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.        )

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General Mills, Inc.

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NOTICE OF

 

2011 ANNUAL MEETING OF STOCKHOLDERS

 

AND PROXY STATEMENT

 

Meeting Date:

 

Monday, September 26, 2011

at 11:00 a.m. (Central Daylight Time)

 

Meeting Place:

 

Children’s Theatre Company

2400 Third Avenue South

Minneapolis, Minnesota

 

 

 

 

August 10, 2011

 

Dear Stockholder:

 

It is my pleasure to invite you to the General Mills 2011 Annual Meeting of Stockholders. We will hold the meeting in the auditorium of the Children’s Theatre Company, 2400 Third Avenue South, Minneapolis, Minnesota, on Monday, September 26, 2011, at 11:00 a.m. Central Daylight Time. During the meeting, we will discuss each item of business described in this Proxy Statement, and we will give a current report on our business operations. There also will be time for questions. We expect the meeting to adjourn at about 12:15 p.m. We hope you will be able to attend the meeting.

 

Whether or not you expect to attend, please vote your proxy so your shares will be represented at the meeting.

 

Sincerely,

 

 

NOTICE OF

2011 ANNUAL MEETING OF STOCKHOLDERS

SEPTEMBER 26, 2011

 

August 10, 2011

 

Dear Stockholder:

 

The Annual Meeting of Stockholders of General Mills, Inc. will be held on Monday, September 26, 2011, at 11:00 a.m., Central Daylight Time, in the auditorium of the Children’s Theatre Company, 2400 Third Avenue South, Minneapolis, Minnesota. Stockholders will be asked to:

 

 

 

 

 

The record date for the Annual Meeting is July 28, 2011. If you held General Mills stock at the close of business on that date, you are entitled to vote at the Annual Meeting.

 

Your vote is important. We encourage you to vote by proxy, even if you plan to attend the meeting.

 

Sincerely,

 

 

 

 

TABLE OF CONTENTS

 

GENERAL MILLS, INC
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
MONDAY, SEPTEMBER 26, 2011

 

The board of directors of General Mills, Inc. (referred to as “General Mills,” “we,” “our,” “us” or the “company”) is soliciting proxies for use at the Annual Meeting of Stockholders to be held on September 26, 2011. This Proxy Statement summarizes the information you need to know to vote at the Annual Meeting. You do not need to attend the Annual Meeting to vote your shares. We first mailed or made available the proxy materials on or about August 10, 2011.

 

The 13 director nominees presented below are recommended for re-election to the board of directors. If unforeseen circumstances (such as death or disability) make it necessary for the board of directors to substitute another person for any of the nominees, the proxies will vote your shares for that other person unless you instruct us otherwise when you vote.

 

Our directors are elected annually by a majority of votes cast. If an incumbent director is not re-elected, the director must promptly offer his or her resignation to the board. The corporate governance committee will recommend to the board whether to accept or reject the resignation, and the board will disclose its decision and the rationale behind it within 90 days from the certification of the election results. If ever there are more director nominees than the number of directors to be elected, the directors will be elected by a plurality of the votes cast.

 

Our overall board composition guidelines require expertise in fields relevant to the business of the company and prioritize a breadth of experience from a variety of industries and from professional disciplines such as finance, academia, law and government. Our guidelines also include a policy of encouraging a diversity of gender, ethnicity, age and geographic location; and a range of tenures on the board to ensure both continuity and fresh perspective. The corporate governance committee periodically evaluates our progress against these guidelines in conjunction with its director search process. Final approval of director nominees is determined by the full board, based on the recommendation of the corporate governance committee.

 

We have well-defined selection criteria for individual directors that require independence, integrity, experience and sound judgment in areas relevant to our businesses, a proven record of accomplishment, willingness to speak one’s mind and commit sufficient time to the board, appreciation for the long-term interests of stockholders, the ability to challenge and stimulate management and the ability to work well with fellow directors.

 

As part of each director’s biography, we identify and describe key experiences, qualifications and skills that the director contributes to the board. While each director comes from a unique background, the overall composition of the board includes broad experience in a number of important areas, including:

 

 

 

 

The board of directors unanimously recommends a vote FOR each director nominee.

 

We have a long-standing commitment to good corporate governance practices. These practices provide an important framework within which our board of directors and management can pursue the strategic objectives of General Mills and ensure the company’s long-term vitality for the benefit of stockholders. The cornerstone of our practices is an independent and qualified board of directors. All directors are elected annually by a majority of votes cast by stockholders. All board committees are composed entirely of independent directors.

 

The board carefully evaluates each incoming director candidate based on selection criteria and overall priorities for board composition that are periodically re-examined by the corporate governance committee with input from the rest of the directors. As our directors’ commitments change, the board revisits their situations to ensure that they can continue to serve the best interests of the company and its stockholders. We also demand high standards of ethics from our directors and management as described in the director and employee codes of conduct.

 

Our governance principles are published on our website at www.generalmills.com in the “Investors” section. We have included some highlights from those principles below:

 

 

 

 

 

 

 

Effective as of May 31, 2011, Ms. Ochoa-Brillembourg sold her entire indirect stake in EMM.

 

The corporate governance committee is responsible for recommending candidates for election to our board of directors. For more information on overall board composition guidelines and selection criteria for individual directors, see Proposal Number 1 — Election of Directors. The corporate governance committee also reviews whether a potential candidate meets board and/or committee membership requirements imposed by law, regulation or stock exchange rules; recommends whether a potential candidate is independent and evaluates the potential for any conflict of interest between the director and General Mills.

 

Director nominees recommended by the corporate governance committee are subject to full board approval and election by stockholders at the annual meeting of stockholders. In October 2010, director nominee Steve Odland entered into a settlement agreement with the Securities and Exchange Commission (the “SEC”) in connection with an administrative order related to alleged non-compliance with SEC Regulation FD while Mr. Odland was the CEO of Office Depot, Inc. Regulation FD requires companies to disclose important information to all investors at the same time. Mr. Odland did not admit any wrongdoing as part of the settlement agreement. In considering Mr. Odland’s nomination, the corporate governance committee and the board of directors reviewed the facts and circumstances related to the SEC proceeding, and concluded that they do not raise any concerns about his ability to serve on the board. Mr. Odland is a valuable director and has demonstrated the highest degree of ethics and integrity while serving on our board of directors.

