for everyone who wishes to ask a question, each shareholder will be limited to two minutes. Shareholders may ask a second question if all

others have first had their turn and if time allows. When speaking, shareholders must direct questions to the Chairman and confine their questions to matters that relate directly to the business of the meeting.

 

 

18. HOW MANY VOTES MUST BE PRESENT TO HOLD THE 2015 ANNUAL MEETING?

 

 

In order for us to conduct the meeting, a majority of our outstanding shares of common stock as of the record date for the meeting (March 30, 2015), must be present in person or by proxy at the meeting. This is referred to as a quorum.

Your shares are counted as present at the meeting if you attend the meeting and vote in person or if you properly return a proxy by Internet, telephone or mail.

Abstentions and shares of record held by a broker, bank or other nominee (“broker shares”) that are voted on any matter are also included in determining the number of shares present. Broker shares that are not voted on any matter will not be included in determining whether a quorum is present.

 

 

10    ALTRIA GROUP, INC. – Proxy Statement


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BOARD AND GOVERNANCE MATTERS

 

 

BOARD AND GOVERNANCE MATTERS

Board Responsibility, Meetings and Composition

The primary responsibility of the Board of Directors is to foster the long-term success of the Company. In fulfilling this role, each director must exercise his or her good faith business judgment of the best interests of the Company. The Board has responsibility for establishing broad corporate policies, setting strategic direction and overseeing management, which is responsible for the day-to-day operations of the Company.

The Board annually assesses the effectiveness of the Board and its Committees (“Committees”). The method for conducting the annual Board and Committee self-evaluations has rotated among third-party interviews, interviews conducted by the Presiding Director and written surveys. The Nominating, Corporate Governance and Social Responsibility Committee oversees the evaluation process, including determining the format, and presents to the Board the results of the self-evaluations to identify opportunities to enhance effectiveness. The Board discusses the results of each annual self-evaluation.

The Board holds regular meetings typically during the months of January, February, May, August, October and December, and special meetings are held when necessary. The Board’s organizational meeting follows the annual meeting of shareholders. One of the meetings focuses significantly on reviewing the Company’s strategic plan. The Board held seven meetings in 2014. The Board meets in executive session at every Board meeting, which is followed by a session of only independent directors led by the Presiding Director. Directors are expected to attend Board meetings, meetings of the Committees on which they serve and the annual meeting of shareholders, with the understanding that on occasion a director may be unable to attend a meeting. During 2014, all nominees for director attended at least 95% of the aggregate number of meetings of the Board during their respective terms of service and of all Committees on which they served. In addition, all directors attended the 2014 Annual Meeting.

As of the date of this Proxy Statement, our Board consists of 11 directors. Directors are elected annually at each annual meeting to serve until the next annual meeting and until their successors are duly elected and qualified, subject to their earlier death, resignation or removal. The Board has adopted retirement guidelines that require a director who will have attained the age of 75 as of the date of the next annual meeting to tender his or her written resignation to the Board at least six months prior to such annual meeting. If the Board determines that continued service by the director is in the best interests of the Company, the Board has the discretion not to accept the resignation. Each of the nominees currently serves as a director and was elected by the shareholders at the 2014 Annual Meeting. Biographical information and qualifications of the nominees for director are included under “Proposal 1 – Election of Directors” on page 56.

Our Board has a breadth of skills and experiences. As detailed under “Proposal 1 – Election of Directors,” we believe that our Board has demonstrated leadership in a variety of positions across various professions and industries. Their skills and experience include:

 

 

DIRECTOR SKILLS AND EXPERIENCE

 

 

¡  Consumer goods experience

 

 

¡  Public policy expertise

 

 

¡  Regulated industries experience

 

 

¡  Public company board experience

 

 

¡  Chief executive officer experience

 

 

¡  Leadership in innovation

 

 

¡  Financial expertise, including chief financial officer experience

 

 

ALTRIA GROUP, INC. – Proxy Statement    11


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BOARD AND GOVERNANCE MATTERS

 

 

Board Leadership Structure and Governance

 

The Board believes that it is important to retain the flexibility to allocate the responsibilities of the Chairman of the Board (the “Chairman”) and the Chief Executive Officer (“CEO”) in a way that it considers to be in the best interests of the Company. After due consideration by the Nominating, Corporate Governance and Social Responsibility Committee and the Board, the Board has concluded that presently combining the roles of Chairman and CEO is in the best interests of the Company. The Company’s Mission is to own and develop financially disciplined businesses that are leaders in responsibly providing adult tobacco and wine consumers with superior branded products. The Board believes that the combination of the roles of Chairman and CEO promotes the pursuit of the Company’s Mission by allowing the senior-most executive with accountability for the Company’s day-to-day operations and execution of the Company’s strategic plan, who also possesses significant business, regulatory and industry knowledge, to set Board meeting agendas (in consultation with the Presiding Director), to lead the related discussions and to communicate with one voice to employees, shareholders and other stakeholders. The Board considers this effective and efficient structure to be particularly appropriate for the Company given the unique challenges that the Company has faced and continues to face in its businesses, particularly domestic tobacco, and the enhanced regulatory environment.

 

The Board’s strict adherence to sound corporate governance practices, as reflected in the Company’s Corporate Governance Guidelines, has promoted, and continues to promote, the effective and independent exercise of Board leadership for the Company and its shareholders. The Company has a strong and experienced independent Presiding Director who, in discharging his responsibilities, promotes dialogue among independent members of the Board and directly and clearly communicates the views of the Board to management. Moreover, our independent directors convene at each Board meeting in an executive session led by the Presiding Director.

 

RESPONSIBILITIES OF OUR PRESIDING DIRECTOR

 

¡   Preside over executive sessions of the independent directors and at all meetings at which the Chairman is not present

 

¡   Call meetings of the independent directors as he or she deems necessary

 

¡   Serve as a liaison between the Chairman and the independent directors

 

¡   Together with the Chairman, approve agendas for Board meetings

 

¡   Advise the Chairman of the Board’s informational needs and, where appropriate, approve information sent to the Board

 

¡   Together with the Chair of the Compensation Committee, communicate goals and objectives to the Chairman and CEO and the results of the evaluation of his performance

 

¡   Be available for consultation and communication if requested by major shareholders

 

Advancement Planning and CEO Succession

The Board believes that senior executive advancement and succession is one of its most important responsibilities. The Compensation Committee is responsible for reviewing and assisting with the development of executive succession plans, evaluating and making recommendations to the Board regarding potential candidates to become CEO, and evaluating and approving candidates to fill other senior executive positions. At least annually, the Chairman and CEO meets with the Compensation Committee and the Board to discuss CEO succession planning (including specific candidates). The Compensation Committee also considers the procedure for the timely and efficient transfer of CEO responsibilities in the event of an emergency or the sudden incapacitation, departure or death of the Chairman and CEO. The Chairman and CEO also meets with the Compensation Committee at least annually to discuss the performance of key members of the Company’s senior management. These matters are regularly communicated to the Board by the Chair of the Compensation Committee.

Governance Guidelines, Policies and Codes

The Board has adopted Corporate Governance Guidelines. In addition, the Board has adopted a Code of Business Conduct and Ethics for Directors (“Director Code”) that applies to our directors and a policy with regard to reviewing certain transactions in which the Company is a participant and an officer, director or nominee for director has had or may have a direct or indirect material interest. These documents are available on the Company’s website at www.altria.com/governance. The Company has also adopted the Altria Code of Conduct (“Code of Conduct”), which applies to all of its employees, including its principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. The Code of Conduct is available on the Company’s website at www.altria.com/codeofconduct.

Information on, or that can be accessed through, the Company’s website is not, and shall not be deemed to be, a part of this Proxy Statement or incorporated into any other filings the Company makes with the U.S. Securities and Exchange Commission (“SEC”).

 

12    ALTRIA GROUP, INC. – Proxy Statement


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BOARD AND GOVERNANCE MATTERS

 

 

Committees of the Board of Directors

The Board has established various standing Committees to assist it with the performance of its responsibilities. The Board designates the members of these Committees and the Committee Chairs annually at its organizational meeting following the annual meeting of shareholders, based on the recommendations of the Nominating, Corporate Governance and Social Responsibility Committee. The Chair of each Committee develops the agenda for that Committee and determines the frequency and length of Committee meetings. After each meeting, each Committee provides a full report to the Board.

The Board has adopted written charters for each of these Committees. These charters are available on the Company’s website at www.altria.com/governance. The following table summarizes the primary responsibilities of the Committees:

 

 Committee

Primary Responsibilities

 Audit

 

The Audit Committee assists the Board in its oversight of (i) the integrity of the Company’s financial statements and financial reporting processes and systems of internal control, (ii) the qualifications, independence and performance of the Company’s independent registered public accounting firm, (iii) the internal auditors and the internal audit function and (iv) the Company’s compliance with legal and regulatory requirements. The Audit Committee also prepares the Audit Committee report that the rules of the SEC require the Company to include in its proxy statement. See pages 22 to 23 for further matters related to the Audit Committee, including its report for the year ended December 31, 2014.

 

 Compensation        

 

The Compensation Committee determines, reviews and approves the compensation of the CEO and reviews and approves the compensation of the other executive officers, including salary, annual incentive awards, long-term incentive awards and equity grants. The Compensation Committee also reviews and assists with the development of executive succession plans and evaluates and makes recommendations to the Board regarding potential CEO candidates. In addition, the Compensation Committee evaluates the design and effectiveness of the Company’s incentive programs. See pages 24 to 25 for further matters related to the Compensation Committee, including a discussion of its procedures and its report on the Compensation Discussion and Analysis appearing on pages 27 through 43.

 

 Executive

 

The Executive Committee has authority to act for the Board during intervals between Board meetings to the extent permitted by law.

 

 Finance

 

The Finance Committee monitors the Company’s financial condition, oversees the sources and uses of cash flow and the investment of certain employee benefit plan assets and advises the Board with respect to financing needs, dividend policy, share repurchase programs and other financial matters.

 

 Innovation

 

The Innovation Committee assists the Board in its oversight of the strategic goals and objectives of the innovation programs of the Company’s subsidiaries, which include innovation strategy, adult consumer/marketing understanding and research, development and engineering programs and technological initiatives.

 

 Nominating,

 Corporate

 Governance

 and Social

 Responsibility

 

The Nominating, Corporate Governance and Social Responsibility Committee identifies individuals qualified to become Board members consistent with the criteria established by the Board and described in the Company’s Corporate Governance Guidelines, and recommends a slate of nominees for election at each annual meeting of shareholders; makes recommendations to the Board concerning the appropriate size, function, needs and composition of the Board and its Committees; reviews non-employee director compensation and recommends changes in compensation to the Board; advises the Board on corporate governance matters; oversees the self-evaluation process of the Board and its Committees; and provides oversight of the Company’s public affairs, corporate reputation and societal alignment strategies.

 

 

ALTRIA GROUP, INC. – Proxy Statement    13


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BOARD AND GOVERNANCE MATTERS

 

 

The following table sets forth the current members of each of the Committees and the number of meetings held during 2014:

 

 Name   Audit (1)    Compensation (2)   Executive   Finance   Innovation  

Nominating, Corporate

Governance and Social

    Responsibility (3)

 

 

Gerald L. Baliles*

 

    

 

ü

 

 

 

ü

 

   

 

ü

 

 

 

Chair

 

 

Martin J. Barrington

 

           Chair

 

           

 

John T. Casteen III*

 

  ü

 

               ü

 

  ü

 

 

Dinyar S. Devitre*

 

               ü

 

  ü

 

   

 

Thomas F. Farrell II* (4)

 

       ü

 

  ü

 

          ü

 

 

Thomas W. Jones*

 

  ü

 

   ü

 

  ü

 

  Chair

 

       

 

Debra J. Kelly-Ennis*

 

  ü

 

               ü

 

  ü

 

 

W. Leo Kiely III*

 

       Chair

 

  ü

 

  ü

 

  ü

 

   

 

Kathryn B. McQuade*

 

  ü

 

   ü

 

      ü

 

       

 

George Muñoz*

 

  Chair

 

       ü

 

  ü

 

      ü

 

 

Nabil Y. Sakkab*

 

           ü

 

  ü

 

  Chair

 

  ü

 

 

 

2014 Meetings

 

 

 

7

 

  

 

5

 

 

 

0

 

 

 

6

 

 

 

4

 

 

 

4

 

 

* Independent Director.

 

(1) The Audit Committee consists entirely of non-management directors all of whom the Board has determined are independent within the meaning of the listing standards of the NYSE and Rule 10A-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Board has determined that all members of the Audit Committee are financially literate and that George Muñoz and at least one other member of the Committee are “audit committee financial experts” within the meaning set forth in the regulations of the SEC.

 

(2) The Compensation Committee consists entirely of non-management directors all of whom the Board has determined are independent within the meaning of the listing standards of the NYSE; are non-employee directors for the purposes of Rule 16b-3 of the Exchange Act; and satisfy the requirements of Internal Revenue Code Section 162(m) for outside directors.

 

(3) The Nominating, Corporate Governance and Social Responsibility Committee consists entirely of non-management directors all of whom the Board has determined are independent within the meaning of the listing standards of the NYSE.

 

(4) Presiding Director.

The Board’s Risk Oversight Role

The Board believes it has in place effective processes to identify and oversee the material risks facing the Company and its businesses and that these processes are consistent with, and provide additional support for, the current leadership structure of the Board. The Board, both acting as a full Board and through its Committees, plays an important oversight role in the Company’s risk management processes. Regular Board and Committee meetings cover multiple days. Management from the Company and different Company subsidiaries and business functions attend each meeting. Board members also conduct periodic site visits to Company subsidiary locations both in and outside the Company’s Richmond, Virginia headquarters. These meetings and site visits and, as appropriate, communications between Board meetings, allow the Board to discuss with management the operational risks facing the businesses of the Company’s subsidiaries.

The Company conducts an enterprise risk management process to identify, prioritize and manage risks that have the potential to present the most significant obstacles to achieving business objectives. Management reports annually to the Board on this process.

 

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BOARD AND GOVERNANCE MATTERS

 

 

The Board, directly or through its Committees, also oversees management of the following risk areas:

 

¡   Legal and Regulatory Risk:  The Board, both directly and through the Audit Committee, receives regular updates on legal and regulatory matters, including developments in litigation and developments related to U.S. Food and Drug Administration (“FDA”) regulation of certain of the Company’s subsidiaries, thereby reviewing the Company’s management of legal and regulatory risk. In addition, reports to the Audit Committee at each of its meetings by the Company’s Chief Compliance Officer and corporate audit personnel provide insight into the Company’s risk assessment and risk management policies and processes, including enterprise risk management.

 

¡   Financial and Accounting Risk:  The Finance and Audit Committees oversee the Company’s management of financial, accounting, internal controls and liquidity risks through interaction at each meeting with the Chief Financial Officer, management from the Company’s financial, accounting, auditing and treasury functions (as appropriate) and, for the Audit Committee, representatives from the Company’s independent registered public accounting firm.
¡   Reputational and Governance Risk:  Through its interaction with business functions responsible for the Company’s public policy and societal alignment activities and strategies, the Nominating, Corporate Governance and Social Responsibility Committee oversees the ways in which the Company manages reputational and public policy risk. The Nominating, Corporate Governance and Social Responsibility Committee also oversees risks related to Board organization, membership and structure and corporate governance.

 

¡   Executive Compensation Program Risk:  The Compensation Committee considers the extent to which the executive compensation program may create risk for the Company (see page 36 for a more detailed description).

 

¡   Technology, Intellectual Property and Research and Product Development Risk:  The Innovation Committee oversees the Company’s management of the risks associated with technology, research and product development, including intellectual property. The Audit Committee oversees the Company’s information technology security program.
 

 

 

LOGO

 

ALTRIA GROUP, INC. – Proxy Statement    15


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BOARD AND GOVERNANCE MATTERS

 

 

Directors

Process for Nominating Directors

The Nominating, Corporate Governance and Social Responsibility Committee is responsible for identifying and evaluating nominees for director and for recommending to the Board a slate of nominees for election at the annual meeting of shareholders.

In identifying potential candidates for Board membership, the Committee relies on suggestions and recommendations from directors, shareholders, management and others, including from time to time executive search and board advisory firms. The Committee does not distinguish between nominees recommended by shareholders and other nominees. Shareholders wishing to suggest candidates to the Nominating, Corporate Governance and Social Responsibility Committee for consideration as directors must submit a written notice to the Corporate Secretary of the Company following the procedures set forth in this Proxy Statement under “Questions and Answers about Communications, Company Documents and Shareholder Proposals How Do I Communicate with the Board of Directors?” on page 87. The Company’s By-Laws set forth the procedures that a shareholder must follow to nominate directors. The procedures are summarized under the same section in response to the question “How Can a Shareholder Nominate a Director or Submit a Proposal for Next Year’s Annual Meeting?” on page 87.

Director Qualifications and Board Diversity

 

In reviewing nominee candidates, the Nominating, Corporate Governance and Social Responsibility Committee follows the process described above and, in so doing, considers both (i) the Company’s Mission to own and develop financially disciplined businesses that are leaders in responsibly providing adult tobacco and wine consumers with superior branded products and (ii) its four related Mission goals – invest in leadership; align with society; satisfy adult consumers; and create substantial value for shareholders. The Committee has not established any specific minimum qualification standards for nominees to the Board; rather, in evaluating the suitability of individuals for Board membership, the Committee considers the ways in which it believes each nominee can assist the Company in pursuing its Mission and advancing one or more Mission goals.

 

The Committee evaluates each individual in the context of the Board as a whole, with the objective of recommending a group of directors that can best continue the Company’s success and represent shareholder interests through the exercise of sound judgment. The Committee takes into account many factors, including whether the individual meets requirements for independence and whether the individual will enhance the diversity of views and experiences available to the Board in its deliberations. In determining whether to recommend a director for re-election, the Committee also considers the director’s past attendance at meetings and participation in and contributions to the activities of the Board. In addition, the Committee considers whether the Board has specific needs for certain skills or attributes at a given time (for example, financial or chief executive officer experience). Other criteria for Board membership are set forth in the Company’s Corporate Governance Guidelines.

 

Under “Proposal 1 – Election of Directors,” we provide an overview of each nominee’s principal occupation, business experience and other directorships, together with the key attributes, experience and skills considered by the Committee and the Board as being particularly meaningful in pursuing the Company’s Mission and advancing one or more Mission goals.

 

EVALUATING BOARD DIVERSITY

 

The Company is committed to diversity, as reflected in its Mission goals, its Code of Conduct, its leadership development system and various other Company policies.

 

The Nominating, Corporate Governance and Social Responsibility Committee has a long-standing commitment to diversity, rather than a formal diversity policy, and is guided by the Company’s diversity philosophy in its review and consideration of potential director nominees. In this regard, the Board and the Committee view diversity holistically. As set forth in the Company’s Corporate Governance Guidelines, the Board and the Committee consider:

 

¡   whether the individual meets the requirements for independence;

 

¡   the individual’s general understanding of the various disciplines relevant to the success of a large publicly-traded company in today’s global business environment;

 

¡   the individual’s understanding of the Company’s businesses and markets;

 

¡   the individual’s professional expertise and educational background; and

 

¡   other factors that promote diversity of views and experiences.

 

 

16    ALTRIA GROUP, INC. – Proxy Statement


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BOARD AND GOVERNANCE MATTERS

 

 

Director Independence Determinations

Under the listing standards of the NYSE, the Board must consist of a majority of independent directors. In making independence determinations, the Board observes NYSE and SEC criteria and considers all relevant facts and circumstances. The Board has also adopted categorical standards of director independence to further assist it in making these determinations. These standards are set forth in Annex A of the Company’s Corporate Governance Guidelines, which are available on the Company’s website at www.altria.com/governance.

On the recommendation of the Nominating, Corporate Governance and Social Responsibility Committee, the Board has affirmatively determined that each of the following nominees is independent in that such nominee has no material relationship with the Company: Gerald L. Baliles, John T. Casteen III, Dinyar S. Devitre, Thomas F. Farrell II, Thomas W. Jones, Debra J. Kelly-Ennis, W. Leo Kiely III, Kathryn B. McQuade, George Muñoz and Nabil Y. Sakkab. In making its recommendation to the Board, the Committee considered the following business relationships and transactions:

 

 Business Relationships and Transactions Considered

 

Dr. Sakkab was a non-executive director of Givaudan SA, an entity from which Company subsidiaries from time to time in the ordinary course of business acquire goods and services on terms comparable to those provided to unrelated third parties. Dr. Sakkab does not materially benefit directly or indirectly from this relationship.

 

 

Mr. Muñoz is a non-executive director of Marriott International, Inc., an entity from which Company subsidiaries from time to time in the ordinary course of business acquire goods and services on terms comparable to those provided to unrelated third parties. Mr. Muñoz does not materially benefit directly or indirectly from this relationship.

 

 

Ms. Kelly-Ennis is a non-executive director of Carnival Corporation & plc (“Carnival”). From time to time, Carnival subsidiaries in the ordinary course of business acquire goods from Company subsidiaries on terms comparable to those provided to unrelated third parties. Additionally, Ms. Kelly-Ennis is a non-executive director of Hertz Global Holdings, Inc., an entity from which Company subsidiaries from time to time in the ordinary course of business acquire goods and services on terms comparable to those provided to unrelated third parties. Ms. Kelly-Ennis does not materially benefit directly or indirectly from these relationships.

