CKP Checkpoint Systms, Inc.

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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Checkpoint Systems, Inc.

(Name of Registrant as Specified In Its Charter)

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CHECKPOINT SYSTEMS, INC.

PROXY STATEMENT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2011 NOTICE OF ANNUAL MEETING

 

This Proxy Statement, the enclosed proxy card, and
Checkpoint Systems, Inc. 2010 Annual Report are being mailed
to shareholders on or about April 25, 2011.

 

NOTICE OF 2011

ANNUAL SHAREHOLDERS’ MEETING

and

PROXY STATEMENT

Table of Contents

 

 

 

CHECKPOINT SYSTEMS, INC.
2005 Market Street, Suite 2410,
One Commerce Square,
Philadelphia, PA 19103

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

The Annual Meeting of Shareholders (the “Annual Meeting”) of Checkpoint Systems, Inc. (the “Company,” “we,” “us” or “Checkpoint”) will be held on Wednesday, June 8, 2011, commencing at 9:30 a.m. at The Hub Meeting & Event Centers, 30 South 17th Street, United Plaza, Suite 1410, Philadelphia, Pennsylvania, for the following purposes:

 

1. To elect three Class II directors for a three-year term and one Class III director for a one-year term;

 

2. To approve, by non-binding vote, the fiscal 2010 compensation of the named executive officers of the Company;

 

3. To vote on, by non-binding vote, how frequently the shareholders of the Company should be provided with a non-binding advisory vote regarding the compensation of the named executive officers of the Company;

 

4. To vote on the ratification of the appointment of PricewaterhouseCoopers, LLP (“PwC”) as the independent registered public accounting firm of the Company for the fiscal year ending December 25, 2011; and

 

5. To transact such other business as may properly come before the Annual Meeting.

 

A complete list of shareholders will be available at the Company’s corporate offices noted above, prior to the Annual Meeting. Holders owning Company shares at the close of business on April 20, 2011 are entitled to receive notice of the Annual Meeting and to vote at the Annual Meeting or any adjournments that may take place.

 

You are cordially invited to attend the Annual Meeting in person. If you are unable to attend in person, the Board of Directors urges you to sign, date, and return the enclosed proxy card promptly.

 

This Proxy Statement, the enclosed proxy card, and Checkpoint’s 2010 Annual Report are being mailed to shareholders on or about April 25, 2011.

 

By Order of the Board of Directors

 

Senior Vice President, General Counsel

And Corporate Secretary

April 25, 2011

GENERAL

 

These proxy materials are being furnished by Checkpoint Systems, Inc. in connection with the solicitation of proxies by the Board of Directors of Checkpoint for use at the 2011 Annual Meeting of Shareholders and any adjournments thereof.

 

The Board of Directors approved the following proposals for shareholder approval at a meeting held on February 15, 2011:

 

 

 

At the Annual Meeting, the shareholders will elect three Class II directors to hold office until the 2014 Annual Meeting of Shareholders and one Class III director to hold office until the 2012 Annual Meeting of Shareholders and until their respective successors have been elected and qualified. The Company’s Board of Directors is divided into three classes serving staggered three-year terms, the term of one class of directors expiring in each year. On February 15, 2011, the Board of Directors, upon the recommendation of its Governance and Nominating Committee, nominated Harald Einsmann, Jack W. Partridge and Robert P. van der Merwe to stand for re-election as the Class II directors of the Company and Julie S. England to stand for election as the Class III director of the Company. The term of the Company’s current Class II directors, Harald Einsmann, Jack W. Partridge and Robert P. van der Merwe, will expire at the Annual Meeting. The terms of the Company’s three Class III and three Class I directors will expire at the Annual Meetings of Shareholders to be held in 2012 and 2013, respectively. The Company’s By-laws provide that the Board of Directors consist of no less than three and no more than eleven directors, with the specific number within that range to be set by the Board. Each of the nominees has indicated his or her willingness to serve as directors. If a nominee, at the time of his or her election, is unable or unwilling to serve, and as a result a substitute nominee is designated, the persons named in the enclosed proxy or their substitutes will have discretionary authority to vote or to refrain from voting for the substitute nominee in accordance with their reasonable business judgment. The nominees for election as the Class II and Class III directors and the directors whose terms of office will continue after the Annual Meeting, together with certain information about them, are as follows:

 

Nominees for Class II Director Serving Until 2011

 

Class II Directors Serving Until 2011

 

Harald Einsmann, Ph.D.
Director Since 2005

Age 76

 