 

From time to time, the corporate governance committee retains a search firm to assist in identifying, evaluating and recruiting director candidates, based on specified criteria, and pays the firm a fee for these services. Suggestions also are received from board members and stockholders. Of the 13 directors

recommended for election at the 2011 Annual Meeting, all nominees were elected as directors at our 2010 Annual Meeting.

 

Stockholders who wish to suggest a candidate for our board of directors may submit a written recommendation to the Corporate Secretary, General Mills, Inc., P.O. Box 1113, Minneapolis, Minnesota 55440, along with the stockholder’s name, address and the number of General Mills shares beneficially owned; the name of the individual being recommended and number of General Mills shares beneficially owned by the candidate; the candidate’s biographical information describing experience and qualifications; a description of all agreements, arrangements or understandings between the stockholder and individual being recommended; and the candidate’s consent to serve as a director, if elected. The corporate governance committee may request that the stockholder provide certain additional information. For the board to consider a candidate for nomination at the 2012 Annual Meeting, stockholders should submit the required information to the Corporate Secretary by April 12, 2012.

 

The corporate governance committee will consider and evaluate stockholder-recommended candidates by applying the same criteria used to evaluate director-recommended candidates. If the corporate governance committee decides the candidate is suitable for board membership, the corporate governance committee will make a recommendation to the board of directors for its approval to include the candidate in the slate of directors nominated for election by stockholders in the Proxy Statement. During fiscal 2011, we received no director recommendations from our stockholders.

 

Under our By-laws, stockholders may also nominate a candidate for election at an annual meeting of stockholders. Our annual meeting is typically held on the fourth Monday in September. Stockholders who intend to present a nomination at our 2012 Annual Meeting are required to notify the Corporate Secretary in writing and provide the information described in our By-laws no earlier than May 29, 2012 and no later than June 28, 2012. Director nominees submitted through this process will be eligible for election at the 2012 Annual Meeting, but will not be included in proxy materials sent to stockholders prior to the meeting.

 

 

 

Raymond V. Gilmartin currently serves as the presiding director.

 

Enterprise Risk Management

 

The board believes that effective enterprise risk management must be an integral part of board and committee deliberations throughout the year.

 

 

Through these processes, the board oversees a system to identify, assess and address material risks to the company on a timely basis.

 

Compensation Risk Assessment

 

Management reviewed a risk assessment of the company’s employee compensation policies and practices, including those that apply to our executive officers, with the assistance of Frederic W. Cook & Co., Inc., the compensation committee’s independent consultant.

 

The risk assessment began with a mapping of the company’s incentive programs, by employee type and level as well as across business units. Management then analyzed the likelihood and magnitude of potential risks, focusing on program elements that may create risk, including pay mix, performance metrics, performance goals and payout curves, payment timing and adjustments, terms of equity incentives, change in control and severance arrangements, sufficiency of stock ownership policies, governance of compensation decisions and enterprise risks that may be created by compensation policies and practices. Management also considered our practices that mitigate risk.

 

Management discussed the findings of the risk assessment with the compensation committee. Based on the assessment, we have concluded that our compensation policies and practices are aligned with the interests of stockholders, appropriately reward pay for performance and do not create risks that are reasonably likely to have a material adverse effect on the company.

 

The board has five standing committees that are each composed entirely of independent directors. The corporate governance committee reviews committee and committee chair assignments annually, and recommends committee rosters to the full board after considering factors such as the directors’ business and corporate governance experience, their preferences, criteria for specific committee service, the directors’ other responsibilities and scheduling flexibility. Assignments are rotated to ensure that each committee has an appropriate mix of tenure and experience. Committee membership shown below is as of August 1, 2011:

 

 

Audit Committee

 

Number of meetings in fiscal 2011: Six

 

 

Compensation Committee

 

Number of meetings in fiscal 2011: Five

 

 

Corporate Governance Committee

 

Number of meetings in fiscal 2011: Three

 

 

Finance Committee

 

Number of meetings in fiscal 2011: Six

 

 

Public Responsibility Committee

 

Number of meetings in fiscal 2011: Three

 

 

A copy of each committee’s charter may be found on our website at www.generalmills.com in the “Investors” section under “Corporate Governance.”

 

Directors are expected to attend all board and committee meetings, as well as the annual meetings of stockholders, absent exigent circumstances. All but one of our 14 directors in office at the time attended the 2010 Annual Meeting of Stockholders. During fiscal 2011, the board of directors met six times and various committees of the board met a total of 23 times. All directors attended at least 75% of the aggregate total meetings of the board and board committees on which they served during fiscal 2011.

 

At the beginning of each fiscal year, the compensation committee reviews and approves compensation for our executive officers, with a view to incenting the achievement of superior financial results and appropriately aligning pay and performance. The committee approves changes to each component of executive officer compensation, including merit increases to base salary, annual incentive awards for the prior fiscal year’s performance, long-term incentive equity awards and performance objectives for the next fiscal year. For the Chief Executive Officer, the board reviews and approves the committee’s recommendations.

 

Fredric W. Cook & Co., Inc., the committee’s independent compensation consultant, and management play integral roles in the compensation-setting process. The compensation committee actively works with the independent compensation consultant to formulate compensation decisions for our Chief Executive Officer. Management, with the oversight of the independent compensation consultant, makes recommendations to the committee for the rest of the executive officers. In addition to management’s and the consultant’s recommendations, which are accompanied by competitive market data from the consumer packaged goods industry peer group, the compensation committee bases its decisions on corporate performance as measured by our incentive programs; for the Chief Executive Officer, the committee’s evaluation of his performance against the fiscal year’s objectives; and for other executive officers, the recommendations of the Chief Executive Officer. The committee also uses tally sheets to evaluate proposed pay actions for each executive officer in the context of their overall compensation, including actual and projected annual compensation and benefits, fiscal year stock gains, five-year cumulative total gross earnings, accumulated stock award values, retirement balances and termination benefits.

 

The compensation committee conducts a performance assessment for the Chief Executive Officer that includes input from all independent non-employee directors. In an executive session, the chair of the compensation committee leads independent non-employee directors through a review of the Chief Executive Officer’s annual accomplishments, review and approval of compensation actions recommended by the compensation committee and review of performance objectives for the next fiscal year. Following the executive session, the chair of the compensation committee communicates the results of the evaluation to the Chief Executive Officer.