 

 

Mr. Farrell is the Chief Executive Officer of Dominion Resources, Inc. (“Dominion”). A subsidiary of Dominion is a regulated public utility with which the Company or its subsidiaries has a commercial relationship for energy procurement. Amounts paid by the Company or its subsidiaries are set at rates fixed in accordance with the applicable regulatory authority. In the first quarter of 2014, a Company subsidiary entered into an agreement with the same utility under which the Company subsidiary receives nominal payments in connection with a solar energy program overseen and approved by the same regulatory authority. The terms of the agreement are comparable to those the utility offers to other third parties. Mr. Farrell is neither responsible for, nor involved in, the utility’s dealings with the Company or its subsidiaries, nor does Mr. Farrell materially benefit directly or indirectly from this relationship.

 

 

Mr. Devitre is a non-executive director of SABMiller plc (“SABMiller”), an entity in which the Company held approximately 27% of the economic and voting interest at December 31, 2014. Mr. Devitre and Howard A. Willard III, the Company’s Executive Vice President and Chief Operating Officer, serve at the Company’s request as non-executive members of SABMiller’s 14-member Board of Directors in accordance with the Amended and Restated Relationship Agreement between the Company and SABMiller. Mr. Devitre’s compensation for his SABMiller board service is limited to director fees paid by SABMiller. Mr. Devitre does not materially benefit directly or indirectly from this relationship.

 

 

In July 2012, the Company and the Economic Development Authority of the City of Richmond (“EDA”) entered into an agreement concerning the renovation of the historic Landmark Theater in Richmond, Virginia. Under the agreement, the Company acquired from the EDA the naming rights to the theater for a 20-year period for $10 million payable over five years. The agreement reflects the Company’s long-standing commitment to supporting cultural venues located in and around its communities. Messrs. Farrell and Barrington are non-employee directors of Richmond Performing Arts Center L.L.L.P., the entity responsible for overseeing various performing arts venues in the City of Richmond, including the Landmark Theater, for the benefit of the Richmond community. Neither Mr. Farrell nor Mr. Barrington materially benefits directly or indirectly from this relationship.

 

ALTRIA GROUP, INC. – Proxy Statement    17


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BOARD AND GOVERNANCE MATTERS

 

 

 Business Relationships and Transactions Considered

Additionally, immediate family members (as defined in the Company’s Policy on Related Person Transactions, which is discussed in “Related Person Transactions and Code of Conduct” on page 86) of Governor Baliles, Mr. Casteen, Mr. Devitre, Mr. Farrell, Ms. Kelly-Ennis, Mr. Kiely and Dr. Sakkab are employed in non-executive officer capacities by entities with which the Company or its subsidiaries from time to time do business in the ordinary course on terms comparable to those provided to unrelated third parties. The immediate family member in each case is neither responsible for, nor involved in, the entity’s day-to-day dealings with the Company or its subsidiaries, and the respective payments made by the Company or its subsidiaries to the entities in the last three fiscal years were significantly less than the greater of $1 million or 2% of any such entity’s consolidated gross revenues. None of Governor Baliles, Mr. Casteen, Mr. Devitre, Mr. Farrell, Ms. Kelly-Ennis, Mr. Kiely or Dr. Sakkab, or their respective immediate family members, materially benefits directly or indirectly from these relationships.

The Committee has determined that the foregoing business relationships and transactions did not affect the independence of any nominee for director.

In making its recommendation to the Board, the Committee also considered the following philanthropic relationships and transactions between the Company and its subsidiaries and various educational and other charitable entities located in or near the locations of Company or Company subsidiary facilities. The Company believes that corporate philanthropy furthers its Mission goal of investing in leadership, which includes investing meaningfully in the communities in which our employees live and work with the objective of making those communities leading environments where our businesses can succeed. In some cases, these relationships date back for many decades.

 

 Philanthropic Relationships and Transactions Considered

As the Company disclosed in prior years, a subsidiary of the Company pledged $25 million to the University of Virginia (the “University”) in 2006, reflecting a long-standing relationship between the Company and the University that has included employment recruiting and charitable donations. In 2014, the Company made a contribution of $500,000, which represented the final payment and completion of the pledge. Also in 2014, the Company or its subsidiaries (i) made certain other charitable donations to the University, including contributions under the Company’s Matching Gift Program, which is discussed on page 20, in an aggregate amount of $1,031,080 and (ii) made ordinary course trade payments to the University in the aggregate amount of $84,003. The sum of these 2014 contributions and payments represent less than 2% of the University’s consolidated gross revenues. Mr. Casteen is a former President of the University. He now serves as President Emeritus of the University. Mr. Casteen’s daughter-in-law, Laura Casteen, is employed by the University as an Associate Dean. Neither Mr. Casteen nor his daughter-in-law materially benefits directly or indirectly from this relationship.

 

In the Richmond, Virginia region, where the Company and several of its subsidiaries are headquartered and employ approximately 4,000 people, the Company made the following contributions to educational and other charitable organizations in 2014 that exceeded $150,000:

   $950,500, which included a $570,000 in-kind contribution, to Virginia Commonwealth University in support of various academic programs and scholarships;

   $720,907 to the Virginia Museum of Fine Arts in support of exhibitions; and

   $260,000 to Richmond 2015, Inc., which is the non-profit entity responsible for the organization, management and promotion of the 2015 UCI World Cycling Championships to be held in Richmond, Virginia.

Mr. Farrell is a non-employee director or trustee of each of these entities. Mr. Barrington is a non-employee trustee of the Virginia Museum of Fine Arts. The contributions identified above did not in any case exceed the greater of $1 million or 2% of any such entity’s consolidated gross revenues. Neither Mr. Farrell nor Mr. Barrington materially benefits directly or indirectly from these contributions.

 

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BOARD AND GOVERNANCE MATTERS

 

 

Philanthropic Relationships and Transactions Considered

In addition, the Company makes various grants and charitable contributions, including matching gifts under the Company’s Matching Gift Program to entities where Governor Baliles, Mr. Casteen, Mr. Devitre, Mr. Farrell, Mr. Jones, Ms. Kelly-Ennis, Mr. Kiely, Ms. McQuade and Mr. Muñoz and immediate family members of Governor Baliles, Mr. Farrell and Ms. McQuade serve as non-executive directors or trustees or non-executive employees. A substantial majority of these grants and contributions was made to non-profit entities that serve the communities in which the Company and its subsidiaries operate and to non-profit educational programs and institutions located in and around these communities. In each case, payments by the Company in the last three fiscal years were significantly less than the greater of $1 million or 2% of any such entity’s consolidated gross revenues. None of Governor Baliles, Mr. Casteen, Mr. Devitre, Mr. Farrell, Mr. Jones, Ms. Kelly-Ennis, Mr. Kiely, Ms. McQuade or Mr. Muñoz, or their respective immediate family members, materially benefits directly or indirectly from these contributions.

The Committee has determined that the foregoing philanthropic relationships and transactions did not affect the independence of any nominee for director.

Director Compensation

The Company’s philosophy is to provide competitive compensation necessary to attract and retain high-quality non-employee directors. The Board believes that a substantial portion of director compensation should consist of equity-based compensation to assist in aligning directors’ interests with the interests of shareholders. Directors who are employees of the Company (currently, only Mr. Barrington) receive no additional compensation for service as a director.

The Nominating, Corporate Governance and Social Responsibility Committee periodically reviews the competitiveness of director compensation (taking into account the Company’s Compensation Survey Group described on page 36), considers the appropriateness of the form and amount of director compensation and makes recommendations to the Board concerning such compensation with a view toward attracting and retaining qualified directors. In reviewing director compensation in the first quarter of 2014, the Committee considered survey data provided to management by Hewitt Associates, LLC d/b/a Aon Hewitt (“Aon Hewitt”). The data provided by Aon Hewitt was based on parameters established by management. Aon Hewitt provides neither advice nor recommendations on the form or amount of Altria’s director compensation, nor does Aon Hewitt attend any Board or Committee meetings.

In 2014, as in past years, the non-employee directors’ compensation consisted of an equity award in the form of fully vested shares of Altria common stock and cash retainers. The following table presents the 2014 components of compensation for our non-employee directors:

 

Type of Compensation

  

Amount

($)

Annual Board Retainer (1)

       100,000  

Annual Retainer for Presiding Director

       20,000  

Annual Retainer for Committee Chairs

    

Audit

Compensation

Finance

Innovation

Nominating, Corporate Governance and Social Responsibility

      

 

 

 

 

20,000

20,000

10,000

10,000

10,000

 

 

 

 

 

Annual Membership Retainer for Each Member of Each Committee above

       5,000  

Annual Equity Award Value

       175,000  

 

(1) The annual cash retainer is paid in quarterly installments.

Effective in 2014, the Board, on the recommendation of the Nominating, Corporate Governance and Social Responsibility Committee, increased the fair market value of the annual equity award to non-employee directors from $160,000 to $175,000. The Board did not increase the cash component of non-employee director compensation.

 

ALTRIA GROUP, INC. – Proxy Statement    19


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BOARD AND GOVERNANCE MATTERS

 

 

A non-employee director may elect to defer the award of shares of common stock and all or part of his or her retainers. Pursuant to the Deferred Fee Plan for Non-Employee Directors, deferred retainers are credited to an unfunded bookkeeping account and may be “invested” in various “investment choices,” including an Altria common stock equivalent account. These “investment choices” parallel the investment options offered under the Deferred Profit-Sharing Plan for Salaried Employees and determine the “earnings” that are credited for bookkeeping purposes to a non-employee director’s account. The non-employee director will receive deferred awards of common stock and cash distributions of deferred retainers either prior to or following termination of service from the Board, as elected by the non-employee director.

In addition to cash payments and stock awards, non-employee directors are covered under the Company’s Business Travel Accident Insurance Plan, which is available generally to all salaried employees of the Company.

Non-employee directors may also participate in the Company’s Matching Gift Program. This program is available to all employees and non-employee directors. The Company will match eligible donations of a minimum of $25 up to $30,000 per year per employee or non-employee director on a dollar-for-dollar basis to eligible non-profit organizations. In 2014, the following non-employee directors participated in this program: Governor Baliles, Mr. Casteen, Mr. Devitre, Mr. Jones, Ms. Kelly-Ennis, Mr. Kiely, Ms. McQuade and Mr. Muñoz. The aggregate amount of matching payments for these eight directors in 2014 was $137,670.

Upon the issuance of the annual equity awards immediately following the 2015 Annual Meeting, no further awards can be made under the Stock Compensation Plan for Non-Employee Directors. Consequently, shareholders are being asked to approve the 2015 Stock Compensation Plan for Non-Employee Directors at the 2015 Annual Meeting. The 2015 Stock Compensation Plan for Non-Employee Directors is discussed under “Proposal 3 – Approval of the 2015 Stock Compensation Plan for Non-Employee Directors” beginning on page 70.

The following table presents the compensation received by the non-employee directors for service as directors in fiscal year 2014:

Non-Employee Director Compensation Table

 

  Name

  

Fees Earned

or Paid in Cash

($)

  

Stock Awards

        ($) (1) (2)

  

All Other

Compensation

    ($) (3)

  

Total

($)

  Gerald L. Baliles

   125,000    175,013    16,500    316,513

  John T. Casteen III

   115,000    175,013      6,000    296,013

  Dinyar S. Devitre

   115,000    175,013    29,921    319,934

  Thomas F. Farrell II

   130,000    175,013             0    305,013

  Thomas W. Jones

   125,000    175,013    30,000    330,013

  Debra J. Kelly-Ennis

   115,000    175,013    11,600    301,613

  W. Leo Kiely III

   135,000    175,013    29,849    339,862

  Kathryn B. McQuade

   115,000    175,013    11,300    301,313

  George Muñoz

   135,000    175,013      2,500    312,513

  Nabil Y. Sakkab

   125,000    175,013             0    300,013

 

(1) Pursuant to the Stock Compensation Plan for Non-Employee Directors, on May 14, 2014, each non-employee director received 4,332 shares of Altria common stock with an aggregate grant date fair market value of $175,013. The dollar value is slightly higher than $175,000 because the grant is made in whole shares. The fair market value of the shares of $40.40 per share was based on the average of the high and low price of Altria common stock on May 14, 2014.

 

(2) As of December 31, 2014, there were no stock options outstanding.

 

(3) All Other Compensation consists of charitable matching gifts paid in 2014 under the Company’s Matching Gift Program to charitable entities designated by the non-employee director as more particularly described above.

 

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BOARD AND GOVERNANCE MATTERS

 

 

Stock Ownership Guidelines for Non-Employee Directors and Prohibition on Hedging

The Board believes that stock ownership guidelines further align the interests of the Board with those of the Company’s shareholders. The Company’s non-employee directors are expected to hold the Company’s common stock in an amount equal to the lesser of five times the then-current annual cash retainer or 26,000 shares. Directors are expected to reach this ownership level within five years of being elected to Board membership and to hold the requisite number of shares until retirement. The ownership requirement for non-employee directors may be satisfied with all beneficially owned shares, including deferred shares, and share equivalents. As of December 31, 2014, all of our directors who had served on the Board for five or more years since their election held a sufficient number of shares to satisfy these guidelines.

The Company’s non-employee directors are not permitted to engage in hedging activities with respect to our stock. Furthermore, our non-employee directors do not pledge their Altria shares.

 

ALTRIA GROUP, INC. – Proxy Statement    21


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AUDIT COMMITTEE MATTERS

 

 

AUDIT COMMITTEE MATTERS

Audit Committee Report for the Year Ended December 31, 2014

Management has the primary responsibility for the Company’s financial statements and the reporting process, including the systems of internal accounting control. The Audit Committee monitors the Company’s financial reporting processes and systems of internal accounting control, the independence and the performance of the independent registered public accounting firm and the performance of the internal auditors.

The Audit Committee has received representations from management that the Company’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America and that the Company maintained effective internal control over financial reporting, and the Audit Committee has reviewed and discussed the consolidated financial statements with management and the independent registered public accounting firm. The Audit Committee has discussed with the independent registered public accounting firm their evaluation of the accounting principles, practices and judgments applied by management, and the Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by Auditing Standard No. 16, “Communications with Audit Committees,” as adopted by the Public Company Accounting Oversight Board (“PCAOB”).

The Audit Committee has received from the independent registered public accounting firm written disclosures and a letter required by applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence and has discussed with the independent registered public accounting firm the independent registered public accounting firm’s independence from the Company and its management. The Audit Committee has pre-approved all fiscal year 2014 audit and permissible non-audit services provided by the independent registered public accounting firm and the fees for those services included on page 23.

The Audit Committee discussed with the Company’s internal auditors and independent registered public accounting firm the overall scope of and plans for their respective audits. The Audit Committee has met with the internal auditors and the independent registered public accounting firm, separately and together, with and without management present, to discuss the Company’s financial reporting processes and internal control over financial reporting. The Audit Committee has reviewed significant audit findings prepared by the independent registered public accounting firm and those prepared by the internal auditors, together with management’s responses.

Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board the inclusion of the audited consolidated financial statements in the Company’s 2014 Annual Report on Form 10-K.

Audit Committee:

George Muñoz, Chair

John T. Casteen III

Thomas W. Jones

Debra J. Kelly-Ennis

Kathryn B. McQuade

 

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AUDIT COMMITTEE MATTERS

 

 

Independent Registered Public Accounting Firm’s Fees

Aggregate fees, including out-of-pocket expenses, paid to our independent registered public accounting firm, PricewaterhouseCoopers, were comprised of the following (in millions):

 

       

2014 Actual

($)

 

              2013 Actual               

($)

 Audit Fees (1)

         6.0     6.3

 Audit-Related Fees (2)

         0.8     0.9

 Tax Fees (3)

         1.1     1.0

 All Other Fees (4)

         0.0     0.0

 TOTAL

         7.9     8.2

 

(1) Fees and expenses associated with professional services rendered by PricewaterhouseCoopers in connection with (a) the audit of the Company’s consolidated financial statements and internal control over financial reporting, including statutory audits of the financial statements of the Company’s affiliates; (b) reviews of the Company’s unaudited condensed consolidated interim financial statements; and (c) reviews of documents filed with the SEC.

 

(2) Fees and expenses for professional services rendered by PricewaterhouseCoopers for audit-related services, which include certain employee benefit plan audits, accounting consultations and procedures relating to various other audit and special reports.

 

(3) Fees and expenses for professional services rendered by PricewaterhouseCoopers in connection with U.S. and foreign tax compliance and planning, and consultation and advice on tax examinations.

 

(4) There were no “Other Fees” in 2014 or 2013.

Pre-Approval Policy

The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Pre-approval is detailed as to the particular service or category of service and is subject to a specific budget. The Audit Committee requires the independent registered public accounting firm and management to report on the actual fees charged for each category of service at Audit Committee meetings throughout the year.

During the year, circumstances may arise when it may become necessary to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval. In those instances, the Audit Committee requires specific pre-approval before engaging the independent registered public accounting firm. The Audit Committee has delegated pre-approval authority to the Chair of the Audit Committee for those instances when pre-approval is needed prior to a scheduled Audit Committee meeting. The Chair of the Audit Committee must report on such approvals at the next scheduled Audit Committee meeting.

 

ALTRIA GROUP, INC. – Proxy Statement    23


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COMPENSATION COMMITTEE MATTERS

 

 

COMPENSATION COMMITTEE MATTERS

Introduction

The Compensation Committee consists entirely of non-management directors all of whom the Board has determined are independent within the meaning of the listing standards of the NYSE. The current members of the Committee are: W. Leo Kiely III (Chair); Gerald L. Baliles; Thomas F. Farrell II; Thomas W. Jones; and Kathryn B. McQuade. The Committee’s responsibilities are described below and set forth in the Compensation Committee Charter, which is available on the Company’s website at www.altria.com/governance.

Compensation Committee Interlocks and Insider Participation

During 2014, no executive officer of the Company served on the board of directors or compensation committee of another entity one or more of whose executive officers served as a member of the Board or the Compensation Committee. No member of the Compensation Committee at any time during 2014 or at any other time had any relationship with us that would be required to be disclosed as a related person transaction.

Compensation Committee Procedures

Scope of Authority

The responsibilities of the Compensation Committee are set forth in its charter and include, among other duties, the responsibility to:

 

    review and approve the Company’s overall executive compensation philosophy and design;

 

    review and approve corporate goals and objectives relevant to the compensation of our CEO, evaluate the performance of our CEO in light of these goals and objectives and determine and approve the compensation of our CEO based on this evaluation;

 

    review and approve the compensation of all executive officers;

 

    make recommendations to the Board with respect to incentive compensation plans and equity-based plans, administer and make awards under such plans and review the cumulative effect of its actions;

 

    monitor compliance by executives with our stock ownership guidelines;

 

    monitor risks related to the design of the Company’s compensation program;

 

    review and assist with the development of executive succession plans, evaluate and make recommendations to the Board regarding potential candidates to become CEO and evaluate and approve candidates to fill other senior executive positions;

 

    review and discuss with management our Compensation Discussion and Analysis; and

 

    prepare and approve the Compensation Committee’s annual report for inclusion in our annual proxy statement.

In addition, the Compensation Committee determines ratings for Company performance for the annual and long-term cash incentive awards formulas.

In accordance with its charter, the Compensation Committee may delegate its authority to subcommittees or the Chair of the Committee when it deems appropriate, unless prohibited by law, regulation or NYSE listing standards.

Processes and Procedures for Establishing Executive Compensation

The primary processes and procedures for establishing and overseeing executive compensation include:

Compensation Committee Meetings. The Compensation Committee meets several times each year, including five times in 2014. The Chair of the Committee, in consultation with management and the other members, sets meeting agendas. The Committee reports its actions and recommendations to the Board.

 

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COMPENSATION COMMITTEE MATTERS

 

 

Role of Consultants. As part of our annual compensation process, management engages Aon Hewitt.

 

    Aon Hewitt conducts a survey of Compensation Survey Group companies. See page 36 for a description of the companies included in the Compensation Survey Group and the criteria and process for their selection. The survey collects compensation data and competitive practices. The Committee reviews the data to help it assess competitive levels of pay and the competitive mix of pay elements.

 

    Based on parameters developed by management, Aon Hewitt provides competitive compensation information focused on chief executive officer pay primarily from public filings, including annual proxy filings, by companies within our Compensation Survey Group. The Committee also reviews this data.

 

    Aon Hewitt provides background information on companies as reference for evaluating our Compensation Survey Group.

Aon Hewitt also reviews the Company’s risk assessment process with respect to its executive compensation program as described on page 36. Aon Hewitt provides neither advice nor recommendations on the form or amount of Altria’s executive or director compensation, nor does Aon Hewitt attend any Board or Committee meetings.

In 2014, the aggregate Aon Hewitt fees associated with services relating to executive and director compensation totaled $95,254. In 2014, the aggregate Aon Hewitt fees associated with additional services totaled $105,522. These additional services reflected a portion of the survey referenced above allocable (on an estimated basis) to non-executive compensation. These additional services were conducted based on parameters developed by management. Based on an assessment under SEC rules and given the limited nature of these additional services, the Company does not believe these additional services raise a conflict of interest or prevent Aon Hewitt from providing services relating to executive and director compensation.

Role of Management.

 

    The Company’s management provides input on overall executive compensation program design for the Compensation Committee’s consideration.

 

    Each year, our Chairman and CEO presents to the Compensation Committee compensation recommendations for the Company’s named executive officers, as well as certain other officers. The Committee reviews and discusses these recommendations with our CEO and, exercising its discretion, makes the final decision with respect to the compensation of these individuals. The CEO has no role in setting his own compensation.

 

    At the beginning of each year, our Chairman and CEO presents his proposed annual performance goals to the Compensation Committee for its consideration.