Dr. Einsmann formerly served as an Operating Partner and a member of the Board of Directors/Investment Committee of EQT, a leading European Private Equity Group sponsored by the Wallenberg group of Scandinavia (which includes, among others, Erickson Telephones, ABB Engineering, Astra Zeneca and Gambro Pharmaceuticals, SEB Bank and Scania Trucks). In addition, Dr. Einsmann has served on the Board of Tesco PLC, in the United Kingdom from 1999 to 2010 and has been a member of their Nominations and Remuneration Committee from 2005 to 2010. He has served as a member of the Board Carlson Group in the United States, (which includes, among others, Regent, Radisson Hotels, Park Inn and Thank God Its Friday Restaurants) from 1999 to 2010 and served on their Compensation Committee from 2005 to 2010. He has served on the Board of Harman International Industries, Inc., from 2007 to present and has served on their Audit Committee from 2007 to present. Mr. Einsmann has also served as a member of the Board of Rezidor Hotel Group in Scandinavia from 2007 to present and has served on their Compensation Committee from 2007 to present. Prior to his tenure at EQT, Dr. Einsmann was the President of Procter and Gamble, Europe, Middle East and Africa, and a member of the Worldwide Board at Procter and Gamble.

 

Dr. Einsmann is a graduate of the Hamburg and Heidelberg Universities in Germany where he received an MBA and a doctorate in Business Administration, Economics and Law. He was also a Fulbright scholar at the University of Florida, Gainesville, earning a Ph.D., with a thesis about the impact of the European Union on several U.S. industries. The Board believes that Dr. Einsmann’s experience as President of Procter and Gamble, Europe, Middle East and Africa provides the Company with extensive experience in retail and consumer goods and manufacturing as well comprehensive management experience.

 

Jack W. Partridge
Director Since 2002

Age 65

 

Mr. Partridge is President of Partridge & Associates, Inc., a consulting firm providing strategic planning and other services to retailers and companies serving the retail industry. Prior thereto, he served for two years as Vice Chairman of the Board and Chief Administrative Officer of the Grand Union Company, a food retailer. Prior to joining Grand Union in 1998, Mr. Partridge was Group Vice President of the Kroger Company, where he served for 23 years in several executive positions. He has been actively involved in a number of industry organizations in both the food retailing and chain drug industries. Mr. Partridge has been a member of the Board of SPAR Group, Inc. from 2001 to present and has served on their Audit Committee from 2004 to present and has been Chairman of their Compensation Committee from 2001 to present. He has also provided leadership

for a broad range of civic, cultural, and community organizations. Mr. Partridge holds a B.S. degree from the Arkansas State University. The Board believes that Mr. Partridge’s experience as President of Partridge & Associates and thirty years senior executive management experience in large retail and consumer goods companies provides the Company with extensive experience in retail and consumer goods as well as comprehensive management experience.

 

Robert P. van der Merwe
Director Since 2007

Age 58

 

Mr. van der Merwe has been Chairman of the Board since December 2008 and President and Chief Executive Officer since December 2007 and a member of Checkpoint’s Board of Directors since October 25, 2007. Mr. van der Merwe served as President and Chief Executive Officer of Paxar Corporation, a global leader in providing innovative merchandising solutions to retailers and apparel customers from April 2005 until June 2007, and was Chairman of the Board of Paxar from January 2007 until June 2007 when it was sold to Avery Dennison. Prior to joining Paxar, Mr. van der Merwe held numerous executive positions with Kimberly-Clark Corporation from 1980 to 1987 and from 1994 to 2005, including the positions of Group President of Kimberly-Clark’s multi-billion dollar consumer tissue business and Group President of Europe, Middle East and Africa. Earlier in his career, Mr. van der Merwe held a senior leadership position in South Africa at Xerox and was a Brand Manager at Colgate Palmolive.

 

Mr. van der Merwe is a graduate of University of Miami (FL). In addition he has completed executive development programs at the University of Cape Town (SA) and Stanford/National University of Singapore. Since October 2009 Mr. van der Merwe has served on the Board of Directors for the American Red Cross — Southeastern Pennsylvania Chapter. The Board believes Mr. van der Merwe provides the Company with extensive global, consumer products, technology related business-to-business and comprehensive management experience.