 

The independent compensation consultant periodically conducts a detailed review of the consumer packaged goods industry peer group and internal equity comparisons to support the compensation committee’s review process, including benchmarking on pay philosophies, compensation elements separately and in total, and incentive mix. The independent compensation consultant advises the compensation committee on director and executive compensation, but performs no other services for General Mills.

 

A representative of the independent compensation consultant attends compensation committee meetings from time to time to serve as a resource for the committee. In order to encourage independent review and discussion of executive compensation matters, the compensation committee and the committee chair may request meetings with the independent compensation consultant in executive session without management present.

 

The compensation committee has sole authority to retain or replace the independent compensation consultant. In order to maintain consultant independence, compensation committee pre-approval is required for all services performed by the independent compensation consultant.

 

We have adopted a code of conduct applicable to all employees, including our principal executive officer, principal financial officer and principal accounting officer, and a code of conduct applicable to our directors. The codes of conduct are available on our website at www.generalmills.com.

 

The audit committee of the board of directors has established procedures for employees, stockholders, vendors and others to communicate concerns about our ethical conduct or business practices, including

accounting, internal controls or financial reporting issues, to the audit committee, which has responsibility for these matters.

 

Interested parties may directly contact any of our directors, any committee of the board, the board’s non-employee directors as a group, the presiding director, or the board generally, by writing to them at General Mills, Inc., P.O. Box 1113, Minneapolis, Minnesota 55440 or via e-mail at boardofdirectors@genmills.com. The board of directors has instructed the Corporate Secretary to distribute communications to the director or directors, after ascertaining whether the communications are appropriate to duties and responsibilities of the board. The board has requested that the Corporate Secretary not forward the following types of communications: general surveys and mailings to solicit business or advertise products; job applications or resumes; product inquiries or complaints; new product suggestions; or any material that is threatening, illegal or does not relate to the responsibilities of the board.

 

We structure director compensation to attract and retain qualified non-employee directors and to further align the interests of directors with the interests of stockholders.

 

Determining Director Compensation.  The compensation committee periodically reviews surveys of non-employee director compensation trends and a competitive analysis of peer company practices prepared by the independent compensation consultant. The committee makes recommendations to the board of directors on compensation for our non-employee directors, including their retainers and annual equity awards. Each component of director compensation is described below.

 

Annual Retainer.  Non-employee directors each receive an annual retainer of $75,000. The chair of the audit committee receives an additional $15,000, chairs of other committees receive an additional $10,000, and other audit committee members receive an additional $5,000. We do not pay any additional fees for attending or chairing a meeting. We pay annual retainers in quarterly installments. Directors can elect to have their retainers paid in cash and/or common stock.

 

Stock Ownership Policy.  A substantial portion of director compensation is linked to our stock performance, and directors can elect to receive their entire board remuneration in stock and stock-related compensation. Our policy requires that directors keep all of the shares that they receive as compensation until they own shares equal in market value to at least five-times their annual retainer. As of July 28, 2011, all non-employee directors had met or exceeded these stock ownership requirements, except for those directors who were elected within the past three years and who are still accumulating shares.

 

Restricted Stock Units.  Upon attending their first board meeting and at each re-election, each non-employee director receives restricted stock units with a value of $90,000. The number of restricted stock units is determined based on the closing price of our common stock on the New York Stock Exchange on the date of the grant. Restricted stock units are granted under the 2006 Compensation Plan for Non-Employee Directors. The restricted stock units vest at the next annual meeting of stockholders. Directors who leave the board prior to vesting forfeit their restricted stock units. In the event an active director dies, his or her restricted stock units fully vest. Restricted stock units earn amounts equivalent to the regular dividend payments on our common stock. These amounts can be reinvested in additional stock units or paid to the director. Under the proposed 2011 Directors’ Plan, dividend equivalents will be distributed only to the extent the underlying restricted stock units vest.

 

Stock Options.  Upon attending their first board meeting and at each re-election, each non-employee director receives stock options to purchase a certain number of shares for every restricted stock unit that they receive. This award may be periodically re-adjusted with the intent that 50% of the value of their equity award is delivered in stock options, and 50% of the value is delivered in restricted stock units. Options are granted under the 2006 Compensation Plan for Non-Employee Directors. The exercise price is equal to the closing price of our common stock on the New York Stock Exchange on the date of grant. The options become exercisable at the next annual meeting of stockholders and expire 10 years after grant. Directors who leave the board prior to vesting forfeit their unvested options. In the event an active director dies, the options fully vest and remain exercisable by the directors’ estate for the remainder of the option’s full term.

 

Deferred Compensation.  Non-employee directors may defer their retainers and restricted stock units. We credit any deferred cash retainers with earnings based on a director’s selection from a group of funds offered to employees participating in our Deferred Compensation Plan. One of these funds tracks the return on our common stock. Earnings credited are not above-market or preferential. The value of deferred retainers paid in shares of our common stock and deferred restricted stock units tracks our common stock performance.

 

Other Benefits.  We have a Planned Gift Program for Directors (the “Planned Gift Program”) that has been discontinued for all directors elected after fiscal 2006. The Planned Gift Program is funded by General Mills-paid life insurance policies on each participating director. Upon the death of a participating director, we donate $1 million to a qualifying charity recommended by the director, and we receive the entire charitable deduction.

We then receive the life insurance proceeds. We have calculated the change in the accrued liability for the benefit in fiscal 2011 and included it under footnote 4, All Other Compensation.

 

The General Mills Foundation matches charitable contributions made by directors of up to $15,000 in each calendar year to eligible colleges, secondary and elementary schools, and up to $15,000 to eligible art and cultural organizations.

 

The fiscal 2011 compensation of our non-employee directors is shown in the following table.

 

DIRECTOR COMPENSATION FOR FISCAL 2011

 

 

 

All Other Compensation

 

 

 

 

The following table shows the amount of General Mills common stock beneficially owned by (a) each director and director nominee, (b) each named executive officer listed in the Summary Compensation Table, (c) all directors, director nominees and executive officers as a group and (d) each person or group owning more than 5% of our outstanding shares on the dates indicated. Unless otherwise noted, all amounts are as of July 28, 2011, and the stockholders listed in the table have sole voting and investment power with respect to the shares owned by them.