Compensation Committee Report for the Year Ended December 31, 2014

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained on pages 27 through 43 of this Proxy Statement with management. Based on its review and discussions with management, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

Compensation Committee:

W. Leo Kiely III, Chair

Gerald L. Baliles

Thomas F. Farrell II

Thomas W. Jones

Kathryn B. McQuade

 

ALTRIA GROUP, INC. – Proxy Statement    25


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EXECUTIVE COMPENSATION – TABLE OF CONTENTS

 

COMPENSATION DISCUSSION AND ANALYSIS

 

INTRODUCTION

 

  27   
EXECUTIVE SUMMARY   27   

Compensation Philosophy

  27   

Say on Pay

  27   

Shareholder Engagement

  27   

Company Financial Performance

  28   

Pay For Performance

  30   

2014 Operating and Service Company Highlights

  30   

Other 2014 Highlights

 

  31   

2014 PERFORMANCE OF NEOs

 

  31   
EXECUTIVE COMPENSATION DESIGN   33   

Principles

  33   

Elements

 

  34   
DECISION-MAKING PROCESS   36   

Participants

  36   

Risk Assessment

  36   

Benchmarking

 

  36   
2014 EXECUTIVE COMPENSATION PROGRAM DECISIONS   37   

Salary

  37   

Annual Incentives

  38   

Long-Term Incentives

  39   

Long-Term Incentives: 2014 – 2016 Long-Term Incentive Plan Awards

  40   

Long-Term Incentives: Equity Awards

  41   

Perquisites

  41   

Post-Termination Benefits and Change in Control Payments

  42   

Retirement of President and COO

 

  42   
OTHER CONSIDERATIONS   43   

Stock Ownership Guidelines and Prohibition on Hedging

  43   

Tax and Accounting Considerations

  43   

“Clawback” Policy Regarding the Adjustment or Recovery of Compensation

  43   

 

COMPENSATION TABLES

 

Summary Compensation Table   44   
Grants of Plan-Based Awards during 2014   46   
Outstanding Equity Awards as of December 31, 2014   47   
Stock Option Exercises and Stock Vested during 2014   48   
Pension Benefits   49   
Non-Qualified Deferred Compensation   52   
Payments upon Change in Control or Termination of Employment   53   

 

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EXECUTIVE COMPENSATION

 

 

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

Introduction

In this section, we provide a detailed description of Altria’s executive compensation program, with a focus on the Compensation Committee’s decisions with respect to our NEOs:

 

 Name

Position during 2014

 Martin J. Barrington

 

Chairman of the Board and Chief Executive Officer, Altria Group, Inc.

 

 Howard A. Willard

 

Executive Vice President and Chief Financial Officer, Altria Group, Inc.

 

 David R. Beran

 

President and Chief Operating Officer, Altria Group, Inc.

 

 Denise F. Keane

 

Executive Vice President and General Counsel, Altria Group, Inc.

 

 Craig A. Johnson

 

President and Chief Executive Officer, Altria Group Distribution Company

 

Executive Summary

Compensation Philosophy

Altria’s executive compensation program aligns with Altria’s Mission, Mission goals and Values, including Invest in Leadership. We believe that such an investment requires:

 

    clear alignment of the interests of our executives and shareholders;

 

    clear articulation of corporate and individual performance goals;

 

    transparent measurement of performance against those goals; and

 

    a competitive, financially disciplined executive compensation program that rewards past success and creates the appropriate incentives for future conduct.

Say on Pay

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 provides shareholders with a non-binding advisory vote (“Say on Pay”) on the compensation of a company’s named executive officers, as such compensation is disclosed in the company’s annual proxy statement. Altria holds the vote annually and, at the 2014 Annual Meeting, nearly 94% of the votes cast approved our NEO compensation on an advisory basis. Upon consideration of the strong support shown in 2014 by the vote results, feedback from discussions with shareholders and other factors described in this Proxy Statement, the Compensation Committee decided that no significant changes to the executive compensation program were necessary for 2014.

Shareholder Engagement

As part of the process to develop our 2015 Performance Incentive Plan and our 2015 Stock Compensation Plan for Non-Employee Directors, we engaged with several large institutional investors. Through these discussions we benefited from these shareholders’ perspectives on the plans and, more generally, on our executive compensation programs and corporate governance practices. Shareholders’ feedback was generally positive and no significant concerns were raised.

 

ALTRIA GROUP, INC. – Proxy Statement    27


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EXECUTIVE COMPENSATION

 

 

Company Financial Performance

The following graphs summarize the Company’s one and three-year performance against key financial measures:

 

LOGO

 

(1) See “Decision-Making Process – Benchmarking – Compensation Survey Group and Altria Peer Group” for more information on the 2014 Altria Peer Group.

 

  Source: Bloomberg Daily Return (December 31, 2013 – December 31, 2014)

 

  Note: Assumes reinvestment of dividends as of the ex-dividend date.

 

LOGO

 

(1) See “Decision-Making Process – Benchmarking – Compensation Survey Group and Altria Peer Group” for more information on the 2014 Altria Peer Group.

 

  Source: Bloomberg Daily Return (December 31, 2011 – December 31, 2014)

 

  Note: Assumes reinvestment of dividends as of the ex-dividend date.

 

28    ALTRIA GROUP, INC. – Proxy Statement


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EXECUTIVE COMPENSATION

 

 

Altria’s Adjusted Diluted EPS

 

LOGO

 

(1) Three-year compound annual growth rate (“CAGR”) based on 2011 adjusted diluted EPS of $2.05.

Altria’s Dividend (1)

 

LOGO

 

(1) Annualized dividend based on quarterly dividend rate per common share declared in August of each year.

 

(2) Three-year CAGR based on the quarterly dividend rate per common share of $0.41 or $1.64 annualized declared in August 2011, with each August dividend similarly annualized.

 

ALTRIA GROUP, INC. – Proxy Statement    29


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EXECUTIVE COMPENSATION

 

 

Pay For Performance

The following graph illustrates the relationship between Mr. Barrington’s total pay (including annualized long-term incentive plan (“LTIP”) compensation) and Altria’s indexed total shareholder return:

CEO Pay (1) vs. Indexed TSR (2)

 

LOGO

 

(1) Each year’s CEO pay is calculated using an annualized allocation of the LTIP award. All other amounts are based on the Summary Compensation Table values.

 

(2) Indexed TSR assumes a return of 100 as of December 31, 2011 and represents the total growth (including dividends) from that date through December 31, 2014.

2014 Operating and Service Company Highlights

 

  The smokeable products segment grew adjusted OCI by 6.7% and PM USA grew the retail share of Marlboro by 0.1 share point to 43.8%.

 

  The smokeless products segment grew adjusted OCI by 3.3% and USSTC grew the combined retail share of Copenhagen and Skoal by 0.5 share points to 51.2%.

 

  Ste. Michelle grew adjusted OCI by 13.6% and is one of the fastest growing premium wine companies in the United States.

 

  Nu Mark achieved national distribution of MarkTen, which is now available in over 130,000 retail stores. Nu Mark also evolved MarkTen’s product offerings. Additionally, Nu Mark acquired the e-vapor business of Green Smoke, adding technology, supply chain capability and experienced talent to Nu Mark’s resources.

 

 

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EXECUTIVE COMPENSATION

 

 

  Altria’s two service organizations – Altria Group Distribution Company (“AGDC”) and Altria Client Services Inc. (“Altria Client Services”) – provided efficient support to the operating companies, enabling them to focus on brand management and manufacturing. Examples include:

 

    AGDC’s design of integrated programs for the tobacco operating companies to increase adult tobacco consumer engagement through mobile technology such as a new mobile application and mobile coupon capability; and

 

    Altria Client Services’s focus on new product development, leadership development and business simplification.

Other 2014 Highlights

 

  In August 2014, the Board increased the regular quarterly dividend by 8.3%, which was Altria’s 48th dividend increase in the last 45 years. As of January 23, 2015, Altria’s annualized dividend yield was 3.8%.

 

  In the third quarter 2014, Altria completed its 2013 share repurchase program and announced a new $1 billion share repurchase program. During 2014, Altria repurchased 22.5 million shares of its common stock for a total cost of approximately $939 million under these programs.

 

  Altria continued to enhance its capital structure by extending its $3.0 billion senior unsecured five-year revolving credit agreement to 2019 and issuing $1 billion aggregate principal amount of 2.625% senior unsecured long-term notes due in 2020. Additionally, UST LLC redeemed in full its $300 million aggregate principal amount of 5.75% senior unsecured long-term notes due in 2018.

 

  Altria continued constructive engagement with the U.S. Food and Drug Administration (“FDA”) on topics such as the scientific framework for evaluating new or potentially modified risk tobacco products, the e-vapor category, harmful and potentially harmful constituents and other tobacco product-related matters.

2014 Performance of NEOs

The Compensation Committee considers several factors in approving each element of compensation. For example, the Compensation Committee evaluated the Company’s financial and strategic performance, as described above, in the context of the 2014 Annual Incentive Award program (discussed under “2014 Executive Compensation Program Decisions – Annual Incentives” on page 38). The Compensation Committee also considered the individual performance of each NEO for purposes of approving salary increases, annual cash incentive awards and equity awards. Each executive, including our NEOs, is evaluated on a five-point scale of “Extraordinary,” “Outstanding,” “Valued,” “More Expected” or “Unacceptable.” Executives receive variable elements of compensation only after the relevant performance period – whether short- or long-term – has ended and the Compensation Committee has assessed actual Company performance and considered executive performance relative to stated goals.

The Compensation Committee concluded that our NEOs’ successes in achieving their individual performance goals contributed significantly to the Company’s strong overall performance. We discuss the 2014 individual performance of each NEO below. Based on this assessment and the plan designs described in “2014 Executive Compensation Program Decisions” on page 37, the Compensation Committee approved the compensation paid or awarded to our NEOs as detailed in the compensation tables.

 

  Martin J. Barrington. Mr. Barrington served as Chairman and CEO of the Company. He provided extraordinary strategic leadership to the Board, the executive team and employees. Among other accomplishments, Mr. Barrington drove execution of the Company’s strategy to maximize the core business while innovating for future value creation; made significant progress in strengthening the Company’s culture around innovation, business simplification and diversity and inclusion; and maintained strong relationships with key external stakeholders. Specifically, Mr. Barrington guided the efforts of Altria and its companies to:

 

    deliver $5.1 billion of adjusted net earnings,(1) a 2014 TSR of 34.5% (two and half times the 2014 TSR of the S&P 500) and an approximately 80% dividend payout ratio (highest in the S&P Food, Beverage & Tobacco Index), all in a dynamic economic, regulatory and competitive environment;

 

(1) Adjusted net earnings is a non-GAAP financial measure. See Exhibit C to this Proxy Statement for information regarding non-GAAP financial measures and reconciliations of such non-GAAP financial measures to the most directly comparable GAAP financial measures.

 

ALTRIA GROUP, INC. – Proxy Statement    31


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EXECUTIVE COMPENSATION

 

 

    enhance Nu Mark’s progress towards achieving long-term leadership in the e-vapor category by successfully launching MarkTen e-cigarettes nationally and acquiring Green Smoke and integrating its people, products and processes into the company’s e-vapor portfolio; and

 

    strengthen the leadership capability of executives with a focus on innovation, business simplification and diversity and inclusion. His consistent emphasis of these areas drove improvements, reduced costs and enhanced the Company’s culture.

 

  Howard A. Willard. Mr. Willard served as Executive Vice President and Chief Financial Officer (“CFO”) of the Company. His responsibilities included oversight of the Finance function, Investor Relations, Procurement, Information Services and Philip Morris Capital Corporation. In 2014, Mr. Willard effectively managed the balance sheet, helped deliver adjusted diluted EPS growth of 8% and excellent returns for our shareholders, who received approximately $3.9 billion in dividends during 2014. Under his leadership, the Company improved its debt maturity profile and reduced the weighted-average coupon interest rate to 5.7% as of December 31, 2014. Mr. Willard also oversaw the completion of the 2013 $1 billion share repurchase program in the third quarter of 2014 and the initiation of a new $1 billion share repurchase program announced in July 2014. Mr. Willard also maintained strong investor relationships and engagements.

 

  David R. Beran. Mr. Beran served as President and Chief Operating Officer (“COO”) of the Company. He oversaw PM USA, John Middleton Co. (“Middleton”), USSTC, Nu Mark, Ste. Michelle, AGDC and the Marketing and Innovation functions. Under his leadership, the operating companies continued to deliver strong adjusted OCI growth and grow retail share in the smokeable and smokeless segments. The smokeable products segment had outstanding results, growing adjusted OCI by 6.7% while growing Marlboro’s retail share to a record 43.8%. The smokeless products segment continued to grow adjusted OCI and the combined retail share of Copenhagen and Skoal. Nu Mark achieved national distribution of MarkTen, which is now available in over 130,000 retail stores. Nu Mark also evolved MarkTen’s product offerings. Additionally, Nu Mark acquired the e-vapor business of Green Smoke, adding technology, supply chain capability and experienced talent to Nu Mark’s resources. Ste. Michelle continued to expand its wine distribution with shipment volume growing by 4.8%, driven by increased volume of 14 Hands and Chateau Ste. Michelle, and earned critical acclaim with over 180 ratings of 90 or better on its wines.

 

  Denise F. Keane. Ms. Keane served as Executive Vice President and General Counsel of the Company. Her responsibilities included managing diverse litigation challenges and efficiently deploying the resources of the Law department and outside counsel to help the Company meet regulatory and business requirements. Her accomplishments included obtaining successful dismissals of all “lights” cases pending in federal court, obtaining a ruling significantly reducing the magnitude of available remedies in the Massachusetts “lights” case, obtaining Illinois Supreme Court review in Miles/Price and obtaining final dismissal of a medical monitoring suit in New York federal court. Under Ms. Keane’s leadership, the Company also continued to manage effectively the large number of Engle-progeny cases. In addition, Ms. Keane oversaw the Law department’s outstanding delivery of legal services and counseling to help our companies manage a wide range of complex legal and regulatory issues.

 

  Craig A. Johnson. Mr. Johnson served as President and CEO of AGDC, which provides comprehensive sales, distribution and consumer engagement services to Altria’s tobacco operating companies. Under his leadership, AGDC:

 

    expanded MarkTen’s distribution into over 130,000 stores nationally;

 

    designed and launched integrated programs that increased adult tobacco consumer engagement through mobile technology, such as a new mobile application and mobile coupon capability; and

 

    built and implemented a tobacco category merchandising solution to best present the tobacco operating companies’ brands to adult tobacco consumers at retail, including the development and installation of innovative new merchandising fixtures for USSTC brands.

In addition to assessing Company and individual performance against stated goals to determine incentive compensation, the Compensation Committee looks at comprehensive contextual information, including industry compensation market data and tally sheets for each of the NEOs that include their total cash and long-term compensation, total defined benefit and defined contribution retirement plan accruals and perquisites for the last three years.

 

32    ALTRIA GROUP, INC. – Proxy Statement


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EXECUTIVE COMPENSATION

 

 

Executive Compensation Design

Principles

We design our executive compensation program, like other organizational strategies at Altria, to promote our Mission, which is to own and develop financially disciplined businesses that are leaders in responsibly providing adult tobacco and wine consumers with superior branded products. In pursuing our Mission, we remain focused on four goals: Invest in Leadership, Align with Society, Satisfy Adult Consumers and Create Substantial Value for Shareholders.

Our Values guide our behavior as we pursue our Mission and our goals. Our Values are Integrity, Trust and Respect; Passion to Succeed; Executing with Quality; Driving Creativity into Everything We Do; and Sharing with Others.

Our executive compensation program includes multiple performance metrics to assess the efforts of all executives in pursuing our Mission and goals, while assuring that such efforts are guided by our Values. Specifically, our program is designed to satisfy the following objectives:

 

    promote pursuit of business strategies that are executed with integrity and create substantial value for shareholders;

 

    reward quality execution by making a significant portion of the compensation of our executives dependent on the achievement by the Company and the individual of financial and key strategic goals;

 

    align the interests of shareholders and executives through equity and cash-based long-term incentive awards and stock ownership guidelines;

 

    support the attraction, development and retention of world-class leaders; and

 

    promote internal fairness and a disciplined qualitative and quantitative assessment of performance.

We believe that the elements of our executive compensation program serve these objectives with the following design principles (as shown in the chart below):

 

    a mix of fixed and at-risk variable compensation, with executives at higher levels having a higher proportion of variable compensation;

 

    a mix of short-term and long-term compensation to appropriately reward and motivate the achievement of both annual and long-term goals and objectives; and

 

    a mix of cash and equity compensation that seeks to discourage actions solely driven by our stock price to the detriment of strategic goals and to minimize the potentially dilutive nature of equity compensation on shareholder value.

2014 CEO and NEO Pay Mix (1)

 

 

LOGO

 

(1) Includes 2014 actual salary, annual incentive award, grant date fair value of long-term equity awards and target (annualized) long-term cash LTIP award.

 

ALTRIA GROUP, INC. – Proxy Statement    33


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EXECUTIVE COMPENSATION

 

 

Elements

The table below provides a brief side-by-side comparison of our 2014 executive compensation programs.

 

         Long-Term Incentive Awards
   Salary Annual Incentive Equity Cash

 Form of

 Compensation

 

Cash Cash Restricted stock Cash

 Performance

 Period

 

Ongoing Annual Annual with, in most cases, three-year vesting period Three years;
end-to-end cycles

 Award

 Criteria

 

Individual performance

Company and individual

performance

Individual performance and advancement potential Company and individual performance

 Company

 Performance

 Alignment

 

•  Adjusted diluted EPS growth    

•  Adjusted discretionary cash flow (1)

•  Strategic initiatives

 

• Stock price appreciation

• Adjusted diluted EPS growth

• Relative TSR

• Strategic initiatives

 

(1) Adjusted discretionary cash flow is a non-GAAP financial measure. See Exhibit C to this Proxy Statement for information regarding non-GAAP financial measures and reconciliations of such non-GAAP financial measures to the most directly comparable GAAP financial measures.

The table below summarizes the elements and objectives of the 2014 executive compensation program for the NEOs. In addition, the general objective of each element is to attract and retain world-class leaders.

2014 Executive Compensation Program

 

 Element Summary Description Objective

 Annual Compensation

 

Salary

Fixed cash compensation based on role at the Company.

•  Provide financial stability

 

•  Recognize individual role, experience, responsibility and performance

 

Annual Incentive Awards

Cash-based incentive plan based on prior year’s performance.

•  Recognize annual Company financial and strategic performance after it is delivered

 

•  Recognize annual individual performance after it is delivered

 

 Long-Term Incentive

 Compensation

 

Equity Awards

Equity awards based on prior year’s individual performance and advancement potential. For 2014, award delivered as restricted stock vesting after three years.

•  Align NEO’s interests with shareholders through stock ownership

 

•  Recognize individual performance and advancement potential

 

•  Build stock ownership

 

•  Retain talented leaders

 

 

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EXECUTIVE COMPENSATION

 

 

 

 Element

 

Summary Description

 

Objective

 

Long-Term Incentive Plan

Cash-based incentive plan based on

three-year financial and strategic goals.

•  Align NEO’s interests with shareholders    

 

•  Recognize long-term Company financial and strategic performance after it is delivered

 

•  Recognize long-term individual performance after it is delivered

 

•  Retain talented leaders

 

•  No dilutive impact

 

 Post-Termination Benefits and

 Change in Control Payments

 

Defined Benefit Plans

Retirement plans providing for the continuation of a portion of compensation upon retirement or separation from service. Generally, employees hired prior to January 1, 2008 are eligible.

 

•  Provide opportunity for financial security in retirement

Defined Contribution Plans

Annual cash contribution by the Company based on a formula related to growth in adjusted diluted EPS for 2014. Includes a Company stock investment option.

•  Provide opportunity for financial security in retirement

 

•  Provide additional opportunity to build stock ownership

 

Change in Control Payments

Payments to executives triggered by a defined change in the ownership of Altria. Change in control provisions are contained in the 2005 and 2010 Performance Incentive Plans.

•  Allow NEOs to focus on delivering shareholder value in a period of uncertainty

 

•  Allow NEOs to receive awards granted for periods of performance before a change in control

 

Termination Payments

For certain types of involuntary separations, potential for severance benefits (including continuation of salary and health insurance for up to 12 months based on years of service). Our NEOs are eligible for the same severance benefits as our salaried employees.

 

•  Provide opportunity for protection upon an unexpected event

 Perquisites

For the Chairman and CEO, home security system for safety and security purposes. For the Chairman and CEO and the President and COO, personal use of Company aircraft subject to an annual allowance. For all NEOs, annual financial counseling reimbursement, company-paid executive physical and leased Company vehicle (not all are used by the Chairman and CEO and other NEOs).

 

•  Provide security and retention supplement

 Other Benefits

Medical coverage, group life insurance and other welfare benefits generally available to all salaried employees.

 

•  Promote health and financial security

 

ALTRIA GROUP, INC. – Proxy Statement    35


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EXECUTIVE COMPENSATION

 

 

Decision-Making Process

Participants

For information on the various participants and their key decision-making responsibilities, please see the “Compensation Committee Matters” section on pages 24 to 25.

Risk Assessment

 

A cross-functional team of executives in the Human Resources & Compliance, Law, Corporate Audit and Finance departments annually reviews Altria’s compensation program (executive and non-executive) to identify features that could encourage excessive risk-taking by program participants and to assess the potential of such risks to have a material adverse effect on Altria. Management requested that the external compensation consultant, Aon Hewitt, review this risk assessment process – specifically the features identified as potentially encouraging excessive risk-taking, features that mitigate risk and management’s assessment of those features – to confirm consistency with prevailing best practices.