 

Nominee for Class III Director Serving Until 2011

 

Class III Directors Serving Until 2011

 

Julie S. England
Director Since 2010

Age 53

 

Ms. England was appointed to the board of directors in October 2010. In 2009 Ms. England retired from Texas Instruments, Inc. after a 30-year career there. She was Vice President and General Manager of RFID from 2004 until June, 2009. She was Vice President of a microprocessor division (1998-2004) and prior to that, Vice President of Quality for the Semiconductor Group also at Texas Instruments (1994 until 1998). She has held various engineering, quality and business management positions with Texas Instruments, Inc. Ms. England has been actively involved in a number of industry organizations in the semiconductor, defense electronics and RFID industries. Ms. England is a member of the board of Intelleflex Corp., a private company and is a former director of the Federal Reserve Bank of Dallas, TX. Ms. England has also provided leadership for a broad range of civic, cultural and community organizations most recently serving on the board of the Georgia O’Keeffe Museum. Ms. England holds a B.S. in Chemical Engineering from Texas Tech University. The Board believes that Ms. England brings to the Board thirty years of business, leadership and technology experience.

 

Class I Directors Serving Until 2013

 

William S. Antle, III
Director Since 2003

Age 66

 

Mr. Antle previously served as the Chairman, President and Chief Executive Officer of Oak Industries, Inc., a manufacturer of leading-edge communications components, from 1989 until its merger with Corning Incorporated in 2000. Prior to his tenure there, he held senior management positions with Bain and Company, Inc., an international strategy-consulting firm. Mr. Antle served as a member of the Board of John H. Harland Company from 1999 until May 2007 when it was acquired by M & F Worldwide Corp. He served as a member of their Corporate Governance Committee from 1999 to 2007. Mr. Antle served on the Board of ESCO Technologies, Inc. from 1994 until November 2007 and served as a member of their Audit Committee from 1994 to 2007(Chairman 1999 to 2007); member of their Executive Committee from 1996 to 2007; and a member of their Human Resources and Ethical Committee from 1996 to 1999. He is a graduate of the United States Naval Academy in Annapolis, Maryland, and holds an MBA from the Harvard Graduate School of Business. The Board believes that Mr. Antle’s experience as President and CEO of Oak Industries provides the Company with extensive manufacturing experience as well as comprehensive management expertise.

R. Keith Elliott
Director Since 2000

Age 69

 

Mr. Elliott was appointed Lead Director in August 2002. Mr. Elliott served as Chairman of the Board from May 2002 to August 2002. Mr. Elliott retired as Chairman and Chief Executive Officer of Hercules Incorporated. From 1991 through April 2000, he served that company as Chairman and Chief Executive Officer, President and Chief Executive Officer, President and Chief Operating Officer, and Executive Vice President and Chief Financial Officer. He is a director of The Institute for Defense Analyses. He previously also served as director of Wilmington Trust Company, Alliant Techsystems, Inc., Computer Task Group, Inc., QSGI, Inc., Engelhard Corporation, and Peco Energy. He also has served as Chairman of the Board of Checkpoint Systems and Alliant Techsystems, Chair of the Audit Committees of Checkpoint Systems, Wilmington Trust Company and QSGI, Inc. and a member of the Audit Committee of Peco Energy and Computer Task Group, Chair of the Compensation Committee of Wilmington Trust Company and QSGI, Inc., Chair of the Finance Committee of Peco Energy Mr. Elliott holds a B.S. from the University of South Carolina and received an MBA in Finance from the University of South Carolina. The Board believes that Mr. Elliott’s long standing as a director and lead director of the Company in addition to his experience as a Chairman and CEO and other senior executive positions at Hercules, Inc. allows him to understand precisely the challenges and opportunities the Company has and will meet and provides the Company with extensive manufacturing experience as well as comprehensive management expertise.

 

Robert N. Wildrick
Director Since 2008

Age 66

 

Mr. Wildrick has been Chairman of the Board of Jos. A. Bank Clothiers, Inc. since December 2008. Mr. Wildrick is the former Chief Executive Officer at Jos. A. Bank Clothiers, Inc., a position he held from November 1999 until December 2008. Mr. Wildrick has been a Director at Jos. A. Bank since 1994 and was Executive Chairman from April 2007 until December 2008. He was previously President of the Company from December 1999 to April 2007.