 

 

 

 

Based on a review of reports filed with the SEC by our directors and executive officers regarding their ownership and transactions in our common stock and written representations from those directors and officers, we believe that each director and executive officer has filed timely reports under Section 16(a) of the Securities Exchange Act of 1934 during fiscal 2011, except that due to administrative errors, each of our executive officers filed a late report for a stock award. John R. Church, our Senior Vice President, Supply Chain, also filed a late report for a purchase of common stock.

 

Introduction

 

Stockholders are asked to vote to approve the General Mills, Inc. 2011 Stock Compensation Plan (the “2011 Plan”). The 2011 Plan would replace the General Mills, Inc. 2009 Stock Compensation Plan (the “2009 Plan”), which terminates according to its terms on December 31, 2011. If stockholders approve the 2011 Plan, we will issue no additional shares under the 2009 Plan. Shares which are forfeited, cancelled or terminated under the 2009 Plan (or other prior plans) will not be available for future grant.

 

The purpose of the 2011 Plan is to provide a compensation program that:

 

 

The company has long had an ownership culture in which its managers are required to build and hold significant amounts of General Mills stock over the course of their careers, thereby aligning their interests with those of non-employee stockholders. We require senior vice presidents and above to own more than five-times their base salary in company stock, and the stock ownership target for the Chief Executive Officer is double this amount (ten-times base salary); actual stock ownership by senior executives on average is double these ownership expectations. We have the longest vesting period for stock options and restricted stock units granted to managers in the consumer packaged goods industry (four-year cliff vesting versus the three-year ratable vesting which is the most common industry practice). Our managers hold their stock options for the longest period of time relative to their peers in the consumer packaged goods industry, with the average stock option held for eight years of its ten-year term, and with an unusually high percentage of stock options not exercised until well into the final year.

 

The company provides the stock compensation program to approximately 2,800 employees worldwide who are at a senior manager, director or officer level, which is approximately 15% of all employees in professional positions. In addition to the annual awards, we pay a portion of annual incentives in restricted stock units, which help motivate long-term performance.

 

Since the adoption of the 2009 Plan, which stockholders approved by a 75% vote, General Mills has made important progress in all four of its key Corporate Performance Measures: net sales growth, segment operating profit growth, earnings per share growth, and improvement in return on average total capital. During the same time period, voluntary professional turnover for our more than 2,800 stock plan participants has been below 4% per year, which is less than half the rate of turnover experienced by other major companies. We believe the ownership culture at General Mills motivates the achievement of superior company performance, and also plays an essential role in retaining top talent.

 

To continue the financial performance that has been achieved over the life of the expiring 2009 Plan, it is important that stockholders approve the 2011 Plan to ensure the company has sufficient shares authorized for issuance under our compensation plans. Highlights from the recommended 2011 Plan are as follows:

 

 

 

 

General Mills has significantly reduced both its annual share usage and its stock overhang during the terms of the 2007 and 2009 Plans. Annual share usage (as a percent of shares outstanding) continues to decline since the adoption of the 2009 Plan to a current annual target level of 1.2% and a maximum limit of 2.0%. Our stock overhang (options outstanding plus shares available for a grant, as a percent of shares outstanding) has been reduced by approximately 30% since the adoption of the 2009 Plan, and is currently 12%. In addition, 20% of total

stock options outstanding will expire within 18 months of the 2011 Annual Meeting, further reducing our stock overhang by another 2%. A portion of these options that will expire in the next 18 months are the last grants issued as part of the legacy all-employee grant and salary replacement programs that are no longer in place.

 

Summary of Material Features of the 2011 Plan

 

The summary of the material features of the 2011 Plan that follows is subject to the full text of the 2011 Plan that is contained in Appendix B to this Proxy Statement.

 

 

U.S. Federal Income Tax Consequences

 

Stock Options and Stock Appreciation Rights.  Generally, no federal income tax is payable by a participant upon the grant of a stock option or stock appreciation right and we are not entitled to claim a tax deduction upon the grant. Under current tax laws, if a participant exercises a non-qualified stock option or stock appreciation right he or she will be taxed at ordinary income rates on the difference between the fair market value of the common stock on the exercise date and the option price or, in the case of a stock appreciation right, the fair market value of the stock on the date of grant. The company will be entitled to a corresponding deduction at the time the participant recognizes ordinary income, to the extent that the amount of income satisfies the general rules regarding deductibility of compensation, including those in Section 162(m) of the Internal Revenue Code.

 

Performance Awards, Restricted Stock and Restricted Stock Units.  Performance awards and awards of restricted stock and restricted stock units under the 2011 Plan generally are not subject to federal income tax

when awarded and the company is not entitled to claim a tax deduction at the time of the award. Restricted stock is generally subject to ordinary income tax at the time the restrictions lapse, unless the participant properly files an election with the Internal Revenue Service to accelerate tax recognition to the date of the award. Performance awards and restricted stock units are generally subject to ordinary income tax at the time of payment. Any dividends or dividend equivalents received with respect to restricted stock, restricted stock units, or performance awards will be taxable as ordinary income at the time of payment. In these cases, the company is entitled to a corresponding deduction at the time the participant recognizes ordinary income, to the extent that the amount of income satisfies the general rules regarding deductibility of compensation, including those in Section 162(m) of the Internal Revenue Code.

 

Unrestricted Stock.  For grants of unrestricted stock made under the 2011 Plan, the participant must recognize ordinary income equal to the excess of the fair market value of the shares received (determined as of the date of receipt) over the amount, if any, paid for the shares. The company will be entitled to a corresponding deduction at the time the participant recognizes ordinary income, to the extent that the amount of income satisfies the general rules regarding deductibility of compensation, including those in Section 162(m) of the Internal Revenue Code.

 

Application of Section 16.  Special rules may apply in the case of participants subject to Section 16(b) of the Securities Exchange Act of 1934. Unless a special election with the Internal Revenue Service to accelerate tax recognition to the time of exercise is made under the tax laws, shares of stock acquired pursuant to an award may be treated as restricted for a period of up to six months after the date of exercise. Accordingly, the amount of ordinary income recognized, and the amount of the company’s deduction, may be determined based on the fair market value of the stock as of the end of that period.