 

After reviewing management’s assessment, the Compensation Committee believes that neither the compensation program’s design nor the discrete elements of executive compensation encourage employees, including the NEOs, to take unnecessary or excessive risks. The executive compensation program also incorporates risk-mitigating features, which the Compensation Committee considered as part of its assessment. The Company believes that any risks arising from our compensation policies and practices are not likely to have a material adverse effect on the Company.

 

RISK MITIGATING FEATURES

 

¡   Appropriate compensation mix of fixed versus at-risk variable pay, annual versus long-term pay and cash versus equity

 

¡   Multiple objective performance factors used for annual and long-term cash incentive awards, coupled with the Compensation Committee’s discretion to approve awards at lower than target

 

¡   Caps on annual and long-term incentive plan formulas

 

¡   Peer company benchmarking

 

¡   Significant stock ownership guidelines

 

¡   A “clawback” policy providing for the adjustment or recovery of executive compensation upon the restatement of the Company’s financial statements

 

¡   Individual performance assessments that emphasize behavior consistent with the Company’s Mission goals and Values

 

Benchmarking

Compensation Strategy

We design our executive compensation program to deliver total compensation (salary, annual and long-term cash awards, equity awards and benefits) upon attainment of performance targets at levels between the 50th and the 75th percentiles of compensation paid to executives in the Compensation Survey Group (“CSG”), discussed below. We believe that this approach is critical to pursuing our Mission goals through the attraction and retention of world-class leaders and contributes to low executive turnover across all of our businesses. Actual total compensation can exceed the 75th percentile or be below the 50th percentile depending on business and individual performance in relation to performance targets.

Compensation Survey Group and Altria Peer Group

We annually compare our executive compensation program with the programs of the companies in the CSG. The purpose of this annual review is to assure that our executive compensation program supports our ability to attract and retain executive talent. When determining the companies to include in the CSG, the Compensation Committee identifies companies that compete with us for talent and:

 

    are direct competitors; or

 

    have similar market capitalization; or

 

    are primarily focused on consumer products (excluding high technology and financial services); and

 

    have business generally focused within the United States.

The Altria Peer Group is a subset of the CSG that we use, along with major external indices, to assess financial performance for purposes of determining variable compensation payments. The Altria Peer Group consists of U.S.-headquartered consumer product companies that compete with our tobacco operating subsidiaries or that the Company believes otherwise provide useful financial performance comparisons on the basis of market capitalization or reported revenue.

 

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EXECUTIVE COMPENSATION

 

 

Based on these criteria, the Compensation Committee included the following companies in the 2014 CSG and the 2014 Altria Peer Group and used this list for compensation-related decisions during 2014. The list is sorted by market capitalization as of December 31, 2014.

 

Companies

 

  

Market

   Capitalization (1)

($B)

 

  

Compensation

Survey Group

 

 

Altria

Peer

        Group        

 

 

The Coca-Cola Company

 

    

 

 

 

 

185

 

 

 

 

  

 

ü

 

 

 

ü

 

Merck & Co., Inc.

 

      

 

162

 

 

 

   ü

 

   

PepsiCo, Inc.

 

      

 

142

 

 

 

   ü

 

  ü

 

Philip Morris International Inc. (2)

 

      

 

127

 

 

 

   ü

 

   

3M Company

 

      

 

105

 

 

 

   ü

 

   

Bristol-Myers Squibb Company

 

      

 

98

 

 

 

   ü

 

   

Altria

 

      

 

97

 

 

 

        

McDonald’s Corporation

 

      

 

91

 

 

 

   ü

 

   

Eli Lilly and Company

 

      

 

77

 

 

 

   ü

 

   

Colgate-Palmolive Company

 

      

 

63

 

 

 

   ü

 

  ü

 

Mondelēz International, Inc.

 

      

 

61

 

 

 

   ü

 

  ü

 

Median

 

      

 

61

 

 

 

        

Kimberly-Clark Corporation

 

      

 

43

 

 

 

   ü

 

  ü

 

Kraft Foods Group, Inc.

 

      

 

37

 

 

 

   ü

 

  ü

 

Reynolds American Inc.

 

      

 

34

 

 

 

   ü

 

  ü

 

General Mills, Inc.

 

      

 

32

 

 

 

   ü

 

  ü

 

Kellogg Company

 

      

 

23

 

 

 

   ü

 

  ü

 

The Hershey Company

 

      

 

23

 

 

 

   ü

 

  ü

 

Lorillard, Inc.

 

      

 

23

 

 

 

   ü

 

  ü

 

ConAgra Foods, Inc.

 

      

 

15

 

 

 

   ü

 

  ü

 

Campbell Soup Company

 

      

 

14

 

 

 

   ü

 

  ü

 

 

(1) Market capitalization is calculated using shares outstanding as of the most recent public disclosure as of January 6, 2015 per Bloomberg multiplied by the closing stock price as of December 31, 2014.

 

(2) Although Philip Morris International Inc. does not meet all of the criteria set forth above, we compete for executive talent.

2014 Executive Compensation Program Decisions

Salary

Salary is the principal fixed element of executive compensation and is intended to provide a certain level of financial stability to our executives. The Compensation Committee considers a number of factors when reviewing and setting salaries for NEOs, including each executive’s individual performance, level of responsibility, experience, the relationship between salaries paid to other Company executives and the position of the executive’s salary within the applicable salary range. Additionally, as appropriate, the Compensation Committee compares the salaries of our NEOs to others holding comparable positions at CSG companies. The Compensation Committee analyzes all these factors in the aggregate in reaching NEO salary determinations.

 

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EXECUTIVE COMPENSATION

 

 

Salaries are relevant in establishing annual and long-term incentive award payouts and factor into retirement, group life insurance and certain other benefits available to all salaried employees. The Compensation Committee typically reviews salaries on an annual basis and any increases generally are effective March 1.

The 2014 salary ranges for our NEOs were as follows:

 

      2014 Salary Range

 Salary Band

  

Minimum

($)

  

Maximum

($)

     
 A (Mr. Barrington)    910,000    2,090,000
     
     
 B (all other NEOs)    480,000    1,100,000
           

The Compensation Committee increased the salaries of the NEOs based on the criteria noted above as follows, effective March 1, 2014:

2014 Salary Increases

 

 Named Executive Officer

    

2013

Salary

($)

 

2014

Salary

($)

 

 Martin J. Barrington

 

      

 

 

 

 

1,200,000

 

 

    

 

   

 

 

 

 

1,250,000

 

 

    

 

 

 Howard A. Willard

 

      

 

 

 

 

651,000

 

 

 

 

   

 

 

 

 

682,000

 

 

 

 

 

 David R. Beran

 

      

 

 

 

 

908,000

 

 

 

 

   

 

 

 

 

929,000

 

 

 

 

 

 Denise F. Keane

 

      

 

 

 

 

863,000

 

 

 

 

   

 

 

 

 

896,000

 

 

 

 

 

 Craig A. Johnson

 

      

 

 

 

 

825,000

 

 

 

 

   

 

 

 

 

856,000

 

 

 

 

Annual Incentives

The Annual Incentive Award program is a cash-based, pay-for-performance plan for management employees, including our NEOs. Each participant has an annual award target based on salary band and expressed as a percentage of salary. Our benchmarking process establishes the award targets, and awards are paid only after both business and individual results are assessed against targeted levels of performance. The Compensation Committee reviews and approves the targets annually. However, no individual is guaranteed an award.

Each December, the Compensation Committee reviews the financial and strategic performance of Altria as well as the performance of each of our tobacco and wine businesses for that year. In determining Altria’s financial performance for 2014, the Compensation Committee considered the following:

Key Financial Measures

 

     

Target Range

(millions, except

per share data)

    

Actual

Results

     Weighting

 

 Adjusted Diluted EPS Growth

 

  

 

$2.52 - $2.59

 

    

 

$2.57

 

    

 

75%

 

 

 Adjusted Discretionary Cash Flow

 

  

 

$4,324 - $4,780

 

    

 

$4,803

 

    

 

25%

 

The Compensation Committee also considers TSR in its evaluation of overall financial performance. Altria’s 2014 TSR of 34.5% far exceeded the 12.5% TSR of the 2014 Altria Peer Group, the 14.1% TSR of the S&P Food, Beverage & Tobacco Index and the 13.7% TSR of the S&P 500 Index.

 

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EXECUTIVE COMPENSATION

 

 

In addition to its assessment of these financial metrics, the Compensation Committee evaluates the performance of Altria and each tobacco and wine business against key strategic initiatives and any significant events during the year. The key strategic initiatives in 2014 included:

 

    brand-building initiatives in Altria’s core businesses;

 

    enhancing adult tobacco consumer engagement;

 

    advancing our innovation strategy;

 

    simplifying business processes; and

 

    developing organizational talent through leadership development and diversity and inclusion.

Based on its overall review of financial measures and strategic initiatives, the Compensation Committee assigns Annual Incentive Award ratings for each business segment and for Altria as a whole. Performance at planned levels receives a rating of 100%. Depending on performance, Annual Incentive Award ratings for business performance can range from 0% to 130%. After reviewing the Company’s 2014 financial and strategic performance, the Compensation Committee assigned an Annual Incentive Award rating for Altria’s business performance of 114%. The Committee used this rating together with individual performance (see “2014 Performance of NEOs” on page 31) in determining the 2014 awards below. The following formula is the basis for determining Annual Incentive awards:

 

Salary

 

    X     

Business

Performance

Factor

 

    X     

Individual

Performance

Factor

 

    =     

Annual

Incentive

Award

 

2014 Annual Incentive Award Target Percentages, Award Ranges and Actual Awards

 

 

 Named Executive Officer

 

 

Band

 

 

Salary

($)

 

   

Business

Performance

Factor

(0 - 130%)

 

  Individual Performance
Factor Range (1) (%)
 

Award Range

for 2014

Performance

($)

 

 

Actual Award
for 2014

Performance

($)

 

       

Minimum

 

 

Target

 

 

Maximum

 

   

 

 Martin J. Barrington

 

 

 

A

 

 

 

 

 

 

1,250,000

 

 

  

 

 

 

114

 

 

 

128

 

 

 

150

 

 

 

263

 

 

 

1,824,000 - 3,747,750

 

 

 

2,950,000

 

 

 Howard A. Willard

 

 

 

B

 

 

 

 

 

 

682,000

 

 

  

 

 

 

114

 

 

 

81

 

 

 

95

 

 

 

147

 

 

 

   629,759 - 1,142,896

 

 

 

   908,000

 

 

 David R. Beran

 

 

 

B

 

 

 

 

 

 

929,000

 

 

  

 

 

 

114

 

 

 

81

 

 

 

95

 

 

 

147

 

 

 

   857,839 - 1,556,818

 

 

 

1,300,000

 

 

 Denise F. Keane

 

 

 

B

 

 

 

 

 

 

896,000

 

 

  

 

 

 

114

 

 

 

81

 

 

 

95

 

 

 

147

 

 

 

   827,366 - 1,501,517

 

 

 

1,137,000

 

 

 Craig A. Johnson

 

 

 

B

 

 

 

 

 

 

856,000

 

 

  

 

 

 

114

 

 

 

81

 

 

 

95

 

 

 

147

 

 

 

   790,430 - 1,434,485

 

 

 

   960,000

 

 

(1) The individual performance ranges are stated as a percentage of salary and are based on individual performance between “Valued” and “Extraordinary.” Actual awards were based on financial and strategic Company performance and individual performance for 2014.

Long-Term Incentives

Altria awards long-term incentives to senior executives through a combination of cash long-term performance incentive awards and restricted stock awards. The mix of these awards focuses executives on TSR, adjusted diluted EPS growth, long-term operational performance and progress against strategic and societal alignment objectives, while remaining cognizant of shareholder dilution. We base the cash long-term incentives on the performance of the Company in total, as opposed to the performance of each operating company.

 

ALTRIA GROUP, INC. – Proxy Statement    39


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EXECUTIVE COMPENSATION

 

 

Long-Term Incentives: 2014 – 2016 Long-Term Incentive Plan Awards

 

The LTIP is a long-term cash performance plan that uses a three-year, end-to-end performance cycle, an approach consistent with the Company’s strategic planning process. At the beginning of each three-year cycle, the Compensation Committee approves long-term financial and strategic performance goals for the Company that can only be measured effectively after completion of the cycle. Awards are payable in cash after the end of each three-year cycle, based on an assessment of actual overall corporate and individual performance during the entire award cycle. Each executive has an award target based on his or her salary band, expressed as a percentage of each year-end salary over the three-year cycle. The Compensation Committee retains the discretion to adjust awards upward or downward, and no individual is guaranteed an award.

Although the Compensation Committee takes the executive's earnings opportunity under the LTIP into account when setting his or her compensation each year, that opportunity remains at risk until the end of the three-year performance cycle.
   

 

LTIP HIGHLIGHTS

 

¡   Three-year, end-to-end performance cycle

 

¡   Awards based on Company performance against long-term financial and strategic goals and individual performance

 

¡   Because no LTIP cycle concluded in 2014 (the current cycle concludes in 2016), total compensation for 2014 shown in the Summary Compensation Table significantly decreased from 2013.

 

The Compensation Committee considered alternative LTIP design approaches, such as overlapping three-year cycles (with a new three-year cycle beginning each year), resulting in annual payouts versus payouts every three years. Although such an approach would result in less fluctuation of annual compensation to executives, the Compensation Committee concluded that reducing fluctuations is outweighed by the clarity of long-term performance incentives and the retention value of end-to-end performance cycles.

The 2014 – 2016 LTIP performance cycle will conclude on December 31, 2016 and will reward achievement of key financial performance measures and strategic performance initiatives (each weighted 50%) intended to create substantial value for shareholders. The financial measures for 2014 – 2016, which have a combined weighting of 50%, are shown:

 

 

Ÿ         Relative 2014 – 2016 TSR growth versus Altria Peer Group and major indices

 

 

Ÿ         Annual Adjusted Diluted EPS Growth

 

Specific details regarding the financial performance measures and strategic performance initiatives were defined for the executives, but are not disclosed publicly before the end of the cycle due to their competitively sensitive nature. The Company will disclose relevant performance metrics for the 2014 – 2016 performance cycle, as appropriate, after the associated compensation decisions for the then-current NEOs have been made.

Following the conclusion of the 2014 – 2016 LTIP cycle, the Compensation Committee will assess the Company’s performance on each of the financial and strategic measures to determine the final LTIP business performance rating, which could range from 0% to 130%. The Compensation Committee, with respect to the CEO, and the CEO, with respect to the other NEOs, will also assess the individual performance of each executive to determine the executive’s individual performance rating, which could range from 0% to 150%. The final LTIP award is then determined by multiplying the target award by the business performance rating and the individual performance rating.

The LTIP award target percentages and performance factor ranges for executives in salary bands A and B for the 2014 – 2016 performance cycles are:

2014 – 2016 Long-Term Incentive Plan Award Target Percentages and Performance Factors (1)

 

Band   

Individual
Award

Target
(%)

   Business
Performance
Factor
(%)
  

Individual

Performance

Factor
(%)

 

A

 

  

 

250

 

  

 

0 - 130

 

  

 

0 - 150

 

 

 

B

 

  

 

200

 

  

 

0 - 130

 

  

 

0 - 150

 

 

(1) The percentages shown in the table are applied to each year-end base salary over the three-year performance cycle.

 

40    ALTRIA GROUP, INC. – Proxy Statement


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EXECUTIVE COMPENSATION

 

 

Long-Term Incentives: Equity Awards

 

Equity awards in the form of restricted stock enhance executive retention, focus executives on increasing long-term shareholder value and promote executive stock ownership. Awards recognize prior year performance and advancement potential and generally vest three or more years after the date of the award, subject to earlier vesting on change in control, death, disability or retirement on or after age 65. This vesting period is intended to retain and motivate executives, while promoting long-term performance. Recipients receive cash dividends during the vesting period. The Compensation Committee annually reviews equity award targets against competitive data and decided to maintain the current targets for each salary band for the 2014 grants. The Compensation Committee generally makes equity award decisions annually at its January meeting. The awards are granted on the date of approval, and no individual is guaranteed an award.
    
The Compensation Committee exercises discretion in making equity awards to the Chairman and CEO (salary band A) based on its assessment of competitive data and its review of the Chairman and CEO's individual performance. The Compensation Committee reviews various equity award scenarios, including past practices of those companies within the 2014 CSG, in order to establish an appropriate range of awards.

 

   

 

2014 EQUITY AWARD HIGHLIGHTS

 

¡   Restricted stock

 

¡   Vesting period of three years

 

¡   NEO awards based on:

 

–   Executive’s individual performance in year prior to the grant;

 

–   Executive’s advancement potential; and

 

–   Compensation Committee discretion

 

¡   Number of shares awarded is based on fair market value of our stock on the date of the grant

 

The equity awards granted to our NEOs in 2014 were as follows:

2014 Equity Awards

 

 Named Executive Officer

   Band   

Equity
Target

($)

  

Equity

Award Range (1)

($)

  

Actual
Equity Award (1) (2)

($)

           

 Martin J. Barrington

   A          5,250,206
           
           

 Howard A. Willard

   B    1,275,000    765,000 - 1,912,500    1,650,054
           
           

 David R. Beran

   B    1,275,000    765,000 - 1,912,500    1,700,000
           
           

 Denise F. Keane

   B    1,275,000    765,000 - 1,912,500    1,650,054
           
           

 Craig A. Johnson

   B    1,275,000    765,000 - 1,912,500    1,275,092
                     

 

(1) Ranges and actual awards are a function of individual performance and, for the NEOs other than Mr. Barrington, advancement potential.

 

(2) Represents the grant date fair value of stock awards granted in 2014 pursuant to Financial Accounting Standards Board (“FASB”) Codification Topic 718. See footnote 2 to the Summary Compensation Table on page 44.

Perquisites

The Compensation Committee believes that a competitive executive compensation package includes reasonable perquisites that supplement the Company’s retention efforts. The perquisites provided by the Company to its NEOs in 2014 are set forth in the All Other Compensation table on page 45. In addition to these perquisites, our NEOs received the same benefits that were available to our salaried employees generally. For Messrs. Barrington and Beran, the Committee considers the potential value of personal aircraft usage in determining the other components of their total compensation. Mr. Barrington did not accept the company-paid auto, financial counseling services and executive physical in 2014. Mr. Beran did not accept the financial counseling services benefit in 2014.

 

ALTRIA GROUP, INC. – Proxy Statement    41


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EXECUTIVE COMPENSATION

 

 

Post-Termination Benefits and Change in Control Payments

The Company provides post-termination benefits to the NEOs, including retirement benefits and termination payments if applicable, as well as payments upon a change in control.

 

  Retirement Benefits.  The NEOs participate in certain qualified and non-qualified retirement plans, which the Company believes promote executive retention and provide the opportunity for financial security in retirement. These retirement benefits are discussed in more detail in the narrative following the Pension Benefits table (pages 49 to 51) and the Non-Qualified Deferred Compensation table (page 52).

 

  Change in Control Payments.  Our 2010 Performance Incentive Plan provides for the vesting and acceleration of certain elements of compensation immediately upon a change in control. The 2015 Performance Incentive Plan to be voted on by shareholders at the 2015 Annual Meeting includes a double-trigger provision for annual incentive awards, equity awards and long-term incentive cash awards, provided that the successor entity continues or assumes the plans and awards or replaces them with substantially similar awards. The details of these provisions are discussed in “Proposal 2 – Approval of the 2015 Performance Incentive Plan” (pages 62 to 69) and the “Payments upon Change in Control or Termination of Employment” section (pages 53 to 55).

 

  Termination Payments.  The Severance Pay Plan for Salaried Employees provides an opportunity for financial protection against the unexpected event of an involuntary termination of employment. The details of this plan are discussed in the “Payments upon Change in Control or Termination of Employment” section.

Retirement of President and COO

After over 38 years of exceptional service, Mr. Beran retired as President and COO effective March 1, 2015. The Compensation Committee approved the following payments to Mr. Beran related to his retirement, consistent with the applicable plan terms.

 

  A prorated cash payment under the 2015 Annual Incentive Award plan at target business and individual performance in accordance with the terms of the plan:

 

 Payment

 

Award

Target

(%)

  Proration  

Payment

Amount 

($)

  Date Paid

 

 2015 Annual Incentive Award plan

 

 

 

95

 

 

 

59 of 365 days

 

 

 

142,700

 

 

 

March 2015

 

 

  A prorated cash payment for the following previously awarded grants that were forfeited upon retirement:

 

 Grant

  

Number of

Shares

     Proration     

Payment

Amount

    ($) (1)

 

 1/29/2013 Restricted Stock Grant

 

  

 

56,310

 

    

 

2/3

 

    

 

2,055,230

 

 

 1/28/2014 Restricted Stock Grant

 

  

 

46,290

 

    

 

1/3

 

    

 

   844,631

 

 

  (1) Based on the average closing price for a share of Altria’s common stock on each of the 20 trading days immediately preceding February 28, 2015.

 

  A prorated cash payment under the 2014 – 2016 LTIP in February 2017 in accordance with the terms of the plan based on actual business performance:

 

 Payment

  

Award

Target

(%)

   Proration   

Estimated

    Amount (1)

($)

   Date Paid

 

 2014 – 2016 LTIP

 

  

 

200

 

  

 

424 of 1,096 days

 

  

 

2,160,000

 

  

 

Feb. 2017

 

 

  (1) The estimated amount is based on the target award amount and will be adjusted based on the Compensation Committee’s assessment of actual business performance at the end of the three-year plan period in 2016. There is no guarantee of any payment under the plan.