 

Mr. Wildrick is a member of the Town Council of Palm Beach, Florida and Chairman of its Finance and Taxation Committee and its Public Safety Committee. Mr. Wildrick was Director, President and Chief Executive Officer of Venture Stores, Inc., a publicly traded family value retailer, from April 1995 to May 1998 and was Chairman of its Board of Directors from January 1996 to May 1998. From 1976 to April 1995, Mr. Wildrick was employed by Belk Stores Services, a retailing company, in various capacities, including Corporate Executive Vice President for Merchandise and Sales Promotion, Chief Merchandising Officer, Senior Vice President (Corporate) and General Manager. Mr. Wildrick earned a Master’s Degree in Community Development and Psychology in 1967, and Bachelor’s Degree in Education and Sociology in 1966, both from Southern Illinois University in Carbondale. The Board believes that Mr. Wildrick’s experience as Chairman of the Board, and former CEO of Jos. A. Bank Clothiers, Inc. provides the Company with extensive retail and apparel and financial experience as well as comprehensive management experience.

 

Class III Directors Serving Until 2012

 

George Babich, Jr.
Director Since 2006

Age 59

 

Mr. Babich was President of Pep Boys — Manny Moe & Jack from 2002 until 2005; from 2000 until 2004 Mr. Babich was Chief Financial Officer of Pep Boys. Mr. Babich served as an Officer of Pep Boys since 1996. Previously, Mr. Babich was a Financial Executive for Morgan, Lewis & Bockius, The Franklin Mint, Pepsico Inc. and Ford Motor Company. Mr. Babich has served as a member of the Board of Teleflex Inc. from 2005 to present and has served on their Audit Committee from 2005 to present. Mr. Babich holds a BBA in Accounting from the University of Michigan. The Board believes that Mr. Babich’s experience as President and CFO of Pep Boys and his financial executive roles for Morgan, Lewis & Bockius, The Franklin Mint, Pepsico Inc. and Ford Motor Company provides the Company with extensive retail and consumer goods, financial and manufacturing experience as well as comprehensive management experience.

 

Sally Pearson
Director Since 2002

Age 61

 

Ms. Pearson was Vice President and General Manager of Merchandise and Retail for the Metropolitan Museum of Art in New York from April 2000 until October 2007. Ms. Pearson was President of Liz Claiborne Specialty Stores, served as Executive Vice President of Merchandising for a division of Limited Brands, Inc. and Senior Vice President and General Merchandise Manager of Women’s Apparel at Saks Fifth Avenue, Jordan Marsh in Boston and Bullock’s in Los Angeles.

She held various management positions with Federated Department Stores over a 24-year period after completing Federated’s Executive Management Training Program. Ms. Pearson attended both public and private schools in Oslo and Copenhagen. The Board believes that Mrs. Pearson’s experience as Vice President and General Manager of Merchandise and Retail for the Metropolitan Museum of Art and her twenty-five years of senior executive management experience in large retail and apparel companies provides the Company with extensive retail and apparel experience as well as comprehensive management experience.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE NOMINEES FOR CLASS II AND CLASS III DIRECTORS

 

The proposal to elect three Class II directors and one Class III director requires the affirmative vote of the plurality of the shares represented in person or by proxy at the Annual Meeting and entitled to vote on the proposal. The three Class II candidates receiving the highest number of votes to be elected shall be elected as the Class II Directors. The Class III candidate receiving the highest number of votes to be elected shall be elected as the Class III Director.

 

This will be considered a non-routine proposal. As a non-routine proposal, there may be broker non-votes where a shareholder does not sign and return a proxy card providing the broker with specific voting instructions. Any broker non-votes or abstentions will have the same effect as a vote against this proposal.

 

2. ADVISORY VOTE ON EXECUTIVE COMPENSATION

 

In accordance with the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, we are requesting shareholder approval, on an advisory basis, of the compensation of our Named Executive Officers as presented in the Compensation Discussion & Analysis beginning at page 19 and the compensation tables included in the discussion of Executive Compensation beginning on page 33, including the narrative disclosure.

 

Our executive compensation program has been designed to retain and encourage a talented, motivated and focused executive team by providing competitive compensation within our market. We believe that our executive compensation program provides an appropriate mix of salary and stock options, which together, is an “at-risk” form of incentive compensation The stock options encourage executive focus on both short and long-term goals as a company. As an advisory vote, this proposal is not binding upon us as a company.

 

Accordingly, we will present the following resolution for vote at the 2011 Annual Meeting of Shareholders:

 

“RESOLVED, that the shareholders of Checkpoint Systems, Inc. (the “Company”) approve, on an advisory basis, the compensation of the Company’s named executive officers as described in the Compensation Discussion & Analysis and disclosed in the 2010 Summary Compensation Table and related compensation tables and narrative disclosure as set forth in the 2011 Proxy Statement.”