 

Taxable ordinary income recognized by a participant upon exercise of a stock option or stock appreciation right; lapse of restrictions on restricted stock or restricted stock units; and payment of a performance award, dividend or dividend equivalent will be treated as wages subject to income and employment tax withholding. With respect to stock awards other than stock options or stock appreciation rights, employment taxes (e.g., FICA) are generally payable upon lapse of applicable forfeiture restrictions, even if payment of underlying shares occurs at a later date.

 

The 2011 Plan is intended to comply with Section 409A of the Internal Revenue Code.

 

New Plan Benefits

 

No benefits or amounts have been granted, awarded or received under the 2011 Plan that were subject to stockholder approval. In addition, the compensation committee will determine the number and types of awards that will be granted under the 2011 Plan. Thus, it is not possible to determine the benefits that will be received by eligible participants if the 2011 Plan is approved by our stockholders.

 

The board of directors unanimously recommends a vote FOR the adoption of the General Mills, Inc. 2011 Stock Compensation Plan.

 

Introduction

 

Stockholders are asked to vote to approve the General Mills, Inc. 2011 Compensation Plan for Non-Employee Directors (the “2011 Directors’ Plan”). The 2011 Directors’ Plan is intended to replace the General Mills, Inc. 2006 Compensation Plan for Non-Employee Directors (the “2006 Directors’ Plan”), which terminates on September 30, 2011.

 

The purpose of the 2011 Directors’ Plan is to provide a compensation program that:

 

 

Highlights from the recommended 2011 Directors’ Plan are as follows:

 

 

Summary of Material Features of the 2011 Directors’ Plan

 

The summary of the material features of the 2011 Directors’ Plan that follows is subject to the full text of the 2011 Directors’ Plan that is contained in Appendix C to this Proxy Statement.

 

 

U.S. Federal Income Tax Consequences

 

Cash Retainers.  Cash retainers result in ordinary income to the non-employee director, and a corresponding deduction to the company, when paid. If a non-employee director elects pursuant to the terms of the 2011 Directors’ Plan to defer payment of cash retainers, the director will recognize taxable ordinary income, and the company will receive a corresponding deduction, at the time when the deferred payment is made.

 

Stock Options.  Stock options granted under the 2011 Directors’ Plan will be non-qualified options governed by Section 83 of the Internal Revenue Code. The grant of options will not result in taxable income to the non-employee director or a tax deduction for the company. Under current tax law the exercise of an option will result in taxable ordinary income to the non-employee director and a corresponding deduction to the company, equal to the difference between the fair market value of the shares on the date the option was granted and the fair market value of those shares on the date the option was exercised.

 

Restricted Stock Units.  The grant of restricted stock units will not result in taxable income to the non-employee director or a tax deduction for the company. At the time the shares underlying restricted stock units are paid, a non-employee director will recognize taxable ordinary income and the company will receive a corresponding deduction, equal to the fair market value of those shares on the date payment is made. If a non-employee director elects pursuant to the terms of the 2011 Directors’ Plan to defer payment of restricted stock units beyond the vesting date, the director will recognize taxable ordinary income, and the company will receive a corresponding deduction, at the time when the deferred payment is made in an amount equal to the fair market value of the shares received as of that time.

 

Application of Section 16.  Special rules may apply to individuals, including non-employee directors, subject to Section 16 of the Securities Exchange Act of 1934 if they purchase shares of our stock in a transaction that is not exempt under Section 16 within six months of an option exercise or the vesting or deferred payment date of stock restricted units. In that case, unless a special election is made pursuant to the Internal Revenue Code, shares received through exercise of a stock option, vesting or deferred payment of restricted stock units may be treated as restricted as to transferability and subject to a substantial risk of forfeiture for a period of up to six months after the date of exercise, vesting or deferred payment. Accordingly, the amount of any ordinary income recognized, and the amount of the company’s deduction, are determined based on the fair market value of the shares as of the end of that period.

 

Non-employee directors are responsible for the payment of all federal, state and local taxes, including those of any jurisdiction outside the United States, in respect of awards under the 2011 Directors’ Plan.

 

The Plan is intended to comply with Section 409A of the Internal Revenue Code.

New Plan Benefits

 

If our stockholders approve the 2011 Directors’ Plan, we will use the Plan to pay retainer fees and make awards of stock options and restricted stock units to our non-employee directors as of the 2011 Annual Meeting. The compensation committee has discretion to determine the amount, number and types of awards that will be granted under the 2011 Directors’ Plan. The current terms of these awards and payments are described under Director Compensation and Benefits.

 

The Board of Directors unanimously recommends a vote FOR adoption of the General Mills, Inc. 2011 Compensation Plan for Non-Employee Directors.

 

The following table provides certain information as of May 29, 2011 with respect to our equity compensation plans.

 

 

 

 

 

 

However, no additional shares will be issued under the 2009 Stock Compensation Plan after the 2011 Annual Meeting if the 2011 Stock Compensation Plan is approved. A total of 1,221,625 cash-settled restricted stock units have been granted under the 2009 Stock Compensation Plan. They did not reduce the number of shares available for other awards.

 

Our common shares outstanding as of July 28, 2011, the record date for the 2011 Annual Meeting, was approximately 646,597,602 shares. The number of common shares outstanding as of the record date reflects reductions as a result of share repurchases from May through July.

 

The compensation committee of the company has reviewed and discussed the following Compensation Discussion and Analysis with management and, based on such review and discussions, the compensation committee recommended to the board that the Compensation Discussion and Analysis be included in this Proxy Statement and in our annual report on Form 10-K for the fiscal year ended May 29, 2011.

 

SUBMITTED BY THE COMPENSATION COMMITTEE

 

Michael D. Rose, Chair

Bradbury H. Anderson

R. Kerry Clark

Raymond V. Gilmartin

 

Executive Summary of Fiscal 2011 Company Performance and Compensation Actions

 

General Mills strives to achieve financial performance that consistently ranks in the top quartile of results from our consumer packaged goods industry peer group, and to deliver superior returns to our stockholders in terms of stock price appreciation and dividends. Our research indicates that food companies in our industry peer group with the highest five-year total stockholder return are those with the most consistent performance in terms of sales growth, profit growth, and return on average total capital improvement. As a result, since fiscal 2006, we have measured our financial performance, and calculated our pay-for-performance incentive compensation, using these Corporate Performance Measures. Our consumer packaged goods industry peer group is described on page 35.