 

42    ALTRIA GROUP, INC. – Proxy Statement


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EXECUTIVE COMPENSATION

 

 

Mr. Beran is also entitled to payments and benefits under the normal terms and conditions of the Company’s benefit plans.

Other Considerations

Stock Ownership Guidelines and Prohibition on Hedging

The Compensation Committee has established stock ownership guidelines under which executives are expected to hold common stock until their termination of employment in an amount equal to a multiple of salary, as determined by their position. If the stock price declines, executives may hold the fixed number of shares based on the stock price at program commencement. The Compensation Committee set the guidelines as 12 times base salary for salary band A and six times base salary for salary band B.

Stock ownership includes shares over which the executive has direct or indirect ownership or control, including restricted stock awards and deferred stock (also known as restricted stock units). We expect executives to meet their ownership guidelines within five years of becoming subject to the guidelines (or three years from a subsequent promotion date and resulting increase in ownership requirements). As of December 31, 2014, all of our NEOs substantially exceeded their stock ownership requirements.

We do not permit our NEOs to engage in hedging activities with respect to our shares. Further, our NEOs do not pledge their Altria shares.

Tax and Accounting Considerations

In addition to our executive compensation objectives and design principles, we consider tax and accounting treatment when designing and administering our program. An important tax consideration is Internal Revenue Code Section 162(m), which limits our ability to deduct compensation paid to each covered officer for tax purposes to $1.0 million annually. Covered officers include the principal executive officer and the Company’s next three highest paid executive officers, other than the Company’s principal financial officer.

However, this limitation does not apply to performance-based compensation, provided we satisfy certain conditions. We have taken appropriate actions, to the extent feasible, to preserve the deductibility of annual and long-term cash incentive awards and equity awards. The Annual Incentive Awards and restricted stock grants that the Compensation Committee awarded to our covered officers in 2014 were subject to, and made in accordance with, previously implemented performance-based compensation arrangements that were intended to qualify as tax-deductible.

The Compensation Committee does not believe compensation decisions should be necessarily constrained by how much compensation is deductible for federal income tax purposes. As a result, the Compensation Committee has authorized, and retains the discretion to authorize, other payments that may not be deductible if it believes that they are in the best interests of the Company and our shareholders. Such determinations include, for example, payment of a salary to an officer that exceeds $1.0 million, with the result that a portion of such officer’s salary exceeds the deductibility limit. Similarly, a covered officer’s compensation may exceed the $1.0 million deductibility limit due to other elements of annual compensation, such as vesting of certain stock grants, dividends or dividend equivalents paid on certain stock and perquisites.

“Clawback” Policy Regarding the Adjustment or Recovery of Compensation

We have a “clawback” policy providing for the adjustment or recovery of compensation in certain circumstances. If the Board or an appropriate committee of the Board determines that, as a result of a restatement of our financial statements, an executive received more compensation than would have been paid absent the incorrect financial statements, the Board or its committee, in its discretion, will take such action as it deems necessary or appropriate to address the events that gave rise to the restatement and to prevent its recurrence. Such action may include, to the extent permitted by applicable law, in appropriate cases, requiring partial or full reimbursement of any bonus or other incentive compensation paid to the executive, causing the partial or full cancellation of restricted stock or deferred stock awards, adjusting the future compensation of such executive and dismissing or taking legal action against the executive, in each case as the Board or its committee determines to be in the best interests of the Company and our shareholders. Our restricted stock and deferred stock award agreements also include “clawback” provisions.

 

ALTRIA GROUP, INC. – Proxy Statement    43


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EXECUTIVE COMPENSATION

 

 

Compensation Tables

Summary Compensation Table

The following table sets forth information concerning the compensation of our NEOs for 2014, 2013 and 2012.

 

                    Non-Equity Incentive Plans               

  Name and Principal Position

  Year      Salary (1)
($)
 

Stock Awards

   Grant Value (2)
($)

 

Annual

Incentive

Plan
        ($)        

 

Long-Term   

Incentive Plan (3)
($)

 

Change in

Pension

   Value (4)
($)

 

All Other

   Compensation (5)
($)

 

Total

($)

  Martin J. Barrington,

      2014         1,241,667         5,250,206         2,950,000                 2,629,203         249,914         12,320,990  

  Chairman of the Board and Chief

      2013         1,191,667         5,398,800         2,500,000         8,092,500         2,659,445         297,555         20,139,967  

  Executive Officer, Altria Group, Inc.

      2012         1,025,237         6,635,225         2,500,000                 1,762,032         199,435         12,121,929  

  Howard A. Willard,

      2014         676,833         1,650,054         908,000                 1,190,965         99,460         4,525,312  

  Executive Vice President and Chief

      2013         646,700         1,650,008         825,000         4,202,700         370,599         95,332         7,790,339  

  Financial Officer, Altria Group, Inc.

      2012         621,000         1,600,018         750,000                 1,084,749         86,914         4,142,681  

  David R. Beran,

      2014         925,500         1,700,000         1,300,000                 1,672,612         177,430         5,775,542  

  President and Chief Operating

      2013         901,683         1,900,040         1,200,000         5,853,300                 189,359         10,044,382  

  Officer, Altria Group, Inc.

      2012         864,250         4,696,725         1,300,000                 1,341,569         152,983         8,355,527  

  Denise F. Keane,

      2014         890,500         1,650,054         1,137,000                 854,996         125,805         4,658,355  

  Executive Vice President and General

      2013         858,333         1,650,008         1,050,000         5,573,100         537,596         116,371         9,785,408  

  Counsel, Altria Group, Inc.

      2012         827,500         1,750,028         1,050,000                 1,412,120         113,708         5,153,356  

  Craig A. Johnson,

      2014         850,833         1,275,092         960,000                 1,283,591         117,879         4,487,395  

  President and Chief Executive Officer,

      2013         822,267         1,275,129         900,000         5,417,700         296,127         113,109         8,824,332  

  Altria Group Distribution Company

      2012         804,667         1,350,095         900,000                 1,149,802         111,360         4,315,924  

 

(1) The following NEOs received a merit increase effective March 1, 2015, resulting in salaries as follows: Mr. Barrington, $1,350,000; Ms. Keane, $916,000; and Mr. Johnson, $875,000. In connection with his appointment as Executive Vice President and COO of Altria effective March 1, 2015, Mr. Willard received both a merit and a lateral increase that resulted in a salary of $800,000.

 

(2) The amount shown is the grant date fair value of stock awards determined pursuant to FASB Codification Topic 718. The assumptions used by the Company in calculating these amounts are incorporated herein by reference to Note 2 to the Company’s consolidated financial statements in the 2014 Annual Report on Form 10-K.

 

(3) The LTIP uses three-year, end-to-end performance cycles. The Company pays executives in a lump-sum cash award only after the end of the three-year cycle, based on an assessment of overall corporate and individual performance during the entire award cycle. End-to-end performance cycles result in LTIP compensation shown in this column for 2013 only, and not for 2012 or 2014.

 

     The table below reflects the target 2014 allocation of the 2014 – 2016 LTIP cycle, which will conclude on December 31, 2016. This target amount will be adjusted based on actual business and individual performance at the end of the three-year plan period. There is no guarantee of any payment under the plan.

 

Year

  Martin J.
Barrington
($)
 

Howard A.
Willard

($)

  

David R.
Beran

($)

  

Denise F.
Keane

($)

  

Craig A.
Johnson

($)

2014

      3,125,000         1,364,000      1,858,000    1,792,000    1,712,000

 

(4) The amounts show the change in the present value of each NEO’s pension benefits from December 31, 2013 to December 31, 2014. The change in 2014 is due to a variety of factors, including growth in benefit due to additional pay and service, passage of time, a decrease in the discount rate and updating of the mortality assumptions to reflect longer life expectancies.

 

(5) Details of other compensation for each of the NEOs appear in the All Other Compensation table shown below.

 

44    ALTRIA GROUP, INC. – Proxy Statement


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EXECUTIVE COMPENSATION

 

 

All Other Compensation

 

 Named Executive Officer

   Year   

Allocation to

Defined

Contribution

    Plans (a)

($)

  

Personal

Use of

Company

    Aircraft (b)

($)

  

Car

    Expenses (c)

($)

  

Financial

Counseling

Services

($)

  

Security

($)

  

Executive

Physicals

($)

  

Total

($)

 Martin J. Barrington

   2014    124,167    125,287               460       249,914
   2013    119,167    177,833               555       297,555
   2012    102,524      53,056    20,123    10,000    10,432    3,300    199,435

 Howard A. Willard

   2014      67,683       18,477    10,000       3,300      99,460
   2013      64,670       17,362    10,000       3,300      95,332
   2012      62,100       14,814    10,000            86,914

 David R. Beran

   2014      92,550      64,937    16,643          3,300    177,430
   2013      90,168      75,824    20,067          3,300    189,359
   2012      86,425      43,194    20,064          3,300    152,983

 Denise F. Keane

   2014      89,050       23,455    10,000       3,300    125,805
   2013      85,833       17,238    10,000       3,300    116,371
   2012      82,750       20,958    10,000          113,708

 Craig A. Johnson

   2014      85,083       23,921      5,575       3,300    117,879
   2013      82,227       24,747      2,835       3,300    113,109
     2012      80,467       24,898      2,695       3,300    111,360

 

(a) Amounts represent Company allocations to tax-qualified and non-qualified supplemental defined contribution plans.

 

(b) Mr. Barrington is required to use Company aircraft for all air travel for reasons of security and safety. Pursuant to time-sharing agreements with the Company, Messrs. Barrington and Beran have agreed to reimburse the Company for annual personal aircraft usage in excess of $200,000 and $100,000, respectively. The Compensation Committee considers the potential value of Messrs. Barrington and Beran’s personal aircraft usage in determining the other components of their total compensation. Personal use of Company aircraft reflects incremental costs, including trip-related crew hotels and meals, in-flight food and beverages, landing and ground handling fees, hourly maintenance contracts, hangar or aircraft parking, fuel (based on the average monthly cost of fuel per hour flown) and other smaller variable costs. Fixed costs incurred in any event to operate Company aircraft (e.g., aircraft purchase costs, depreciation, maintenance not related to personal trips and flight crew salaries) are not included. Messrs. Barrington and Beran pay their own taxes on the imputed taxable income resulting from personal use of Company aircraft.

 

(c) Car expenses include the annual cost of providing a leased vehicle and operating expenses, including insurance, maintenance and repairs. Executives pay their own taxes on the imputed taxable income resulting from personal use of Company cars. Mr. Barrington continues to decline this benefit.

 

ALTRIA GROUP, INC. – Proxy Statement    45


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EXECUTIVE COMPENSATION

 

 

Grants of Plan-Based Awards during 2014

 

 Name and Principal Position  

Grant

Date

 

 

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

   

 

Estimated Possible Payouts
Under Non-Equity Long-Term
  Incentive Plan (2)

   

All Other

Stock

Awards:

Number of

Shares

of Stock
    or Units (3)

(#)

 

Grant

Date Fair

Value of

Stock

    Awards (3)

($)

 
   

Threshold

($)

 

Target

($)

   

Maximum

($)

   

Threshold

($)

 

Target

($)

   

Maximum

($)

     

 Martin J. Barrington,

 Chairman of the Board and

 Chief Executive Officer,

 Altria Group, Inc.

  2014       1,875,000        10,000,000             
  2014 – 2016             9,375,000        24,000,000       
  1/28/2014               142,960     5,250,206   

 Howard A. Willard,

 Executive Vice President

 and Chief Financial Officer,

 Altria Group, Inc.

  2014       647,900        10,000,000             
  2014 – 2016             4,092,000        24,000,000       
  1/28/2014                 44,930     1,650,054   

 David R. Beran,

 President and Chief

 Operating Officer,

 Altria Group, Inc.

  2014       882,550        10,000,000             
  2014 – 2016             5,574,000        24,000,000       
  1/28/2014                 46,290     1,700,000   

 Denise F. Keane,

 Executive Vice President

 and General Counsel,

 Altria Group, Inc.

  2014       851,200        10,000,000             
  2014 – 2016             5,376,000        24,000,000       
  1/28/2014                 44,930     1,650,054   

 Craig A. Johnson,
 President and Chief

 Executive Officer, Altria

 Group Distribution Company

  2014       813,200        10,000,000             
  2014 – 2016             5,136,000        24,000,000       
  1/28/2014                                             34,720     1,275,092   

 

(1) Reflects the target and maximum 2014 Annual Incentive Awards. Actual awards paid under the 2014 Annual Incentive Award program are found in the Annual Incentive Plan column of the Summary Compensation Table. The maximum represents the maximum permitted under the 2010 Performance Incentive Plan. Awards covered by Internal Revenue Code Section 162(m) are also subject to a maximum amount determined under a formula established by the Compensation Committee, which could produce a maximum award lower than $10 million.
(2) Represents the possible three-year lump-sum awards for the full three-year cycle of the 2014 – 2016 LTIP to be paid in early 2017. The 2014 – 2016 LTIP performance cycle commenced on January 1, 2014 and will conclude on December 31, 2016. The maximum represents the maximum permitted under the 2010 Performance Incentive Plan. Awards covered by Internal Revenue Code Section 162(m) are also subject to a maximum amount determined under a formula established by the Compensation Committee, which could produce a maximum award lower than $24 million.
(3) Reflects shares of restricted stock we granted our NEOs on January 28, 2014. The grant date fair value was determined using a share price of $36.725, which was the average of the high and low trading prices of Altria’s common stock on the grant date. The restricted stock awards will vest on February 9, 2017. Holders of restricted stock are entitled to any cash dividends paid quarterly throughout the restriction period.

We granted our NEOs the following restricted stock unit (“RSU”) awards on January 28, 2015:

 

 Named Executive Officer (1)

    

Number of RSUs

(#)

  

Grant Date Fair Value

    ($) (2)

             Vest Date        

 

 Martin J. Barrington

 

    

 

102,650     

 

  

 

5,600,071

 

    

 

2/07/2018

 

 

 Howard A. Willard

 

    

 

  27,500 (3)

 

  

 

1,500,263

 

    

 

2/11/2020

 

    

 

  30,250     

 

  

 

1,650,289

 

    

 

2/07/2018

 

 

 Denise F. Keane

 

    

 

  30,250     

 

  

 

1,650,289

 

    

 

2/07/2018

 

 

 Craig A. Johnson

 

    

 

  23,380     

 

  

 

1,275,496

 

    

 

2/07/2018

 

 

(1) In light of his planned retirement effective March 1, 2015, Mr. Beran did not receive a 2015 stock award.
(2) The grant date fair value was determined using a share price of $54.555, which was the average of the high and low trading prices of Altria’s common stock on the grant date.
(3) In connection with his appointment as Executive Vice President and COO of Altria effective March 1, 2015, Mr. Willard received a special grant of 27,500 restricted stock units on January 28, 2015, which will vest on February 11, 2020.

 

46    ALTRIA GROUP, INC. – Proxy Statement


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EXECUTIVE COMPENSATION

 

 

Each RSU represents the right to receive one share of Altria’s common stock upon vesting. Holders of RSUs are entitled to cash dividend equivalent payments for any cash dividends paid quarterly throughout the restriction period.

Outstanding Equity Awards as of December 31, 2014

 

 

     Option Awards   Stock Awards

 Name and Principal Position

  

Number of

Securities

Underlying

Unexercised

Options:

Exercisable

(#)

  

Option

Exercise

Price

($)

  

Option  

Expiration  

Date  

 

Stock Award

   Grant Date (1)

 

Number of

Shares or

Units of Stock

That Have Not

Vested

(#)

  

Market Value

of Shares or

Units of Stock

That Have Not

   Vested (2)

($)

 

 Martin J. Barrington,

 Chairman of the Board and Chief

 Executive Officer, Altria Group, Inc.

                       1/28/2014     142,960        7,043,639  
                                 1/29/2013     160,000        7,883,200  
                       5/16/2012  (a)   150,000        7,390,500  
                       1/25/2012       65,000        3,202,550  

 Howard A. Willard,

 Executive Vice President and Chief

 Financial Officer, Altria Group, Inc.

                       1/28/2014       44,930        2,213,701  
                                 1/29/2013       48,900        2,409,303  
                       1/25/2012       56,210        2,769,467  

 

 David R. Beran,

 President and Chief Operating Officer,

 Altria Group, Inc.

                       1/28/2014       46,290        2,280,708  
                                 1/29/2013       56,310        2,774,394  
                       1/25/2012  (a)   100,000        4,927,000  
                       1/25/2012       65,000        3,202,550  

 Denise F. Keane,

 Executive Vice President and General

 Counsel, Altria Group, Inc.

                       1/28/2014       44,930        2,213,701  
                                 1/29/2013       48,900        2,409,303  
                       1/25/2012       61,480        3,029,120  

 Craig A. Johnson,

 President and Chief Executive Officer,

 Altria Group Distribution Company

                       1/28/2014       34,720        1,710,654  
                                 1/29/2013       37,790        1,861,913  
                                       1/25/2012       47,430        2,336,876  

 

(1) Awards vest 100% according to the following schedule:

 

      Annual Grants
     Grant Date    Vest Date
  

 

1/28/2014

 

  

 

2/09/2017

 

  

 

1/29/2013

 

  

 

2/11/2016

 

  

 

1/25/2012

 

  

 

2/11/2015

 

 

  (a) Special grants vest 100% according to the following schedule:

 

      Special Grants
     Grant Date    Vest Date
  

 

5/16/2012

 

  

 

5/16/2017

 

  

 

1/25/2012

 

  

 

1/26/2015

 

 

(2) Market values are based on $49.27, the closing price of Altria’s common stock on December 31, 2014.

Dividends earned in 2014 on outstanding restricted stock awards for each of our NEOs were: Mr. Barrington, $1,238,660; Mr. Willard, $300,080; Mr. Beran, $788,640; Ms. Keane, $462,680; and Mr. Johnson, $239,880.

 

ALTRIA GROUP, INC. – Proxy Statement    47


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EXECUTIVE COMPENSATION

 

 

Stock Option Exercises and Stock Vested during 2014

 

      Option Awards    Stock Awards  

 Name and Principal Position

  

Number of

Shares Acquired

on Exercise

(#)

 

Value

    Realized on    

Exercise

($)

  

Number of

Shares

Acquired

on Vesting

(#)

    

Value

Realized on

Vesting

($)

 
            

 Martin J. Barrington,

 Chairman of the Board and Chief

 Executive Officer, Altria Group, Inc.

          169,210         7,453,530   
            
            

 Howard A. Willard,

 Executive Vice President and Chief

 Financial Officer, Altria Group, Inc.

          41,110         1,439,364   
            
            

 David R. Beran,

 President and Chief Operating Officer,

 Altria Group, Inc.

          200,720         8,939,153   
            
            

 Denise F. Keane,

 Executive Vice President and General Counsel,

 Altria Group, Inc.

          143,870         6,184,085   
            
            

 Craig A. Johnson,

 President and Chief Executive Officer,

 Altria Group Distribution Company

          51,390         1,799,292   
                            

 

48    ALTRIA GROUP, INC. – Proxy Statement


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EXECUTIVE COMPENSATION

 

 

Pension Benefits

The Pension Benefits table and the Non-Qualified Deferred Compensation table below generally reflect amounts accumulated as a result of service over the NEO’s full career with the Company. The increments related to 2014 are reflected in the “Change in Pension Value” column of the Summary Compensation Table or, in the case of defined contribution plans, the “Allocation to Defined Contribution Plans” column of the All Other Compensation table.

 

 Name and Principal Position

  Plan Name  

Number of

Years of

Credited

   Service (1)

(#)

 

Present

Value of

Accumulated

   Benefits (2)

($)

   

Payments

During Last

Fiscal Year

($)

       

 Martin J. Barrington,

 Chairman of the Board and Chief

 Executive Officer, Altria Group, Inc.

  Altria Retirement Plan   21.67     1,314,869     
  Benefit Equalization Plan – Pre-2005   11.67     1,629,278     
  Benefit Equalization Plan – Post-2004   21.67     9,768,196     
       
       

 Howard A. Willard,

 Executive Vice President and Chief

 Financial Officer, Altria Group, Inc.

  Altria Retirement Plan   22.17     977,088     
  Benefit Equalization Plan – Pre-2005   12.17     476,218     
  Benefit Equalization Plan – Post-2004   22.17     3,634,419     
       
       

 David R. Beran,

 President and Chief Operating Officer,

 Altria Group, Inc.

  Altria Retirement Plan   38.58     2,372,188     
  Benefit Equalization Plan – Pre-2005   28.58     3,870,483     
  Benefit Equalization Plan – Post-2004   35.00     12,106,664     
       
       

 Denise F. Keane,

 Executive Vice President and General

 Counsel, Altria Group, Inc.