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL, ON AN ADVISORY BASIS, OF OUR EXECUTIVE COMPENSATION PROGRAM AS PRESENTED IN THIS PROXY STATEMENT.

 

The proposal to approve our executive compensation program, on an advisory basis, requires an affirmative vote of the majority of the shares represented in person or by proxy at the Annual Meeting and entitled to vote on the proposal.

 

This will be considered a non-routine proposal. As a non-routine proposal, there may be broker non-votes where a shareholder does not sign and return a proxy card providing the broker with specific voting instructions. Any broker non-votes or abstentions will have the same effect as a vote against this proposal.

 

3. ADVISORY VOTE ON THE FREQUENCY OF AN ADVISORY VOTE ON EXECUTIVE COMPENSATION

 

In accordance with the Dodd-Frank Act, we are requesting shareholder approval on an advisory basis, on whether we present a request for an advisory vote on our executive compensation practices in the nature reflected in Proposal 2 above every year, every two years or every three years. Our shareholders will be requested to provide an advisory vote on this topic at least every six years.

 

We recognize that there are advantages and disadvantages to each of the presented options for the frequency of an advisory vote on executive compensation, and we are recommending that our shareholders select an annual advisory vote on our executive compensation program. Although our executive compensation practices change very little from year to year, we feel it is valuable for our shareholders to have an opportunity to express their opinion on our practices on a regular basis and for us to receive feedback on our programs.

Although the Board of Directors recommends a vote every year, shareholders will be able to specify one of four choices for this proposal on the proxy card: one year, two years, three years or to abstain. Shareholders are not voting to approve or disapprove of the Board’s recommendation.

 

Because this vote is advisory and not binding on the Board of Directors or the Company in any way, the Board may decide that it is in the best interests of our shareholders and the Company to hold an advisory vote on executive compensation more or less frequently than the option approved by our shareholders. However, we value the opinions of our shareholders and we will consider the outcome of the vote in making determinations regarding the presentation of vote proposals in future proxy statements.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” AN ANNUAL FREQUENCY FOR THE PRESENTATION OF AN ADVISORY VOTE ON OUR EXECUTIVE COMPENSATION PROGRAMS.

 

The frequency of presentation of an advisory vote on our executive compensation program will be selected by the affirmative vote of the plurality of the shares represented in person or by proxy at the Annual Meeting and entitled to vote on the proposal. The option of annual, biennial or triennial that receives the highest number of advisory votes cast by shareholders will be the frequency for the advisory vote on executive compensation that has been selected by shareholders.

 

This will be considered a non-routine proposal.  As a non-routine proposal, there may be broker non-votes where a shareholder does not sign and return a proxy card providing the broker with specific voting instructions. Any broker non-votes or abstentions will have the same effect as a vote against this proposal.

 

4. THE RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 25, 2011.

 

The Audit Committee has appointed the firm of PricewaterhouseCoopers LLP to act as the Company’s independent registered public accounting firm and to audit the consolidated financial statements of the Company for the fiscal year ending December 25, 2011. This appointment will continue at the pleasure of the Audit Committee and is presented to the shareholders for ratification as a matter of good governance.

 

PwC has served as the Company’s independent registered accounting firm since August 1988, and one or more of the representatives of PwC will be present at the Annual Meeting. These representatives will be provided an opportunity to make a statement at the Annual Meeting if they desire to do so and will be available to respond to appropriate questions from shareholders.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

 

The proposal to ratify the selection of PwC as the independent registered public accounting firm of the Company for the 2011 fiscal year requires an affirmative vote of the majority of the shares represented in person or by proxy at the Annual Meeting and entitled to vote on the proposal.

 

This will be considered a routine proposal, and brokers have the discretion to vote uninstructed shares on behalf of the shareholder. As a routine proposal, there will be no broker non-votes, although brokers may otherwise fail to submit a vote. Any failures by brokers to vote or abstentions will have the same effect as a vote against this proposal.

 

The Board knows of no other business for consideration at the Annual Meeting. If any matters not specifically set forth on the proxy card and in this Proxy Statement properly come before the Annual Meeting, the persons named in the enclosed proxy will vote or otherwise act, on your behalf, in accordance with their reasonable business judgment on such matters.

 

This will be considered a routine proposal, and brokers have the discretion to vote uninstructed shares on behalf of the shareholder. As a routine proposal, there will be no broker non-votes, although brokers may otherwise fail to submit a vote. Any failures by brokers to vote or abstentions will have the same effect as a vote against this proposal.