 

Overall, fiscal 2011 presented a challenging operating environment for food manufacturers, reflecting the return and rapid acceleration of cost inflation for various food ingredients and energy. We continued to focus on our five key drivers for continued long-term growth: innovation, brand-building, leading customer growth, international expansion, and margin expansion. Following five years of top quartile results versus our consumer packaged goods industry peer group, our fiscal 2011 financial performance fell slightly below the median performance range established at the start of the fiscal year for our Corporate Performance Measures. Fiscal 2011 performance results included: +8% adjusted earnings per share growth, +2% net sales growth, +4% segment operating profit growth, and flat adjusted return on average total capital. These financial results are reflective of strong results in our international and bakeries and foodservice segments, with a more challenging year for U.S. retail operations following a superior fiscal 2010. In order to ensure that our ongoing performance is evaluated in a manner that reflects the year-over-year growth in underlying results, these fiscal 2011 performance results reflect adjustments for certain items affecting comparability as described on page 40.

 

Fiscal 2011 continued our trend of strong returns to General Mills stockholders. For the year, the General Mills stock price appreciated 10% to reach nearly $40 per share. Stock price appreciation plus reinvested dividends represented a 14% one-year total return to stockholders in fiscal 2011. Although this was below the comparable return for the S&P 500 and the return for our consumer packaged goods industry peer group, it followed our superior 43% one-year total return to stockholders in fiscal 2010. Over the past three years, General Mills has produced an annualized total return to stockholders of 12%. This is well above the 1% three-year return for the S&P 500 and above the 10% three-year return of our consumer packaged goods industry peer group. In recognition of our consistent long-term business growth and stock performance, we declared a 2-for-1 stock split at the end of fiscal 2010.

 

The compensation committee believes that the company’s long-standing executive compensation programs have been effective at incenting the achievement of superior results, appropriately aligning pay and performance, creating an ownership culture in which company managers think and act like stockholders,

and enabling General Mills to attract and retain some of the most talented executives in the global consumer packaged goods industry.

 

The compensation committee and board of directors, with counsel from their independent compensation consultant Frederic W. Cook & Co., Inc., took the following actions in fiscal 2011:

 

 

The tables below outline the year-over-year change in performance-based (at risk) compensation for our Chairman and Chief Executive Officer:

 

 

 

 

The table below outlines the year-over-year change in base salary earnings for our Chairman and Chief Executive Officer:

 

 

 

Compensation Philosophy and Principles

 

General Mills’ guiding philosophy is to maintain a compensation system that will attract, motivate, reward and retain competitively superior leaders who are able consistently to achieve corporate performance and total

stockholder return that is in the top tier of the consumer packaged goods industry peer group. The compensation committee bases its compensation decisions on the following core principles:

 

 

 

 

Consumer Packaged Goods Industry Peer Group

 

The compensation committee, with the assistance of management and the independent compensation consultant, benchmarks our performance and compensation against the consumer packaged goods industry peer group, a group of major consumer packaged goods companies, which we sometimes refer to as the “industry peer group.” The industry peer group was established using the following five selection criteria:

 

 

As shown below, the median annual revenues and total assets for the 16 companies in this industry peer group are comparable to those of General Mills. The compensation committee annually reviews the composition of this industry peer group to assure it is the most relevant set of companies to use for comparison purposes. The peer groups utilized for comparisons of performance and compensation are identical with the exception of three European companies (Nestlé, Unilever and Danone) that are in the consumer packaged goods industry peer group but excluded from compensation comparisons, due to the lack

of publicly available pay information. The U.S. companies in the consumer packaged goods industry peer group that we use for compensation comparisons are sometimes referred to as the “compensation peer group.”

 

The following companies comprise the consumer packaged goods industry peer group:

 

 

 

Source: Standard & Poor’s Capital IQ

 * As of and for the most recent fiscal year

** As of May 29, 2011

 

The compensation committee annually reviews comparisons of General Mills’ compensation under various performance scenarios versus compensation peer group practices to ensure our programs function consistently with our compensation philosophy and principles. Based upon these reviews, the compensation committee believes that the compensation paid to General Mills’ named executive officers is reasonable and appropriate.

 

Elements of the General Mills Total Rewards Program

 

During fiscal 2011, the General Mills executive pay program elements consisted of base salary, annual incentive, long-term incentive, broad-based benefits and other perquisites. The Chief Executive Officer and other named executive officers participate in most of the same benefit programs and are subject to the same policies in all material respects as all company officers.

 

In the following table, we have outlined our main objectives regarding:

 

 

Pay and Performance Relationship

 

When determining executive compensation, General Mills achieves its strong performance orientation through aligning total direct compensation (base salary; annual incentive, including cash and restricted stock unit (RSU) match portions; and long-term incentive) with the company’s performance. We evaluate our performance against specific financial goals that are calibrated against performance by the consumer packaged goods industry peer group. Base salary, broad-based benefits and perquisites are the only elements that do not vary annually based upon company performance versus performance goals. Between 80% and 88% of total direct compensation for our named executive officers is performance-based, assuming a median-level of performance, as shown in the charts below.

 

 

Performance Measurement

 

The annual Corporate Performance Rating, as reviewed and approved by the compensation committee, is used in calculations to determine both the annual incentive and long-term incentive awards for the named executive officers. At the beginning of each new fiscal year, a performance grid is established using our four Corporate Performance Measures: net sales growth, segment operating profit growth, earnings per share growth, and return on average total capital improvement. These four metrics are equally weighted (25% for each metric) and have been chosen due to their demonstrated alignment with total stockholder return.

 

General Mills’ performance-based compensation plans are designed so that there is not a specific target level of performance. Instead, there is a range of performance goals that correspond to a range of compensation payouts. In determining the specific performance range for each year, the compensation committee generally reviews two-year and five-year historical compound annual growth rates achieved by companies in the consumer packaged goods industry peer group in order to predict peer group performance levels for the next fiscal year. Some judgment is applied for items significantly affecting comparability of reported rates of growth (for example, significant acquisitions or divestitures).