  Altria Retirement Plan   38.00     2,338,762     
  Benefit Equalization Plan – Pre-2005   28.00     4,013,003     
  Benefit Equalization Plan – Post-2004   35.00     7,968,174     
       
       

 Craig A. Johnson,

 President and Chief Executive Officer,

 Altria Group Distribution Company

  Altria Retirement Plan   23.75     1,392,991     
  Benefit Equalization Plan – Pre-2005   13.75     2,036,661     
  Benefit Equalization Plan – Post-2004   23.75     7,659,527     
                     

 

(1) As of December 31, 2014, each NEO’s total years of service with the Company was: Mr. Barrington, 21.67 years; Mr. Willard, 22.17 years; Mr. Beran, 38.58 years; Ms. Keane, 38.00 years; and Mr. Johnson, 23.75 years. Years shown in this column are only those taken into account for benefit accrual purposes under the named plan. Mr. Beran’s and Ms. Keane’s years of service taken into account under the applicable formula for the Benefit Equalization Plan (“BEP”) – Post-2004 are limited to 35.00 under the terms of that plan.
(2) The amounts shown in this column are based on a single life annuity and otherwise use the same assumptions applied for year-end 2014 financial disclosure under FASB authoritative guidance relating to retirement benefits, except that (a) the BEP – Post-2004 amounts for Messrs. Beran and Johnson are based on the lump sum required to purchase an annuity providing the after-tax equivalent of the post-2004 pension component of that plan assuming an interest rate of 3.75%, (b) the BEP – Pre-2005 and BEP – Post-2004 amounts for Messrs. Barrington and Willard and Ms. Keane are based on a lump sum form of payment assuming an interest rate of 3.75% and (c) in accordance with SEC requirements, all benefits are assumed to commence at the earliest date on which, assuming continued employment, the individual would be eligible for benefits that are not reduced for early commencement. See Note 16 to the Company’s consolidated financial statements in the 2014 Annual Report on Form 10-K for a description of the financial accounting assumptions referred to above. As a result of payments previously made to or for certain employees, including our NEOs, who were eligible for contributions to individual trusts, our liabilities or those of our operating subsidiaries under the BEP – Pre-2005 will be less than shown in the table. Our liability for BEP – Post-2004 pension benefits will also be less than that reflected in this column because it is also reduced by the portion of the accumulated value, at the employee’s retirement or other termination of employment, of prior Target Payments attributed to supplemental pension benefits. The amounts by which these prior payments reduce our liabilities will fluctuate over time with investment performance and as credits for the amounts previously paid are reduced to reflect payments to cover taxes on earnings on these amounts. For further discussion, see “Defined Benefit Plans” below.

Defined Benefit Plans

NEOs, along with the other salaried employees (except those hired after certain dates and those who cease to accrue further benefit service), participate in the Retirement Plan, a tax-qualified defined benefit pension plan. In addition, NEOs and other executives participate in the BEP, which is an unfunded supplemental plan providing benefits in excess of those provided under the Retirement Plan. Additional information regarding the plans follows.

 

ALTRIA GROUP, INC. – Proxy Statement    49


Table of Contents

EXECUTIVE COMPENSATION

 

 

Retirement Plan

The majority of our salaried employees are covered by the Retirement Plan, a funded, tax-qualified, non-contributory pension plan. Generally, salaried employees hired prior to January 1, 2008 with at least five years of service are eligible for an annual, lifetime pension benefit. The benefit for the majority of those plan participants, including all of our NEOs, is based on the following formula:

 

    Pension    

Benefit

=

1.45% of five-year average compensation (including certain incentive compensation plan payments) up to the applicable

Social Security covered

compensation amount

+

1.75% of five-year average compensation (including certain incentive compensation plan payments) in excess of the

applicable Social Security

covered compensation amount

× Years of

credited service

(up to a maximum of 35,

except in limited

circumstances)

Under the terms of the Retirement Plan, credited service is limited to 35 years if incentive compensation is included in the determination of the five-year average compensation. Five-year average compensation is the highest average annual compensation (annual base salary plus incentive compensation) during a period of 60 consecutive months within the last 120 months of employment. If incentive compensation is not included in the determination of the five-year average compensation, then credited service is not limited to 35 years and the benefit for credited service over 35 years is 1.45% of the employee’s five-year average compensation. Social Security covered compensation is generally an amount equal to the average of the Social Security taxable wage bases for the 35-year period that ends in the year the participant reaches Social Security Full Retirement Age.

Pension benefit amounts are expressed as a single life annuity payable commencing at age 65, the Retirement Plan’s normal retirement date. The amount may be reduced as a result of permitted elections of continued payments to beneficiaries in the event of the retiree’s death and/or for commencement of payments before attaining normal retirement age. Employees who terminate employment before age 55 with vested benefits may elect to commence payment of their accrued pensions after attaining age 55. For such employees, the election to commence payments before age 65 results in a reduction in the annual amount payable at a rate of 6% per year multiplied by the number of full and partial years by which benefit commencement precedes attainment of age 65. For employees who continue in employment until age 55 or older and have completed five years or more of credited service, the reduction for early commencement is 6% for each year and partial year by which the benefit commencement precedes age 60.

If upon termination, an employee is at least age 55 with 30 years of service or age 60 or older with five years of service, the annuity immediately payable upon early retirement is 100% of that payable at normal retirement age. The result of becoming eligible for such an early retirement benefit is a substantial increase in the present value of the pension. Messrs. Barrington, Beran and Johnson and Ms. Keane currently are eligible for such unreduced early retirement benefits. Mr. Willard is not currently eligible for either reduced or unreduced early retirement benefits.

BEP Pension

Tax laws applicable to the Retirement Plan limit the annual compensation that can be taken into account under that plan. As a result of these and/or certain other tax requirements, only a portion of the benefits calculated under the Retirement Plan described above can be paid to the NEOs and a number of other employees from the Retirement Plan. To compensate for benefits that would be lost by the application of these tax limits, all of the NEOs accrue supplemental pension benefits under the BEP (“BEP Pension”). BEP Pension accruals relating to periods after 2004 are paid in a lump sum following retirement. Distribution of the pre-2005 supplemental plan benefits are subject to the BEP Pension terms applicable on December 31, 2004.

 

50    ALTRIA GROUP, INC. – Proxy Statement


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EXECUTIVE COMPENSATION

 

 

During 2006, the Compensation Committee decided to limit pension benefits for executives in salary bands A and B as follows: the annual cash incentive compensation considered for purposes of pension determinations as described above was limited to the lesser of either (a) actual annual cash incentive or (b) annual cash incentive at an Annual Incentive Award rating of 100% and individual performance rating of “Outstanding.” The NEOs are subject to this limit. The 2014 Annual Incentive Awards paid in early 2015 and the amount recognized for future pension calculations are as follows:

 

Named Executive Officer

  

2014 Annual

Incentive Award

($)

    

Amount of 2014 Award   

Recognized for Future   

Pension Calculations   

($)   

 

Martin J. Barrington

 

  

 

2,950,000

 

    

 

2,156,250  

 

 

Howard A. Willard

 

  

 

   908,000

 

    

 

   745,085  

 

 

David R. Beran

 

  

 

1,300,000

 

    

 

1,014,933  

 

 

Denise F. Keane

 

  

 

1,137,000

 

    

 

   978,880  

 

 

Craig A. Johnson

 

  

 

   960,000

 

    

 

   935,180  

 

The amounts payable by Altria under the BEP Pension are determined taking into account certain payments made to the executives before 2008 in order to prevent duplicative benefit payments.

 

    From 1996 through 2007, a number of our employees, including our NEOs, received Funding Payments with respect to pre-2005 vested benefits that were made either to individual trusts established by the employee or directly to the employees themselves.

 

    From 2005 through 2007, accruals under the BEP Pension ceased for a number of employees, including our NEOs, and these employees received annual Target Payments that were calculated to approximate (after paying taxes on the payments) the after-tax value of the additional benefits they would have earned had they remained covered by the BEP Pension. Accruals under the BEP Pension commenced again effective January 1, 2008.

 

ALTRIA GROUP, INC. – Proxy Statement    51


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EXECUTIVE COMPENSATION

 

 

Non-Qualified Deferred Compensation

 

Name and Principal Position

  Plan Name  

Executive

Contributions

in 2014

($)

 

Registrant

Contributions

    in 2014 (1)

($)

 

Aggregate

Earnings

    in 2014 (2)

($)

 

Aggregate

Withdrawals /

Distributions

($)

  

Aggregate

Balance as of

December 31,

    2014 (3)

($)

            

Martin J. Barrington,

Chairman of the Board and Chief

Executive Officer, Altria Group, Inc.

  Benefit
Equalization
Plan
    98,167   25,255      1,115,015
            
            

Howard A. Willard,

Executive Vice President and Chief

Financial Officer, Altria Group, Inc.

  Benefit
Equalization
Plan
    41,683   12,363         528,175
            
            

David R. Beran,

President and Chief Operating Officer,

Altria Group, Inc.

  Benefit
Equalization
Plan
    66,550   26,244      1,139,344
            
            

Denise F. Keane,

Executive Vice President and General

Counsel, Altria Group, Inc.

  Benefit
Equalization
Plan
    63,050   25,221      1,113,571
            
            

Craig A. Johnson,

President and Chief Executive Officer,

Altria Group Distribution Company

  Benefit
Equalization
Plan
    59,083   27,427      1,203,691
                          

 

(1) The amounts in this column reflect Company contributions to the non-qualified BEP for deferred profit-sharing purposes earned in 2014, which were credited to the participant’s account as of the last business day of February 2015 and are included in the “Allocation to Defined Contribution Plans” column of the All Other Compensation table on page 45.

 

(2) The values in this column consist of amounts credited as earnings for 2014 on BEP account balances. These amounts do not constitute above-market earnings and are not included in amounts reported in the Summary Compensation Table.

 

(3) The aggregate balances shown include allocations reported in the Summary Compensation Table for previous years for Mr. Barrington, $476,782; for Mr. Willard, $133,770; for Mr. Beran, $460,998; for Ms. Keane, $417,209; and for Mr. Johnson, $344,635. Allocations were also made in years when these individuals were not NEOs. As a result of payments made to trusts established by the NEOs, as described in the “Defined Contribution Plans” section below, our liabilities are less than the amounts shown in the table. Amounts credited for 2005 through 2007 under the 2008 amended BEP (including earnings adjustments on such amounts through December 31, 2007) are not reflected in the aggregate balances, because the BEP formula takes into account Target Payments previously made and reported. See the discussion below for further information concerning the 2008 supplemental retirement plan changes.

Defined Contribution Plans

The NEOs participate in the Deferred Profit-Sharing Plan for Salaried Employees (“DPS Plan”), which is a broad based tax-qualified defined contribution plan, and the deferred profit-sharing portion of the BEP (“BEP DPS”), which is an unfunded, non-qualified supplemental plan.

DPS Plan

The majority of our salaried employees are eligible for the DPS Plan. Under the DPS Plan, the Company makes a contribution (the “Company Contribution”) on behalf of each eligible participant for each year. Participants may also defer up to 35% of their eligible compensation on a pre-tax or after-tax basis into the DPS Plan, subject to DPS Plan and tax-qualification limits. For 2014, the Company determined its contribution using a formula based on Altria’s annual growth in adjusted diluted EPS, but capped at 12% of each DPS Plan participant’s eligible compensation. The formula resulted in a Company Contribution for each eligible participant for 2014 equal to 10% of eligible compensation. Salaried employees who are not eligible for the Retirement Plan are generally entitled to a supplemental Company Contribution and matching contributions on employee contributions. For 2014, all of the NEOs were eligible for the Retirement Plan and, therefore, are ineligible for the supplemental Company Contribution or matching contributions. For purposes of the DPS Plan, eligible compensation for NEOs is the amount reported as salary in the Summary Compensation Table. Participants may receive the balance in their account under the DPS Plan upon termination of employment in a lump sum, as a deferred lump sum payment or in installments over a period of years not to exceed their life expectancy.

 

52    ALTRIA GROUP, INC. – Proxy Statement


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EXECUTIVE COMPENSATION

 

 

BEP DPS

The BEP DPS provides benefits that cannot be provided under the DPS Plan because of one or more statutory limits. For example, the tax laws limit the amount of compensation that can be taken into account under the DPS Plan for any year and impose other limits on the amounts that can be allocated to individuals’ accounts. A participant whose salary exceeds the compensation limit or was otherwise affected by a tax law limit is entitled to an amount generally equal to the additional benefit the participant would have received under the DPS Plan but for the application of the tax law limits. Accordingly, bookkeeping accounts reflecting this additional amount have been maintained under the BEP DPS for the NEOs and other affected participants. A further notional allocation is made annually to reflect the amount credited to the participant’s account under the BEP DPS assuming the account was invested in the Interest Income Fund maintained under the DPS Plan. The Interest Income Fund is invested in a variety of high-quality fixed-income instruments with strong credit ratings and, for 2014, produced earnings at a rate of 2.00%. BEP DPS allocations relating to periods after 2004 are paid in a lump sum following separation from service. Distribution of the pre-2005 account is subject to the BEP DPS terms applicable on December 31, 2004.

As with the BEP Pension benefit, between 1996 and 2007, our NEOs and certain other executive officers received payments that were made directly to them or to individual trusts and that offset the pre-2005 BEP DPS allocations. When BEP (Pension and DPS) accruals ceased for 2005 through 2007, the NEOs and certain other officers received Target Payments for 2005 through 2007 in lieu of BEP DPS allocations. The reinstated BEP that was effective January 1, 2008 also included reinstatement of the BEP DPS. As is noted above, the amounts payable by Altria under the BEP DPS are determined taking into account Target Payments made to executives before 2008 in order to prevent duplicative benefits payments.

Payments upon Change in Control or Termination of Employment

We do not have individual employment, severance or change in control agreements with any of our NEOs. The following arrangements apply in the event of a change in control or certain terminations of employment.

Payments upon Change in Control

 

Under the terms of our shareholder-approved 2010 Performance Incentive Plan that apply to all participants, including our NEOs, a change in control of the Company would have the following consequences:

 

•      the restrictions on outstanding restricted stock or deferred stock would lapse;

 

•      any stock options and stock appreciation rights would become fully vested and exercisable;

 

•      awards of the types described in the above two bullets would be cashed out at the change in control price, unless the Compensation Committee determines to treat the awards in a different manner, such as the acquiring company’s assumption or substitution of the awards;

 

•      fully earned but unpaid incentive awards would become payable; and

 

•      annual and long-term incentive awards for performance cycles not yet completed as of the change in control date would become payable, but only on a prorated basis applied to the maximum award opportunity (the number of full or partial months divided by the total number of months in the performance cycle).

 

FUTURE

CHANGE IN CONTROL PROVISION

 

The proposed 2015 Performance Incentive Plan to be voted on by shareholders at the 2015 Annual Meeting (“Proposal 2 – Approval of the 2015 Performance Incentive Plan” beginning on page 62) includes a double-trigger provision for annual incentive awards, equity grants and long-term incentive cash awards.

 

In the event of a change in control, awards will not be paid unless the successor entity either (i) fails to assume or replace outstanding awards or (ii) assumes or replaces outstanding awards, but the participant’s employment is terminated by the successor entity for any reason other than “cause” or by the participant with “good reason” within a specified time period.

 

For these purposes, a change in control occurs: (a) upon an acquisition of 20% or more of either our outstanding common stock or the voting power of our outstanding voting securities by an individual or entity, excluding certain acquisitions involving us or our affiliates or where our beneficial owners continue to meet certain ownership thresholds, coupled with, under the 2010 Performance Incentive Plan, the election to the Board of at least one individual determined in good faith by a majority of the then serving members of the Board to be a representative or associate of such individual or entity; (b) when members of our Board, or members thereafter nominated or elected by such members, cease to constitute a majority of our Board; (c) upon certain reorganizations, mergers, share exchanges, and consolidations involving us; or (d) upon our liquidation or dissolution, or sale of substantially all of our assets, with limited exceptions.

 

ALTRIA GROUP, INC. – Proxy Statement    53


Table of Contents

EXECUTIVE COMPENSATION

 

 

The amounts that would have become payable to our NEOs on a change in control of the Company, as of December 31, 2014, were as follows:

 

Named Executive Officer

  

Unvested

Restricted

   Stock (1)

($)

  

Completed

2014

Annual

Incentive

   Cycle (2)

($)

  

2014 – 2016

LTIP

   Cycle (3)

($)

  

Total

($)

           

Martin J. Barrington

   25,519,889    4,273,750    6,093,750    35,887,389
           
           

Howard A. Willard

     7,392,471    1,303,302    2,659,800    11,355,573
           
           

David R. Beran

   13,184,652    1,775,319    3,623,100    18,583,071
           
           

Denise F. Keane

     7,652,124    1,712,256    3,494,400    12,858,780
           
           

Craig A. Johnson

     5,909,443    1,635,816    3,338,400    10,883,659
                     

 

(1) Assumes a change in control price of $49.27, the closing price of Altria’s common stock on December 31, 2014.

 

(2) Based on the prorated maximum award payable under the 2014 Annual Incentive Award program and the executive having worked 12 of the 12 months of the performance period.

 

(3) Based on the prorated maximum award payable under the 2014 – 2016 LTIP and the executive having worked 12 of the 36 months of the performance period.

The Company maintains a non-qualified grantor trust (the “Trust”), commonly known as a “rabbi trust,” to provide a limited amount of financial security for the participants’ unfunded benefits under the BEP in the event of a change in control of the Company. The Trust is unfunded until funding is triggered by a change in control. In such an event, Trust assets would still be subject to the claims of general creditors of the Company in cases of insolvency and bankruptcy. The Trust does not provide additional benefits or enhancements to the participants in the BEP.

Other than the Trust funding, none of our retirement plans or any other related agreements provide our NEOs with an additional enhancement, early vesting or other benefit in the event of a change in control or termination of employment, except for certain plan provisions applicable to all plan participants that, in the event of a change in control, provide for BEP payments and ensure vesting and continuation of profit-sharing contributions for the year in which a change in control occurs and the following two years. All NEOs are already fully vested in such retirement plans and other related agreements. Similarly, no special provisions apply to NEOs with respect to continued medical, life insurance or other insurance coverage following termination of employment whether or not in connection with a change in control.

Termination Payments

In the event of certain involuntary terminations of employment, our salaried employees, including all of our NEOs, are eligible for severance benefits under the Severance Pay Plan for Salaried Employees (“Severance Plan”). The Severance Plan provides for severance pay (based on salary) and continuation of certain benefits for up to 12 months depending on years of service. In order to receive any of these benefits, eligible employees must execute a general release of claims. Periods for which employees are entitled to severance payments may be counted toward vesting and eligibility for purposes of the Retirement Plan as well as post-retirement medical coverage.

 

54    ALTRIA GROUP, INC. – Proxy Statement


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EXECUTIVE COMPENSATION

 

 

The following table shows the amount of severance that would be paid under the Severance Plan to each NEO had he or she been involuntarily separated on December 31, 2014 and eligible for these payments:

 

Named Executive Officer

  

Severance

Payments

($)

 

Martin J. Barrington

 

  

 

1,250,000

 

 

Howard A. Willard

 

  

 

   682,000

 

 

David R. Beran

 

  

 

   929,000

 

 

Denise F. Keane

 

  

 

   896,000

 

 

Craig A. Johnson

 

  

 

   856,000

 

In the event of death or total disability, all salaried employees with unvested restricted stock or deferred stock awards, including the NEOs, become fully vested in those awards. In addition, the NEOs, like other salaried employees, may become entitled to a prorated LTIP award based on the target payment amount, and the Compensation Committee may pay a prorated Annual Incentive Award based on the target payment amount, at its discretion. The NEOs would also become entitled to the same life insurance and long-term disability plan benefits as other salaried employees upon a death or disability.

The following table shows the amounts that would be paid under the restricted stock and LTIP awards if the NEOs had died or become disabled as of December 31, 2014:

 

Named Executive Officer

  

Unvested

Restricted

    Stock (1)

($)

    

2014 – 2016

LTIP

    Cycle (2)

($)

 

Martin J. Barrington

 

  

 

25,519,889

 

    

 

3,125,000

 

 

Howard A. Willard

 

  

 

  7,392,471

 

    

 

1,364,000

 

 

David R. Beran

 

  

 

13,184,652

 

    

 

1,858,000

 

 

Denise F. Keane

 

  

 

  7,652,124

 

    

 

1,792,000

 

 

Craig A. Johnson

 

  

 

  5,909,443

 

    

 

1,712,000

 

 

(1) Based on the closing price of Altria’s common stock of $49.27 on December 31, 2014.

 

(2) Based on the target award payable under the 2014 – 2016 LTIP and the executive having worked 12 of the 36 months of the performance period.

Upon reaching the normal retirement age of 65, all salaried employees, including the NEOs, with unvested restricted stock or deferred stock awards become vested in the awards. None of the NEOs reached normal retirement age as of December 31, 2014.

In the event of a voluntary termination of employment or an involuntary termination of employment for cause, the NEOs are not eligible to receive severance, equity vesting or other amounts or benefits other than those provided to other salaried employees. The Compensation Committee has the discretion, however, to fully or partially vest any employee holding a restricted stock or deferred stock award upon early retirement or upon other terminations of employment, as well as to provide for prorated payments of the annual incentive and LTIP awards in similar situations, and has exercised this discretion from time to time in appropriate circumstances.

Following any termination of employment, the NEOs, like other salaried employees, are entitled to the retirement plan benefits described under “Pension Benefits” and “Non-Qualified Deferred Compensation” above.

In addition, following any termination of employment, each of our NEOs is subject to a confidentiality and non-competition agreement.

 

ALTRIA GROUP, INC. – Proxy Statement    55


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PROPOSALS REQUIRING YOUR VOTE

 

 

PROPOSALS REQUIRING YOUR VOTE

PROPOSAL 1 – ELECTION OF DIRECTORS

It is proposed that 11 directors, 10 of whom are independent directors, be elected to hold office until the next annual meeting of shareholders and until their successors have been elected and qualified, subject to their earlier death, resignation or removal. The Nominating, Corporate Governance and Social Responsibility Committee has recommended to the Board, and the Board has approved, the individuals named below.