 

Director Nomination Procedures

 

Criteria for Board Nomination.  The Governance and Nominating Committee considers the appropriate balance of experience, skills, and characteristics required of the Board of Directors and will ensure that at least a majority of the

directors are independent under the rules of the New York Stock Exchange, that members of the Company’s Audit Committee meet the financial literacy requirements under the rules of the New York Stock Exchange, and that at least one of them qualifies as an “audit committee financial expert” under the rules of the Securities and Exchange Commission (the “SEC”). Nominees for director are selected on the basis of their depth and breadth of experience, integrity, ability to make independent analytical inquiries, understanding of the Company’s business, and willingness to devote adequate time to Board duties. A more detailed description of the qualifications for directors is contained in the Company’s Corporate Governance Guidelines, a copy of which is available on the Company’s website at www.checkpointsystems.com .

 

The Governance and Nominating Committee annually reviews the individual skills and characteristics of the Directors, as well as the composition of the Board as a whole. This assessment includes a consideration of independence, diversity, age, skills, expertise, time availability, and industry backgrounds in the context of the needs of the Board and the Company. Although the Company has no formal policy regarding diversity, the Governance and Nominating Committee seeks a broad range of perspectives and considers both the personal characteristics (gender, ethnicity, age) and experience (industry, professional, public service) of Directors and prospective nominees to the Board. The Company recognizes the value of diversity and seeks to have a diverse Board, with experience in global retail, apparel and consumer goods along with experience in manufacturing, mergers and acquisitions and financial expertise. Directors must be willing to devote sufficient time to carrying out their duties and responsibilities effectively and should be committed to serve on the Board for an extended period of time.

 

Board Nomination Process.  The process for identifying and evaluating nominees to the Board of Directors is initiated by identifying a slate of candidates who meet the criteria for selection as a nominee and have the specific qualities or skills being sought based on input from members of the Board. The Governance and Nominating Committee generally considers re-nomination of incumbent directors, provided they continue to meet the qualification criteria adopted by the Board of Directors. New director candidates are evaluated by the Governance and Nominating Committee by reviewing the candidates’ biographical information and qualification and checking the candidates’ references. Qualified nominees are interviewed by at least one member of the Governance and Nominating Committee and the Chairman of the Board. The Governance and Nominating Committee evaluates which of the prospective candidates are qualified to serve as a director and whether the Governance and Nominating Committee should recommend to the Board that the Board nominate, or elect to fill a vacancy with these final prospective candidates. Candidates recommended by the Governance and Nominating Committee are presented to the Board for selection as nominees to be presented for the approval of the shareholders or for election to fill a vacancy.

 

Shareholder Recommendations.  The Governance and Nominating Committee uses a similar process to evaluate candidates recommended by shareholders. To date, the Company has not received any shareholder’s proposal to nominate a director.

 

To recommend a prospective nominee for the Governance and Nominating Committee’s consideration, please submit the candidate’s name and qualifications to the Chairman of the Governance and Nominating Committee, Checkpoint Systems, Inc. 2005 Market Street, Suite 2410, One Commerce Square, Philadelphia, PA 19103. Submissions must contain: (a) the proposed nominee’s name and qualifications (including five year employment history with employer names and a description of the employer’s business, whether such individual can read and understand basic financial statements, and board memberships (if any)) and the reason for such recommendation, (b) the name and the record address of the shareholder or shareholders proposing such nominee, (c) the number of shares of stock of the Company which are beneficially owned by such shareholder or shareholders, and (d) a description of any financial or other relationship between the shareholder or shareholders and such nominee or between the nominee and the Company or any of its subsidiaries. The submission must be accompanied by a written consent of the individual to stand for election if nominated by the board and to serve if elected by the shareholders. Recommendations received by December 27, 2011, will be considered for nomination at the 2012 Annual Meeting of Shareholders. However, if the date of the 2012 Annual Meeting of Shareholders has been changed by more than 30 days from the anniversary of the date of the 2011 Annual Meeting, the recommendation must be received a reasonable time before the Company begins to print and mail its proxy materials for the 2012 Annual Meeting.