 

Our Corporate Performance Rating on each metric can vary from 0 to 1.80. The ranges for each metric are set at the beginning of the fiscal year with the following goals in mind:

 

Performance Results

 

The company’s annual Corporate Performance Ratings can vary significantly based on the company’s performance in the fiscal year. One way to assess how difficult or likely it would be for the company to achieve incentive goals is to look at historical results. In the past 10 years (fiscal years 2001 through 2011), Corporate Performance Ratings have ranged from a low of 1.16 to a high of 1.80. In the past 20 years (fiscal years 1992 through 2011), Corporate Performance Ratings have ranged from 0 to 1.80. Over this 20-year period, annual Corporate Performance Ratings have averaged 1.49.

 

Fiscal 2011 results on the four Corporate Performance Measures are set forth below and led to a 1.28 Corporate Performance Rating.

 

 

 

Total Stockholder Return

 

The graph below demonstrates that the company’s financial performance has resulted in returns to General Mills stockholders for the last three fiscal years that were well above the total returns delivered by an index of our consumer packaged goods industry peer group and the Standard & Poor’s 500 Index.

 

Source: Bloomberg

 

Performance-Based Compensation

 

There is a significant difference in total direct compensation (base salary; annual incentive, including cash and restricted stock unit (RSU) match portions; and long-term incentive) paid to the named executive officers when the company has superior performance (resulting in a 1.80 Corporate Performance Rating) versus significantly below intended performance (resulting in a 1.00 Corporate Performance Rating). The charts below demonstrate the fiscal 2011 range of performance goals and corresponding range of total direct compensation for our Chairman and Chief Executive Officer, Kendall J. Powell. The column “Superior Performance (1.80 Rating)” presents the maximum payout. If performance fell below the level indicated under “Significantly Below Intended Performance (1.00 Rating),” total direct compensation similarly would fall below the level indicated in the bar chart, and long-term incentive award values would likely not deliver the estimated grant values.

 

 

 

Annual Incentive Awards

 

General Mills has an Executive Incentive Plan that provides the named executive officers with an opportunity to earn an annual incentive award that is paid partially in cash. Stockholders approved this plan at the 2010 Annual Meeting. The balance of the annual incentive award is paid in a restricted stock unit match from the 2009 Stock Compensation Plan that requires deposit of an equivalent number of personally-owned shares for the duration of the vesting period.

For the named executive officers, the value of the restricted stock unit match is equal to 30% of their cash incentive award. The restricted stock unit match can be increased or decreased by as much as 30% based on the Corporate Performance Rating for that fiscal year. In contrast to fiscal 2010, when there was a 26% increase in grant size due to superior performance, there was a 2% decrease in grant size in fiscal 2011 based on the 1.28 Corporate Performance Rating, which is slightly below the 1.30 to 1.50 range of Corporate Performance Ratings associated with estimated median performance for the consumer packaged goods industry peer group.

 

For the five named executive officers, annual incentive cash awards are determined according to the formulas described below. Annual incentive awards for the named executive officers can vary greatly from year to year based on the Corporate Performance Rating, which can range from 0 to 1.80; and the executive’s Individual Performance Rating, which can range from 0 to 1.50.

 

* 45%-85% based on level of responsibility

 

 

 

Individual Performance Ratings are based on the achievement of specific annual objectives such as business goals, financial and operating results, completion of strategic initiatives, the quality of business plans, organizational development progress in important areas like diversity and employee development, and demonstration of leadership. The full board approves the Chief Executive Officer’s Individual Performance Rating, and the compensation committee approves the ratings for the other named executive officers.

 

The restricted stock unit match portion of the annual incentive vests 100% four years after the grant date. To be eligible to receive these restricted stock units, each named executive officer must put an equal number of personally-owned shares of General Mills stock on deposit until the end of the restriction period in order for the restricted stock units to vest. Restricted stock units earn dividend equivalents equal to regular dividends paid on our common stock, which are distributed only to the extent the underlying restricted stock units vest. For awards made prior to June 2009, dividend equivalents are paid quarterly in cash.

 

Long-Term Incentive Awards and Special Awards

 

A significant portion of the named executive officers’ pay opportunity is provided through long-term incentive awards granted under the 2009 Stock Compensation Plan. We will continue to grant these awards under the 2011 Stock Compensation Plan if it is approved by the stockholders at the 2011 Annual Meeting.

 

Awards for each fiscal year are granted annually in June just after fiscal year end. The size of the awards is periodically benchmarked against the long-term incentive awards made by compensation peer group companies to executives holding comparable positions. Each named executive officer’s standard award can be increased or decreased by as much as 30% based on the Corporate Performance Rating for the fiscal year. In contrast to fiscal 2010, when there was a 26% increase in grant size due to superior performance, there was a 2% decrease in grant size in fiscal 2011 based on the 1.28 Corporate Performance Rating, which is slightly below the

1.30 to 1.50 range of Corporate Performance Ratings associated with estimated median performance for the consumer packaged goods industry peer group.

 

The value of our long-term incentive awards is delivered 50% in stock options and 50% in restricted stock units. Executives can elect a greater portion in restricted stock units up to a maximum of 75% of the total award value. The restricted stock units vest 100% four years after the grant date. The restricted stock units earn dividend equivalents equal to regular dividends paid on our common stock, which are distributed only to the extent the underlying restricted stock units vest. For awards made prior to June 2009, dividend equivalents are paid quarterly in cash.

 

The options issued as part of the long-term incentive awards granted for fiscal 2011 performance also vest 100% four years after the grant date. The exercise price per share equals the closing price of our common stock on the New York Stock Exchange on the grant date. The options generally expire 10 years and one month from the grant date. They include the right to pay the exercise price in cash or previously acquired common stock and the right to have shares withheld by the company to pay withholding tax obligations due upon exercise.

 

Special off-cycle restricted stock unit awards are made periodically by the compensation committee to named executive officers. At vesting, the awards will be settled in stock. The restricted stock units earn dividend equivalents equal to regular dividends paid on our common stock, which are distributed only to the extent the underlying restricted stock units vest.

 

The current 2009 Stock Compensation Plan expires in 2011, and we are asking that stockholders approve a new plan at this time. See Proposal Number 2 — Adoption of the 2011 Stock Compensation Plan.