The particular experiences, qualifications, attributes or skills of each nominee that the Nominating, Corporate Governance and Social Responsibility Committee believes will advance the Company’s Mission and one or more Mission goals are included in the individual biographies below. The Committee and the Board believe that each of the nominees for election at the 2015 Annual Meeting possesses a strong and unique set of attributes. The Committee and the Board believe that, as a group, these nominees provide the Board with an optimal balance of experience, leadership, competencies, qualifications and skills.

Although it is not anticipated that any of the persons named below will be unable or unwilling to stand for election, a proxy, in the event of such an occurrence, may be voted for a substitute designated by the Board. However, in lieu of designating a substitute, the Board may reduce the number of directors.

Director Nominee Biographies and Qualifications

 

 

     LOGO                             

 

Director Since: 2008

 

Board Committees:

•  Compensation

•  Executive

•  Innovation

•  Nominating, Corporate

   Governance and Social

   Responsibility (Chair)

 

 

 

GERALD L. BALILES, 74

 

Position, Principal Occupation and Professional Experience:

Retired Director and Chief Executive Officer, Miller Center of Public Affairs (Charlottesville, VA). Governor Baliles was the Director and Chief Executive Officer of the Miller Center of Public Affairs, a leading public policy institution affiliated with the University of Virginia from April 2006 to December 31, 2014. From 1990 to April 2006, he served as an international aviation and trade partner in the law firm of Hunton & Williams LLP, Richmond, Virginia. From 1986 through 1990, Governor Baliles served as the 65th Governor of the Commonwealth of Virginia. During his tenure as Governor, he served as Chairman of the National Governors Association.

 

Other Current Public Directorships: None.

 

Prior Public Company Directorships (within the last five years): Norfolk Southern Corporation (1990 to May 2013).

 

Other Directorships, Trusteeships and Memberships: Virginia Foundation for Community College Education; Patrick County Education Foundation. Previously served on the boards of the Center for the Study of the Presidency and Congress, PBS, Newport News Shipbuilding, Shenandoah Life Insurance Company,* the Nature Conservancy in Virginia and the Virginia Historical Society.

 

Director Qualifications:

The Nominating, Corporate Governance and Social Responsibility Committee believes that Governor Baliles’s significant expertise in public policy and law and his professional, administrative and leadership experiences, including his service as chief executive of the Commonwealth of Virginia, provide clear support for his nomination for election to the Board.

 

* During 2009, Shenandoah Life Insurance Company entered into a receivership pursuant to a Virginia statutory procedure due to a sharp decline in value in certain of the company’s holdings that resulted in the company falling below minimum capitalization requirements. As part of this receivership, the Circuit Court in Richmond, Virginia, entered an order which, in accordance with required statutory provisions that apply to all such receiverships in Virginia, enjoined the directors from conducting any further business related to Shenandoah Life Insurance Company. The order contained no other findings or provisions related to the conduct of any directors of the entity. In May 2012, Shenandoah Life Insurance Company emerged from receivership and resumed possession of its property and the management of its affairs. The Nominating, Corporate Governance and Social Responsibility Committee considered this order with regard to the director’s qualification to serve as a director and has determined that the order does not impact the director’s ability or qualifications to serve as a director.

 

56    ALTRIA GROUP, INC. – Proxy Statement


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PROPOSALS REQUIRING YOUR VOTE

 

 

MARTIN J. BARRINGTON, 61

 

     LOGO                             

 

Director Since: 2012

 

Chairman, Chief

Executive Officer and

President

 

Board Committee:

•  Executive (Chair)

 

 

 

 

 

Position, Principal Occupation and Professional Experience:

Chairman, Chief Executive Officer and President, Altria Group, Inc. (Richmond, VA). Mr. Barrington serves as Chairman, Chief Executive Officer and President of Altria Group, Inc. He was appointed to the additional role of President effective March 1, 2015. Prior to his appointment as Chairman and Chief Executive Officer on May 17, 2012, Mr. Barrington’s previous positions at the Company included Vice Chairman and Executive Vice President and Chief Compliance and Administrative Officer. Mr. Barrington has been employed continuously by the Company and its subsidiaries in various capacities since 1993. Before joining the Altria family of companies, he practiced law in both the government and private sectors.

 

Other Current Public Directorships: None.

 

Prior Public Company Directorships (within the last five years): None.

 

Other Directorships, Trusteeships and Memberships: Virginia Museum of Fine Arts; Richmond Performing Arts Center L.L.L.P. Previously served on the Board of Commissioners of the Virginia Port Authority and the advisory board of Points of Light Institute.

 

Director Qualifications:

The Nominating, Corporate Governance and Social Responsibility Committee believes that Mr. Barrington’s significant knowledge and understanding of the Company and its businesses and the external environment in which the Company’s businesses operate, including the regulatory environment, together with his various leadership experiences as described above, provide clear support for his nomination for election to the Board.

 

JOHN T. CASTEEN III, 71

 

     LOGO                              

 

Director Since: 2010

 

Board Committees:

•  Audit

•  Innovation

•  Nominating, Corporate

   Governance and Social

   Responsibility

 

 

Position, Principal Occupation and Professional Experience:

President Emeritus, University of Virginia (Charlottesville, VA). Mr. Casteen became President Emeritus of the University of Virginia in August 2010 after having served as President of the University since 1990. He is both University Professor and Professor of English. Previously, Mr. Casteen served as President of the University of Connecticut from 1985 to 1990 and as Secretary of Education for the Commonwealth of Virginia from 1982 to 1985.

 

Other Current Public Directorships: Strayer Education, Inc.

 

Prior Public Company Directorships (within the last five years): None.

 

Other Directorships, Trusteeships and Memberships: Chesapeake Bay Foundation; Jamestown-Yorktown Foundation; Virginia Foundation for Community College Education; Woodrow Wilson International Center for Scholars; Leifur Eiríksson Foundation; several privately-held companies.

 

Director Qualifications:

The Nominating, Corporate Governance and Social Responsibility Committee believes that Mr. Casteen’s extensive professional, business, administrative and leadership experiences, particularly his role as a former chief executive of a university system with top-ranking academic and medical divisions, provide clear support for his nomination for election to the Board.

 

ALTRIA GROUP, INC. – Proxy Statement    57


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PROPOSALS REQUIRING YOUR VOTE

 

 

 

     LOGO                             

 

Director Since: 2008

 

Board Committees:

•  Finance

•  Innovation

DINYAR S. DEVITRE, 67

 

Position, Principal Occupation and Professional Experience:

Special Advisor, General Atlantic LLC (Greenwich, CT). Mr. Devitre is Special Advisor to General Atlantic LLC, a private equity firm, a position he has held since June 2008. In March 2008, Mr. Devitre retired from his position as Senior Vice President and Chief Financial Officer of Altria Group, Inc. Prior to Mr. Devitre’s appointment to this position in April 2002, he held a number of senior management positions with the Company.

 

Other Current Public Directorships: Markit Ltd.; Western Union Company; SABMiller plc.

 

Prior Public Company Directorships (within the last five years): Emdeon Inc.

(2008 to 2011).

 

Other Directorships, Trusteeships and Memberships: Pratham USA; Brooklyn Academy of Music. Previously served on the boards of The Lincoln Center for the Performing Arts, Inc. and Kraft Foods Inc. (now known as Mondelēz International, Inc.).

 

Director Qualifications:

The Nominating, Corporate Governance and Social Responsibility Committee believes that Mr. Devitre’s significant knowledge and understanding of the Company and its businesses, together with his public company board service (including SABMiller), his financial acumen, his public company chief financial officer experience and his general business knowledge, provide clear support for his nomination for election to the Board.

 

 

     LOGO                             

 

Director Since: 2008

 

Presiding Director

 

Board Committees:

•  Compensation

•  Executive

•  Nominating, Corporate

   Governance and Social

   Responsibility

THOMAS F. FARRELL II, 60

 

Position, Principal Occupation and Professional Experience:

Chairman, President and Chief Executive Officer, Dominion Resources, Inc. (Richmond, VA). Mr. Farrell is the Chairman, President and Chief Executive Officer of Dominion Resources, Inc., one of the nation’s largest producers of energy. He became President and Chief Executive Officer of Dominion Resources, Inc. effective January 2006 and was elected Chairman in April 2007. From January 2004 through December 2005, he served as President and Chief Operating Officer of Dominion Resources, Inc. and prior to that as Executive Vice President.

 

Other Current Public Directorships: Dominion Resources, Inc.; Dominion Midstream GP, LLC. Mr. Farrell also serves as a director of Dominion Gas Holdings, LLC and Virginia Electric and Power Company, which are wholly-owned subsidiaries of Dominion Resources, Inc. that only issue registered debt.

 

Prior Public Company Directorships (within the last five years): None.

 

Other Directorships, Trusteeships and Memberships: Associated Electric & Gas Insurance Services Limited; Edison Electric Institute; Institute of Nuclear Power Operations; Richmond Performing Arts Center L.L.L.P.; Richmond 2015, Inc.; Virginia Commonwealth University; Virginia Foundation for Independent Colleges; Virginia Museum of Fine Arts.

 

Director Qualifications:

The Nominating, Corporate Governance and Social Responsibility Committee believes that Mr. Farrell’s extensive business, administrative and leadership experiences, particularly his role as chief executive of a large public company in a regulated industry, provide clear support for his nomination for election to the Board.

 

58    ALTRIA GROUP, INC. – Proxy Statement


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PROPOSALS REQUIRING YOUR VOTE

 

 

THOMAS W. JONES, 65

 

     LOGO                             

 

Director Since: 2002

 

Board Committees:

•  Audit

•  Compensation

•  Executive

•  Finance (Chair)

 

 

 

 

 

 

Position, Principal Occupation and Professional Experience:

Senior Partner, TWJ Capital LLC (Stamford, CT). Mr. Jones assumed his position as Senior Partner of TWJ Capital LLC, an investment company, in May 2005. From August 1999 to October 2004, he held the position of Chairman and Chief Executive Officer of Global Investment Management with Citigroup Inc. He joined Travelers Group as Vice Chairman in 1997 and served as Chairman and Chief Executive Officer of Smith Barney Asset Management until August 1999 when Travelers Group merged with Citibank to form Citigroup Inc. Prior to joining Travelers Group, Mr. Jones served as President and Chief Operating Officer and Vice Chairman of TIAA-CREF from 1993 to 1997.

 

Other Current Public Directorships: None.

 

Prior Public Company Directorships (within the last five years): None.

 

Other Directorships, Trusteeships and Memberships: Cornell University (Trustee Emeritus); several privately-held investment portfolio companies. Previously served on the boards of the Federal Reserve Bank of New York, Freddie Mac, Thomas & Betts Corp., Travelers Group, TIAA-CREF, Eastern Enterprises and Howard University.

 

Director Qualifications:

The Nominating, Corporate Governance and Social Responsibility Committee believes that Mr. Jones’s expertise in the areas of finance and investments and his extensive professional, business and leadership experiences, particularly his leadership and administrative roles at large publicly-held companies, provide clear support for his nomination for election to the Board.

 

DEBRA J. KELLY-ENNIS, 58

 

     LOGO                             

 

Director Since: 2013

 

Board Committees:

•  Audit

•  Innovation

•  Nominating, Corporate

   Governance and Social

   Responsibility

 

 

 

 

Position, Principal Occupation and Professional Experience:

Retired President and Chief Executive Officer, Diageo Canada, Inc. (Etobicoke, Ontario, Canada). Ms. Kelly-Ennis was President and Chief Executive Officer of Diageo Canada, Inc., a subsidiary of Diageo plc, a global spirits, wine and beer company, from 2008 to June 2012. From 2005 to 2008, she was Chief Marketing Officer for Diageo North America, Inc., another subsidiary of Diageo plc. Ms. Kelly-Ennis has also held marketing, sales and general management positions with RJR/Nabisco, Inc., The Coca-Cola Company, General Motors Corporation and Grand Metropolitan PLC.

 

Other Current Public Directorships: Carnival Corporation & plc; Hertz Global Holdings, Inc.; PulteGroup, Inc.

 

Prior Public Company Directorships (within the last five years): None.

 

Other Directorships, Trusteeships and Memberships: Dress for Success Worldwide (Director Emeritus).

 

Director Qualifications:

The Nominating, Corporate Governance and Social Responsibility Committee believes that Ms. Kelly-Ennis’s leadership experiences, particularly her positions as an executive with several large, consumer-focused companies in multiple industries, and her significant marketing, sales and distribution experience at large publicly-held companies, including companies in the consumer packaged goods industry, provide clear support for her nomination for election to the Board.

 

ALTRIA GROUP, INC. – Proxy Statement    59


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PROPOSALS REQUIRING YOUR VOTE

 

 

 

     LOGO                           

 

Director Since: 2011

 

Board Committees:

•  Compensation (Chair)

•  Executive

•  Finance

•  Innovation

 

 

 

W. LEO KIELY III, 68

 

Position, Principal Occupation and Professional Experience:

Retired Chief Executive Officer, MillerCoors LLC (Golden, CO). Mr. Kiely retired as Chief Executive Officer of MillerCoors LLC, a joint venture combining the U.S. and Puerto Rico operations of SABMiller plc and Molson Coors Brewing Company, in July 2011, a position he had held since July 2009. From February 2005 through July 2009, Mr. Kiely served as President and Chief Executive Officer of Molson Coors Brewing Company. From March 1993 to March 2005, he held a variety of executive positions at Coors Brewing Company, including Chief Executive Officer. Before joining Coors Brewing Company, he held executive positions with Frito-Lay, Inc., a subsidiary of PepsiCo, Inc., and Ventura Coastal Corporation, a division of Seven Up Inc.

 

Other Current Public Directorships: None.

 

Prior Public Company Directorships (within the last five years): Medpro Safety Products (2009 to March 2014).

 

Other Directorships, Trusteeships and Memberships: The Denver Center for the Performing Arts; Helen G. Bonfils Foundation.

 

Director Qualifications:

The Nominating, Corporate Governance and Social Responsibility Committee believes that Mr. Kiely’s extensive business, administrative and leadership experiences, particularly his various executive positions, including the role of chief executive, in the consumer packaged goods industry, provide clear support for his nomination for election to the Board.

 

 

     LOGO                             

 

Director Since: 2012

 

Board Committees:

•  Audit

•  Compensation

•  Finance

 

 

 

 

 

 

KATHRYN B. McQUADE, 58

 

Position, Principal Occupation and Professional Experience:

Retired Executive Vice President and Chief Financial Officer, Canadian Pacific Railway Limited (Calgary, Alberta, Canada). Ms. McQuade served as Senior Advisor of Canadian Pacific Railway Limited (“Canadian Pacific”), a transcontinental railway in Canada and the United States, from November 2012 to May 2013, after previously serving as Executive Vice President and Chief Financial Officer of Canadian Pacific from September 2008 to her retirement in November 2012. Ms. McQuade joined Canadian Pacific in June 2007 as Executive Vice President and Chief Operating Officer. Prior to joining Canadian Pacific, Ms. McQuade served as Executive Vice President – Planning and Chief Information Officer at Norfolk Southern Corporation where she spent 27 years in key information technology, strategic planning and finance leadership positions.

 

Other Current Public Directorships: TransAlta Renewables Inc.

 

Prior Public Company Directorships (within the last five years): None.

 

Other Directorships, Trusteeships and Memberships: Several privately-held companies. Previously served on the boards of The College of William & Mary Foundation and Shenandoah Life Insurance Company.*

 

Director Qualifications:

The Nominating, Corporate Governance and Social Responsibility Committee believes that Ms. McQuade’s significant financial and accounting expertise, particularly her public company chief financial officer experience, her general business knowledge and her management experience in a regulated industry, provide clear support for her nomination for election to the Board.

 

* For more information, please refer to the footnote on page 56.

 

60    ALTRIA GROUP, INC. – Proxy Statement


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PROPOSALS REQUIRING YOUR VOTE

 

 

GEORGE MUÑOZ, 63

 

     LOGO                             

 

Director Since: 2004

 

Board Committees:

•  Audit (Chair)

•  Executive

•  Finance

•  Nominating, Corporate

   Governance and Social

   Responsibility

 

 

 

Position, Principal Occupation and Professional Experience:

Principal, Muñoz Investment Banking Group, LLC (Washington, DC) and Partner, Tobin & Muñoz (Chicago, IL). Mr. Muñoz is a principal of the Washington, DC-based firm of Muñoz Investment Banking Group, LLC. He is also a partner in the Chicago-based law firm of Tobin & Muñoz. He served as President and Chief Executive Officer of the Overseas Private Investment Corporation from 1997 to January 2001. From 1993 to 1997, Mr. Muñoz was Chief Financial Officer and Assistant Secretary of the United States Treasury Department.

 

Other Current Public Directorships: Marriott International, Inc.; Anixter International, Inc.

 

Prior Public Company Directorships (within the last five years): None.

 

Other Directorships, Trusteeships and Memberships: National Geographic Society; several privately-held companies. Previously served on the boards of Esmark Incorporated and Archipelago Holdings, Inc.

 

Director Qualifications:

The Nominating, Corporate Governance and Social Responsibility Committee believes that Mr. Muñoz’s accounting, financial, legal and public policy expertise, along with his background in international business and his significant professional, administrative and leadership experiences in both the private and public sectors, provide clear support for his nomination for election to the Board.

 

 

NABIL Y. SAKKAB, 67

 

     LOGO                             

 

Director Since: 2008

 

Board Committees:

•  Executive

•  Finance

•  Innovation (Chair)

•  Nominating, Corporate

   Governance and Social

   Responsibility

 

 

Position, Principal Occupation and Professional Experience:

Retired Senior Vice President, Corporate Research and Development, The Procter & Gamble Company (Cincinnati, OH). Dr. Sakkab held a variety of positions at The Procter & Gamble Company beginning in 1974. He retired in November 2007 as Senior Vice President, Corporate Research and Development.

 

Other Current Public Directorships: Deinove.

 

Prior Public Company Directorships (within the last five years): Givaudan SA (2008 to March 2015).

 

Other Directorships, Trusteeships and Memberships: Several privately-held companies.

 

Director Qualifications:

The Nominating, Corporate Governance and Social Responsibility Committee believes that Dr. Sakkab’s innovation expertise in the consumer packaged goods industry and his extensive overall business knowledge and experiences on boards of directors provide clear support for his nomination for election to the Board.

 

 

The Board recommends a vote “FOR” each of the nominees for election as directors.

 

ALTRIA GROUP, INC. – Proxy Statement    61


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PROPOSALS REQUIRING YOUR VOTE

 

 

PROPOSAL 2 – APPROVAL OF THE 2015 PERFORMANCE INCENTIVE PLAN

Introduction

The equity awards granted to our management are made pursuant to the current Performance Incentive Plan, which was approved by shareholders in 2010 (“2010 Plan”). Under the terms of the 2010 Plan, no awards can be made after April 30, 2015. Consequently, on February 25, 2015, the Board adopted the 2015 Performance Incentive Plan (the “2015 Plan”), subject to approval of the Company’s shareholders. A copy of the 2015 Plan is attached to this Proxy Statement as Exhibit A.

The 2015 Plan is intended to be the successor to the 2010 Plan. Any shares remaining under the 2010 Plan will no longer be available for granting new awards after April 30, 2015. No awards can be made under the 2015 Plan unless it is approved by shareholders.

The 2015 Plan provides for the potential issuance of up to 40 million shares of common stock. This represents approximately 2% of all outstanding shares and fewer shares than authorized under the 2010 Plan.

The 2015 Plan includes significant changes as compared to the 2010 Plan, as highlighted in the chart below. The Company believes these changes reflect good governance practices and further align our executive compensation program with shareholder interests.

The Board believes that the 2015 Plan will form an important part of the Company’s overall compensation program. The 2015 Plan will support the Company’s ongoing efforts to develop and retain world-class leaders and enable the Company to provide incentives that are directly linked to the profitability of the Company’s businesses and increases in shareholder value.

Highlights of the 2015 Plan

The following table highlights key provisions of the 2015 Plan and the changes as compared to the 2010 Plan:

 

   2015 Plan 2010 Plan
Shares Available 40 million shares 50 million shares
Total Potential Dilution

approximately 2.0%

 

(40 million shares / 1.97 billion shares outstanding as of March 30, 2015)

approximately 2.4%

 

(50 million shares / 2.08 billion shares outstanding as of March 29, 2010)

Share Recycling Prohibited Permitted
Eligibility All employees Management employees
Change in Control

Double-trigger

 

Payments triggered due to change in control only if:

 

(1)   acquirer does not assume or replace awards; or

 

(2)   employee is terminated for any reason other than cause; or

 

(3)   employee separates for good reason

Single-trigger

 

Payments triggered upon a change in control

Change in Control Payment Maximums

If payments are triggered, we will pay prorata:

 

•  annual incentive awards at the greater of the target award amount or the average of the participant’s actual last three years’ awards; and

 

•  long-term incentive cash awards at target

Prorata payments made at plan maximums
     

 

62    ALTRIA GROUP, INC. – Proxy Statement


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PROPOSALS REQUIRING YOUR VOTE

 

 

 

   2015 Plan 2010 Plan
Minimum Vesting Period 12 months None stated

Limits on Dividends /

Dividend Equivalents

No dividends or dividend equivalents on unvested performance shares that have not yet met the performance criteria; permits the Company to pay dividends or dividend equivalents on other unvested equity such as restricted stock or restricted stock units Dividends or dividend equivalents may be paid on all unvested stock-based awards
     

Other key terms of the 2015 Plan remain the same as the 2010 Plan:

 

     
Duration Five years (May 1, 2015 – May 31, 2020)
Types of Awards

•   annual incentive awards

 

•   long-term incentive awards

 

•   restricted stock

 

•   restricted stock units (“RSUs”)

 

•   stock options

 

•   stock appreciation rights (“SARs”)

Maximum Awards

(individual limits)

•   annual incentive award:

 

•   long-term incentive award:

 

•   stock options or SARs:

 

•   other stock-based awards:

$10 million

 

$8 million X number of calendar years in performance cycle

 

3 million shares

 

1 million shares

Option Pricing Prohibit discounted options and re-pricing of options
Forfeiture / Clawback Awards under the 2015 Plan will be subject to recoupment under certain circumstances
Administration Compensation Committee (comprised of independent directors)
     

Shareholder Engagement

In developing the 2015 Plan, we engaged with several large institutional investors. The discussions were very helpful in allowing us to understand and account for shareholder perspective on plan design. Shareholder feedback was generally positive and no significant concerns were raised.