 

Board of Directors and Committees

 

Board Composition.  With the exception of Robert P. van der Merwe, who serves as an officer of the Company, all other directors have been determined to be independent by the Board of Directors, in accordance with the listing standards of the New York Stock Exchange, the Sarbanes-Oxley Act of 2002 and the regulations of the SEC. The Board of Directors has made an affirmative determination that each of William S. Antle, III, George Babich, Jr., Harald Einsmann, R. Keith Elliott, Julie S. England, Jack W. Partridge, Sally Pearson and Robert N. Wildrick (each, an “Independent Director” and together, the “Independent Directors”) has no material relationship with the Company. Mr. van der Merwe serves as both

Chairman of the Board of Directors and CEO of the Company, and Mr. Elliott serves as Lead Director. It is the Company’s belief that combining the roles of Chairman and CEO facilitates the decision-making process, increases stability, and unifies the Company’s strategy behind a single vision. In addition, the Company believes that the position of Lead Director complements the position of Chairman and CEO by providing independent oversight and shared governance responsibility.

 

Our lead independent director is responsible for:

 

 

When performing these duties, our lead independent director consults with the chairs of our other board committees, as needed, to avoid any dilution of their authority or responsibility.

 

These conclusions were based on a separate review with the Governance and Nominating Committee of each Independent Director’s background for any possible affiliations with or any compensation received (other than compensation for service on the Company’s Board of Directors or committees thereof) from the Company and/or its subsidiaries. Following these reviews, the Board of Directors determined that all of the Independent Directors were “independent” for purposes of the New York Stock Exchange listing standards and the categorical standards for independence set forth below. During the past three years, no Independent Director (or any member of an Independent Director’s immediate family) has:

 

 

Board Meetings.  The Board held six regular meetings in 2011. The cumulative average attendance of all directors at Board and Committee meetings was greater than 95%. The cumulative average attendance of all directors at Committee meetings was greater than 95%. All of the Board members attended the Company’s 2010 Annual Meeting of Shareholders.

 

The Board believes that the number of scheduled Board meetings should vary with circumstances and that special meetings should be called as necessary. While the Board recognizes that directors discharge their duties in a variety of ways, including personal meetings and telephone contact with management and others regarding the business and affairs of the Company, the Board feels it is the responsibility of individual directors to make themselves available to attend both scheduled and special Board and committee meetings on a consistent basis. There will be a minimum of four Board meetings annually.

 

Non-employee directors regularly meet in executive sessions without the presence of management. R. Keith Elliott, as Lead Director, presides over such executive sessions. Non-employee directors include all Independent Directors as well as any other directors who are not officers of the Company, whether or not “independent” by virtue of a material relationship with the Company or otherwise.

 

During 2010, the Board and each of the Board Committees evaluated their own performance through self assessments.

 

Interested parties may communicate directly with the Lead Director or with the non-employee directors as a group by writing to the Lead Director, Checkpoint Systems, Inc., One Commerce Square, 2005 Market Street, Suite 2410, Philadelphia, Pennsylvania.

 

Board Committees.  It is the intent of the Board that Committee members and Committee Chairs will be rotated on a regular basis in accordance with a pre-determined rotation schedule. The assignment of Committee members and

Committee Chairs shall be recommended by the Governance and Nominating Committee and approved by the Board. Although rotation is preferred there is no specific restriction on assignments outside of the rotation based on Committee requirements. The following table sets forth the Committees of the Board, the composition thereof, as of the as of the record date, April 20, 2011 and the number of meetings of each Committee held in 2010:

 

 

 

Audit Committee.  The Audit Committee monitors the financial reporting policies and processes and system of internal controls of the Company. The Committee monitors the audit process and has sole responsibility for selecting the Company’s independent auditors. The Audit Committee operates under a charter which is available on the Company’s website at www.checkpointsystems.com. In addition to being “independent” directors within the meaning of the New York Stock Exchange listing standards, as currently in effect, all members of the Audit Committee satisfy the heightened independence standards under the SEC rules, as currently in effect. Mr. Babich serves on the audit committee of Teleflex, Inc. The Board has determined that such simultaneous audit committee service would not impair the ability of such director to effectively serve on the Company’s Audit Committee.

 

The Board has determined that Messrs. Antle, Babich, Elliott, Einsmann, and Wildrick are “audit committee financial experts” as that term is defined in Item 401(h) of Regulation S-K of the Securities Exchange Act of 1934. Item 401(h) further provides for the following safe harbor:

 

 

 

 

Compensation Committee.  The Compensation Committee is responsible for reviewing the performance of the Chief Executive Officer and acts at various times during the year to approve salaries, benefits and compensation arrangements for the Company’s officers, including the Chief Executive Officer, and to grant stock compensation and other equity based awards. The compensation paid to employee directors is approved by all of the Company’s independent directors. Each member of the Compensation Committee is independent as required by the New York Stock Exchange listing standards. The Compensation Committee operates under a charter, a copy of which is available on the Company’s website at www.checkpointsystems.com .