 

CEO Performance and Compensation

 

Based on the most recent proxy analysis conducted by the independent compensation consultant, Mr. Powell’s total direct compensation for fiscal 2011 is positioned at the 25th percentile of chief executive officer compensation for U.S. companies in the consumer packaged goods industry peer group.

 

At the beginning of fiscal 2011, Mr. Powell’s base salary and base incentive rate were increased to a more competitive level following the completion of the competitive market compensation assessment by the independent consultant and following his superior performance in fiscal 2010. His base salary was increased on August 1, 2010 from $984,000 to $1,075,000, and his base incentive rate was increased from 75% to 85%.

 

In assessing Mr. Powell’s individual performance for fiscal 2011, the compensation committee solicited written feedback from all non-employee directors and subsequently discussed the consolidated input with all non-employee directors in executive session. The criteria used to measure Mr. Powell’s performance included: the company’s financial and operational performance for fiscal 2011, his overall level of leadership, and his continued ability to develop and implement strategies to enhance stockholder value. The compensation committee also considered Mr. Powell’s performance against his pre-established fiscal year objectives in a number of additional areas such as brand building, key customer initiatives, international expansion, marketplace innovation, margin expansion, productivity improvement, organizational development, diversity, and external and stockholder relations.

 

At the end of fiscal 2011, based on the board’s annual assessment of his performance, the compensation committee recommended, and the full board of directors approved, the following compensation actions:

 

 

 

The table below outlines the total direct compensation paid to Mr. Powell and its relative positioning.

 

 

Compensation Policies

 

Stock Ownership Requirements

 

Management reviewed the stock ownership guidelines that have been in place since 1991 and, with the compensation committee’s approval, updated the policy to reflect best practices while maintaining aggressive minimum holding requirements for our executives versus our consumer packaged goods industry peer group and the broader industry. Minimum ownership requirements remain at ten times salary for the chief executive officer, five times salary for other named executive officers and three times salary for all other corporate officers. Newly-hired or promoted executives are given five years to attain the ownership target. As of fiscal 2011, executives are no longer able to consider the after-tax value of vested, unexercised stock option gains in the overall computation of executive stock ownership. As of July 28, 2011, all of our named executive officers had stock ownership levels at or above their respective ownership requirements. Stock ownership includes direct and family owned shares of stock, deferred stock units, unvested restricted stock units, and stock units held in the General Mills 401(k).

 

 

Our high level of executive stock ownership is a result of several factors, including strong retention of executive talent (unwanted turnover of the top 500 managers is typically less than 1% annually), longer stock vesting requirements than any company in our compensation peer group (awards vest 100% four years from the grant date), and the restricted stock unit match, which requires that executives deposit an equivalent number of personally-owned shares for the four-year vesting period. In addition, most executives at General Mills hold their stock options for eight years or longer before exercising.

 

Stock Compensation Award Approval

 

We have strict administrative guidelines on the timing and approval of stock compensation awards. The compensation committee pre-approves all awards to senior vice presidents and higher-level executive officers, and the board pre-approves awards to the Chief Executive Officer. They typically approve these awards at the regularly scheduled June board meeting, when the rest of the annual and long-term incentive awards are granted to our employees. Under the terms of the 2009 Stock Compensation Plan and the proposed 2011 Stock Compensation Plan, the company cannot grant stock options at a discount to fair market value on the grant date. Except for the annual June grant, awards to executive officers may not be approved during trading blackout periods.

 

Independent Compensation Consultant Engagement

 

The compensation committee has a policy for engagement of the committee’s independent compensation consultant, in order to ensure the consultant’s continuing independence and its accountability to the committee. The compensation committee has the sole authority to retain or replace the independent compensation consultant. Compensation committee approval is required prior to the company retaining the independent compensation consultant for any executive compensation services or other consulting services or products above an aggregate annual amount of $25,000. In accordance with the policy, the compensation committee continued its relationship with the firm of Frederic W. Cook & Co., Inc. as its independent compensation consultant for fiscal 2011. This firm advises the compensation committee on executive and director compensation but performs no other services for the company.

 

Executive Compensation Clawback Policy

 

In the event the company is required to restate financial results due to fraud, intentional misconduct, gross negligence or otherwise, the compensation committee may adjust the future compensation, cancel outstanding stock or performance-based awards, or seek recoupment of previous awards from company officers whose conduct contributed significantly to a financial restatement. Also, the compensation committee may take action

where it reasonably believes the company’s Employee Code of Conduct or the terms of a separation agreement have been violated.

 

Tax Deductibility of Compensation

 

Our Executive Incentive Plan, the 2009 Stock Compensation Plan, and the proposed 2011 Stock Compensation Plan have each been structured with the intention that cash incentive payments, restricted stock units, stock options, stock appreciation rights and performance awards under these plans can qualify as performance-based compensation, which is tax-deductible to the company under Section 162(m) of the Internal Revenue Code.

 

The following tables and accompanying narrative disclosure should be read in conjunction with the Compensation Discussion and Analysis. They present compensation for individuals who served as Chief Executive Officer and Chief Financial Officer during fiscal 2011, and for each of the other three most highly-compensated executive officers who were serving as executive officers at the end of fiscal 2011 (the “named executive officers”). Mr. Palmore was not a named executive officer in fiscal 2009 or fiscal 2010, and therefore information about his compensation for those fiscal years is not included.

 

The Summary Compensation Table contains values calculated and disclosed according to SEC reporting requirements. This table reports salary and non-equity incentive plan compensation for the fiscal year in which they are earned. However, it reports stock and option awards granted during the fiscal year, but earned based on performance in the prior fiscal year. For example, fiscal 2011 compensation includes stock and option awards based on fiscal 2010 performance.

 

 

Effective for grants made on or after June 28, 2011, we transitioned to a Bloomberg Black-Scholes option pricing model, which is used to value option awards shown under the subsequent table, Total Direct Compensation Earned for Fiscal Year Performance.

 

 

Annual Incentive Award Earned for Fiscal 2011 Performance

 

 

 

 

All Other Compensation

 

 

 

Matching Contributions on Retirement Savings Plans

 

 

 

Perquisites and Other Personal Benefits

 

 

 

The following table describes the potential range of annual incentive cash awards for fiscal 2011 performance and equity awards granted in fiscal 2011 for fiscal 2010 performance. The Summary Compensation Table and Compensation Discussion and Analysis include additional information about equity awards granted.