Summary of 2015 Plan

The following general description of material features of the 2015 Plan is qualified in its entirety by reference to the provisions of the 2015 Plan set forth in Exhibit A.

Who may receive awards under the 2015 Plan?

Any employee of the Company or any subsidiary or affiliate, including any executive officer or employee director of the Company or a subsidiary or affiliate, will be eligible to receive awards under the 2015 Plan. This eligibility will provide the Company flexibility to grant awards to retain and incent a limited number of high potential, non-management employees. We have not yet determined which of those eligible employees will receive grants under the 2015 Plan. Therefore, we cannot, at this time, determine the benefits to be allocated to any individual or to any group of employees.

 

ALTRIA GROUP, INC. – Proxy Statement    63


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PROPOSALS REQUIRING YOUR VOTE

 

 

Does the 2015 Plan include maximum award amounts?

The 2015 Plan limits the awards that may be granted to any employee in any calendar year. Under the 2015 Plan, no employee may receive awards of more than:

 

    1,000,000 shares of common stock (in total) in any calendar year, if such awards are restricted stock, RSUs, deferred stock units and other stock-based awards (except other stock-based awards with values based on spread values);

 

    3,000,000 shares of common stock (in total) in any calendar year, if such awards are stock options, SARs and other stock-based awards with values based on spread values;

 

    $10,000,000 in total annual incentive awards (taking into account cash and the fair market value of any shares of common stock payable with respect to an award); and

 

    $8,000,000 multiplied by the number of years in the applicable performance cycle for individual long-term incentive awards (taking into account cash and the fair market value of any common stock payable with respect to an award).

No award will be subject to more than one of the previously-mentioned limitations.

Does the 2015 Plan have a minimum vesting period?

All stock-based awards will provide for a minimum 12-month vesting period. Our historical practice, however, has been to use three- or five-year vesting periods. Awards may vest before the end of such minimum 12-month vesting period in the event of death, disability, retirement or a change in control with a qualifying termination, or in the case of an award that replaces or substitutes for a pre-existing award in connection with a corporate transaction, as described in “What happens to outstanding awards in the event of a corporate transaction?” below.

How many shares will be reserved for awards?

Forty million shares of common stock (approximately 2.0% of the shares of common stock outstanding as of March 30, 2015) will be reserved and available for awards under the 2015 Plan. This represents a decrease of 10 million shares from the 50 million authorized in each of the two previous shareholder-approved performance incentive plans. In determining the number of shares proposed under the 2015 Plan, the Compensation Committee considered historical and potential future equity grant practices and potential shareholder dilution, among other factors. The Committee expects the proposed number of shares to be sufficient for anticipated equity awards, while providing the Company enough flexibility to use stock options or SARs in the future, if desired. The Company has historically used less than the approved plan amount. Unused shares will be canceled and will not roll over when the 2015 Plan terminates. The expected dilution is substantially below the average equity compensation dilution within the Company’s peer group of 9.8%.

If any award under the 2015 Plan is exercised, cashed out or forfeited, or terminates or expires, without payment being made in the form of common stock, the shares underlying those unpaid awards will no longer be available for distribution under the 2015 Plan. Similarly, shares that are used by an employee to pay withholding taxes or as payment for the exercise price of an award will no longer be available for distribution under the 2015 Plan. If a SAR or similar award based on spread value with respect to shares of common stock is exercised, the total number of shares of common stock with respect to which such award is granted (rather than only the net number of shares issued) will be deemed delivered for purposes of determining the maximum number of shares available for delivery under the Plan. Unless otherwise determined by the Compensation Committee, a recipient may exercise stock options by paying cash or tendering common stock to the Company in full or partial payment of the exercise price. No new awards will be made under the 2010 Plan after April 30, 2015, which is the day prior to the effective date of the 2015 Plan, except for certain adjustments or substitutions with respect to previous awards as described in “What happens to outstanding awards in the event of a corporate transaction?” below.

 

64    ALTRIA GROUP, INC. – Proxy Statement


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What would happen in the event of a change in control?

 

The 2015 Plan provides that, in the event of a “change in control,” awards will not be paid unless the successor entity either (i) fails to assume or replace outstanding awards or (ii) assumes or replaces outstanding awards, but the participant’s employment is terminated by the successor entity for any reason other than “cause” or by the participant with “good reason” before the later of (a) two years from the date of the change in control or (b) the end of the LTIP performance cycle in which the change in control occurs. In the event of such double-trigger, the following treatment shall apply:

 

•      the restrictions applicable to outstanding restricted stock, RSUs, deferred stock units and other stock-based awards will lapse because these awards are based on completed performance;

 

•      all stock options and SARs will become fully vested and immediately exercisable; and

 

•      outstanding cash incentive awards will be vested and paid out on a prorated basis, based on (i) the greater of the target award amount or the average of the participant's last three years' awards for annual incentive awards and (ii) the target award amount for LTIP awards.

 

CHANGE IN CONTROL

 

¡  The 2015 Plan includes double-trigger vesting provision

 

¡  Awards will vest or become payable on an accelerated basis after a change in control only if they are not assumed or replaced or employment is terminated

 

¡  Upon a double-trigger, the value of prorated cash incentive award payments will be based on the target or average awards, rather than the maximum awards as under the 2010 Plan

 

The definition of “change in control” in the 2015 Plan is the same as in the 2010 Plan, as described in the “Payments upon Change in Control or Termination of Employment” section above on page 53.

If awards are not assumed or replaced in a corporate transaction, the outstanding stock options, SARs, restricted stock, RSUs, deferred stock units and other stock-based awards will be cashed out on the basis of the value of the consideration for common stock paid to other shareholders in connection with the change in control transaction, or, if no consideration is paid, the fair market value of a share of common stock immediately prior to a change in control, unless otherwise determined by the Compensation Committee or as required to comply with Internal Revenue Code Section 409A. The Compensation Committee may also make certain adjustments and substitutions in connection with a change in control or similar transactions or events as described below in “What happens to outstanding awards in the event of a corporate transaction?” below.

What types of awards are available under the 2015 Plan?

Annual and Long-Term Incentive Awards

Annual and long-term incentive awards may be granted under the 2015 Plan. Such awards will be earned only if corporate and business unit performance objectives over performance cycles, established by or under the direction of the Compensation Committee, are met. The performance objectives may vary from participant to participant, group to group and period to period. Awards that are intended to constitute “qualified performance-based compensation” (see discussion of “Federal Income Tax Consequences” below) will be based on satisfaction of performance objectives for one or more of the following: earnings per share (reported or adjusted diluted), total shareholder return, operating income, net income, revenue, adjusted net earnings, cash flow (reported or adjusted discretionary), return on equity, return on capital, net after-tax operating profit less the cost of capital, fair market value of shares of common stock, operating efficiency, operating expenses or consummation of acquisitions, dispositions, projects or other specific events or transactions. Awards may be paid in the form of cash, shares of common stock or any combination thereof, as determined by the Compensation Committee.

Restricted Stock

Shares of restricted common stock may be awarded under the 2015 Plan. The restricted stock will vest and become transferable upon the satisfaction of conditions set forth in the respective restricted stock award agreement. Restricted stock awards may be forfeited if, for example, the recipient’s employment terminates before the award vests. Except as specified in the restricted stock award agreement, the holder of a restricted stock award will have all the rights of a holder of common stock with respect to his or her restricted shares, including the right to receive dividends and vote such shares.

 

ALTRIA GROUP, INC. – Proxy Statement    65


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Restricted Stock Units/Deferred Stock Units

Units representing the right to receive common stock, cash or both (as determined by the Compensation Committee) may also be awarded. RSUs and deferred stock units will vest upon the satisfaction of conditions set forth in the respective award agreements. RSUs and deferred stock units may be forfeited if, for example, the recipient’s employment terminates before the award vests. Unless otherwise specified in a RSU or deferred stock unit award agreement, the holder of a RSU or deferred stock unit award will have none of the rights of a holder of common stock until shares of common stock are actually delivered in satisfaction of such units.

Stock Options

The 2015 Plan will permit the grant of non-qualified stock options and incentive stock options (“ISOs”), which qualify for special tax treatment. The exercise price for any stock option will not be less than the fair market value of common stock on the date of grant. No stock option may be exercised more than 10 years after the date of grant.

Stock Appreciation Rights

SARs may also be granted either alone or in combination with stock options. SARs entitle the holder upon exercise to receive an amount in any combination of cash or shares of common stock (as determined by the Compensation Committee) equal in value to the excess of the fair market value of the shares covered by such right over the grant price. The grant price for SARs will not be less than the fair market value of the common stock on the date of grant. No SARs may be exercised more than 10 years after the date of grant.

Other Stock-Based Awards

The 2015 Plan also provides for other awards that are denominated in, valued by reference to, or otherwise based on or related to common stock. The terms of grant, purchase, exercise, exchange or conversion of other stock-based awards will be specified by the Compensation Committee. These awards may include, for example, performance shares that entitle the recipient to receive, upon satisfaction of performance goals or other conditions, a specified number of shares of common stock or the cash equivalent of those shares. Where the value of such stock-based award is based on the difference between the fair market value of the shares covered by such award and the exercise price, the grant price for such award will not be less than the fair market value on the date of grant. Awards will have a term of no more than 10 years.

Dividend and Dividend Equivalents

The Compensation Committee may provide for the payment of dividends on shares of common stock (including restricted stock) granted in connection with awards or dividend equivalents with respect to any shares of common stock subject to an award (such as a RSU award) that have not actually been issued under the award. In the case of unvested awards that vest based on the satisfaction of performance goals, dividends or dividend equivalents will not be paid before the Compensation Committee determines that all performance goals associated with such awards have been satisfied.

What happens to outstanding awards in the event of a corporate transaction?

In the event of any transaction or event that affects the common stock, including a merger, share exchange, reorganization, consolidation, recapitalization, reclassification, distribution, stock dividend, stock split, reverse stock split, split-up, spin-off or issuance of rights or warrants, the Compensation Committee is authorized to make appropriate adjustments or substitutions with respect to awards granted under the 2015 Plan. It is intended that these adjustments and substitutions would only be those the Compensation Committee determines are appropriate to reflect the occurrence of such transaction or event to maintain substantially the same award value.

 

66    ALTRIA GROUP, INC. – Proxy Statement


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Such adjustments may include adjustments to the number and kind of securities reserved for issuance under the 2015 Plan, the limits on awards described in the 2015 Plan, performance goals and performance cycles of any outstanding performance-based awards and the number and kind of securities subject to outstanding awards and, if applicable, the grant or exercise price or spread value of outstanding awards. In the event of an applicable transaction, the Compensation Committee will also have the authority to:

 

    grant awards (including stock options, SARs and other stock-based awards) with a grant price that is less than fair market value on the date of grant (notwithstanding any other provisions of the 2015 Plan that options, SARs, and other stock-based awards may not have an exercise price less than fair market value), but only in order to preserve an existing gain under any similar type of award previously granted by the Company or another entity;

 

    cancel or adjust the terms of an outstanding award (except as otherwise provided under an award agreement), if appropriate to reflect a substitution of an award of equivalent value granted by another entity;

 

    make certain adjustments in connection with a spin-off or similar transaction, including (i) imposing restrictions on a distribution with respect to restricted stock or similar awards and (ii) substituting comparable stock options to purchase the stock of another entity or substitution of comparable SARs, RSUs, deferred stock units or other stock-based awards denominated in the stock of another entity (in which case such stock of another entity will be treated in the same manner as common stock under the 2015 Plan), which may be settled in various forms, as determined by the Compensation Committee, including cash, common stock, stock of another entity or other securities or property; and

 

    provide for payment of outstanding awards in cash (including cash in lieu of fractional awards).

Any adjustments, substitutions or other actions described above that are made or taken in connection with corporate transactions or events described above and that affect outstanding awards previously granted under the 2005 Performance Incentive Plan or the 2010 Plan will be deemed made pursuant to such plan under which the award was granted and from shares of common stock reserved under such plan rather than from those available for awards under the 2015 Plan. The number of shares of common stock subject to awards granted in substitution of awards of an acquired company or business or a company or business with which the Company or an affiliate combines will not be counted against the shares of common stock available for distribution under the 2015 Plan.

Who administers the plan?

The Compensation Committee (or a subcommittee thereof) will administer the 2015 Plan. The Compensation Committee will select the groups of eligible employees to whom awards will be granted and will set the terms of such awards, including any performance goals applicable to annual and long-term incentive awards. The Compensation Committee may delegate its authority and power under the 2015 Plan to one or more officers of the Company, subject to guidelines prescribed by the Compensation Committee, but only to the extent consistent with Section 16 of the Exchange Act, Section 162(m) of the Internal Revenue Code and any other securities law requirements.

Federal Income Tax Consequences

Restricted Stock

The recognition of income from an award of restricted stock for federal income tax purposes depends on the restrictions imposed on the shares. Generally, taxation will be deferred until the first taxable year the shares are no longer subject to substantial risk of forfeiture. At the time the restrictions lapse, the employee will recognize ordinary income equal to the then fair market value of the stock. The employee may, however, make an election to include the value of the shares in gross income in the year of award despite such restrictions. The Company will generally be entitled to deduct the fair market value of the shares transferred to the employee as a business expense in the year the employee includes the compensation in income.

RSUs/Deferred Stock Units

Generally, an employee will not recognize ordinary income until common stock, cash or other property become payable under the RSU or deferred stock unit, even if the award vests in an earlier year. The Company will generally be entitled to deduct the amount the employee includes in income as a business expense in the year of payment.

 

ALTRIA GROUP, INC. – Proxy Statement    67


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Non-Qualified Stock Options

Non-qualified stock options will not be taxable to an employee at grant but generally will result in taxation at exercise, at which time the employee will recognize ordinary income in an amount equal to the difference between the option’s exercise price and the fair market value of the shares on the exercise date. The Company will generally be entitled to deduct a corresponding amount as a business expense in the year the employee recognizes this income.

Incentive Stock Options

An employee will generally not recognize ordinary income on receipt or exercise of an ISO so long as he or she has been an employee of the Company, its subsidiaries or its affiliates from the date the ISO was granted until three months before the date of exercise; however, the amount by which the fair market value of the shares on the exercise date exceeds the exercise price is an adjustment in computing the employee’s alternative minimum tax in the year of exercise. If the employee holds the shares of common stock received on exercise of the ISO for one year after the date of exercise (and for two years from the date of grant of the ISO), any difference between the amount realized upon the disposition of the shares and the amount paid for the shares will be treated as long-term capital gain (or loss, if applicable) to the employee. If the employee exercises an ISO and satisfies these holding period requirements, the Company may not deduct any amount in connection with the ISO.

If an employee exercises an ISO but engages in a “disqualifying disposition” by selling the shares acquired on exercise before the expiration of the one and two-year holding periods described above, the employee generally will recognize ordinary income (for regular income tax purposes only) in the year of the disqualifying disposition equal to the excess, if any, of the fair market value of the shares on the date of exercise over the exercise price; and any excess of the amount realized on the disposition over the fair market value on the date of exercise will be taxed as long- or short-term capital gain (as applicable). If, however, the fair market value of the shares on the date of disqualifying disposition is less than on the date of exercise, the employee will recognize ordinary income equal only to the difference between the amount realized on the disqualifying disposition and the exercise price. In either event, the Company will generally be entitled to deduct an amount equal to the amount constituting ordinary income to the employee in the year of the disqualifying disposition.

Stock Appreciation Rights

To the extent that the requirements of the Internal Revenue Code are met, there are no immediate tax consequences to an employee when a SAR is granted. When an employee exercises the right to the appreciation in fair market value of shares represented by a SAR, payments made in common stock are normally includable in the employee’s gross income for regular income tax purposes. The Company will generally be entitled to deduct the same amount as a business expense in the same year. The includable amount and corresponding deduction each equal the fair market value of the common stock payable on the date of exercise.

Other Stock-Based Awards/Incentive Awards

Any cash payments or the fair market value of any common stock or other property an employee receives in connection with other stock-based awards, incentive awards or as unrestricted payments equivalent to dividends on unfunded awards or on restricted stock are includable in income in the year received or made available to the employee without substantial limitations or restrictions. Generally, the Company will be entitled to deduct the amount the employee includes in income as a business expense in the year of payment.

Deductibility of Awards

Internal Revenue Code Section 162(m) places a $1,000,000 annual limit on the compensation deductible by the Company paid to certain of its executives. The limit, however, does not apply to “qualified performance-based compensation.” Awards of stock options, SARs and certain other “performance-based compensation” awards under the 2015 Plan are intended to qualify for the performance-based compensation exception to the deductibility limit. Although the Compensation Committee considers tax deductibility in making compensation decisions, the Compensation Committee does not believe that compensation decisions should be determined solely by how much compensation is deductible for federal income tax purposes. As a result, the Compensation Committee has authorized, and retains the discretion to authorize, payments that may not be deductible if it believes that they are in the best interests of the Company and its shareholders.

 

68    ALTRIA GROUP, INC. – Proxy Statement


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Deferred Compensation

Any deferrals made under the 2015 Plan, including awards granted under the 2015 Plan that are considered to be deferred compensation, are intended to satisfy the requirements of Internal Revenue Code Section 409A to avoid adverse tax consequences to participating employees. These requirements include limitations on election timing, acceleration of payments and distributions.

Other Tax Consequences

State tax consequences may in some cases differ from those described above. Awards under the 2015 Plan may in some instances be made to employees who are subject to tax in jurisdictions other than the United States and may result in tax consequences differing from those described above.

Other Information

If approved by shareholders, the 2015 Plan will be effective on May 1, 2015, and, except as otherwise provided by the Board, no awards will be made under the 2015 Plan after May 31, 2020. Any awards granted on or before May 31, 2020 may extend beyond May 31, 2020.

The Board may amend or terminate the 2015 Plan and the Compensation Committee may amend any award thereunder, provided that no amendment will be made without shareholder approval if shareholder approval is required under applicable law, regulation or stock exchange rule. Amendments may not be made without shareholder approval if they (i) reprice an award in any manner that reduces the exercise price of any stock option or similar award; (ii) cancel, substitute, or repurchase any stock option or similar award in exchange for cash or other awards at a time when the exercise price of such stock option or similar award is higher than the fair market value of Company common stock (except as may be necessary to comply with a change in the laws, regulations or accounting principles of a foreign country applicable to participants subject to the laws of such foreign country); or (iii) increase the number of shares of common stock available under the 2015 Plan.

On March 30, 2015, the closing price of Altria’s common stock was $50.53.

 

The Board recommends a vote “FOR” approval of the

2015 Performance Incentive Plan.

 

ALTRIA GROUP, INC. – Proxy Statement    69


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PROPOSAL 3 – APPROVAL OF THE 2015 STOCK COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS

Introduction

The annual equity awards granted to our directors (see page 19) are made pursuant to the current Stock Compensation Plan for Non-Employee Directors, which was approved by shareholders in 2005 (“Stock Compensation Plan”). Under the terms of the Stock Compensation Plan, no awards can be made after the awards made immediately following the 2015 Annual Meeting. Consequently, on February 25, 2015, the Board adopted the 2015 Stock Compensation Plan for Non-Employee Directors (the “2015 Non-Employee Director Plan”), subject to approval of the Company’s shareholders. A copy of the 2015 Non-Employee Director Plan is attached to this Proxy Statement as Exhibit B.

The 2015 Non-Employee Director Plan is intended to be the successor to the Stock Compensation Plan. No awards can be made under the 2015 Non-Employee Director Plan unless it is approved by shareholders.

The purposes of the Plan are (i) to assist the Company in promoting the alignment of interest between the Company’s non-employee directors and the Company’s shareholders and (ii) to assist the Company in attracting and retaining non-employee directors by affording them an opportunity to share in the future successes of the Company.

Highlights of the 2015 Non-Employee Director Plan

The following table highlights key provisions of the 2015 Non-Employee Director Plan and the changes as compared to the current Stock Compensation Plan:

 

   2015 Non-Employee Director Plan Current Stock Compensation Plan

 Minimum Vesting  Period

 

12 months for awards not fully vested

at grant

 

6 months for awards not fully vested at grant

 

 Share Recycling

 

Prohibited

 

Permitted

 

 Option Repricing

 

Prohibited; the plan also includes a prohibition on the buy back, cancellation or substitution of underwater stock options or similar stock-based awards in exchange for cash or other stock awards without shareholder approval

 

Prohibited

 

Other key terms of the 2015 Non-Employee Director Plan remain the same as the current Stock Compensation Plan:

 

<

 Shares Available

 

1 million shares

 

 

 Duration

 

10 years

 

 Administration