 

Consistent with new SEC disclosure requirements, we have assessed the company’s compensation programs and have concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the company.

Governance and Nominating Committee.  The Governance and Nominating Committee provides advice to the full Board with respect to: (a) Board organization, membership and function; (b) Committee structure and membership; and (c) succession planning for the executive management of the Company. In carrying out its duties, the Governance and Nominating Committee has also been delegated the responsibility to: determine criteria for the selection and qualification of the Board members; recommend for Board approval persons to fill vacancies on the Board which occur between annual meetings; evaluate, at least annually, each Board member’s “independence” and make recommendations, at least annually, regarding each Board member’s “independence” status consistent with then applicable legal requirements; make recommendations regarding director orientation and continuing education; consider the effectiveness of corporate governance practices and policies followed by the Company and the Board; and conduct at least annually a performance assessment of the Board. Each member of the Governance and Nominating Committee is independent as required by the New York Stock Exchange listing standards. The Governance and Nominating Committee operates under a charter, a copy of which is available on the Company’s website at www.checkpointsystems.com.

 

Risk Oversight.  Our Board of Directors oversees an enterprise-wide approach to risk management, designed to support the achievement of organizational objectives, including strategic objectives, to improve long-term organizational performance and enhance shareholder value. A fundamental part of risk management is not only understanding the risks a company faces and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for the company. Management is responsible for establishing our business strategy, identifying and assessing the related risks and establishing appropriate risk management practices. Our Board of Directors reviews our business strategy and management’s assessment of the related risk, and discusses with management the appropriate level of risk for the Company.

 

Our Board of Directors administers its risk oversight function with respect to our operating risk as a whole, and meets with management to receive updates with respect to our operations, business strategies and the monitoring of related risks. The Board also delegates oversight to Board committees to oversee selected elements of risk:

 

 

Board Compensation.  Directors receive reimbursement of out-of-pocket expenses for attending Board and Committee meetings. Employee directors receive no additional compensation for attending Board and Committee meetings. Set forth below is the compensation received in 2010 for non-employee directors.

 

Non-Employee Director Compensation

 

In 2010, our non-employee directors earned the following: $7,500 quarterly retainer; $2,000 per day for each Board of Directors’ meeting attended in person; $2,000 for each Committee Meeting attended in person in conjunction with a Board of Directors meeting; and $1,000 for each Board of Directors/Committee meeting attended by telephone in which a majority of directors/committee members participated. In addition, the following quarterly retainers were paid: $2,500 to the Lead Director; $2,500 to the Audit Committee Chairman; $1,875 to the Compensation Committee Chairman; and

$1,875 to the Governance and Nominating Committee Chairman. The following table sets forth the amount of various cash payments to non-employee directors.

 

 

DIRECTOR COMPENSATION FOR 2010

 

 

 

As of December 26, 2010, each director has the following number of options and stock awards outstanding, respectively: Mr. Antle, 42,000 and 43,750; Mr. Babich, 10,000 and 43,750; Dr. Einsmann, 22,000 and 43,750; Mr. Elliott, 42,000 and 43,750; Ms. England 10,000 and 0; Mr. Partridge, 52,000 and 43,750; Ms. Pearson, 37,000 and 38,500; and Mr. Wildrick, 10,000 and 17,500.

 

Awards to Non-Employee Directors and Other Compensation.

 

Under the Company’s 2004 Omnibus Incentive Compensation Plan (the “Omnibus Plan”), non-employee directors are eligible to receive equity-based compensation awards, including non-qualified stock options to purchase Checkpoint Common Stock. Pursuant to the terms of the Omnibus Plan, no director may receive total stock-denominated awards in a calendar year which correspond to more than 250,000 shares of Common Stock of the Company.

Each non-employee director receives a non-qualified stock option grant to purchase 10,000 shares of the Company’s common stock upon his or her initial election as a director. Beginning in 2006, pursuant to a board resolution, directors also receive an annual grant of 7,000 Restricted Stock Units (RSUs). The RSUs will vest one year from the date of grant and a Director may elect to defer the receipt of the RSUs upon vesting under the Directors Deferred Compensation Plan. The Company credits each participant with a match equal to 25% of any fees earned and deferred into phantom restricted stock units in accordance with the Plan. The match for these deferrals vest one year from the date of grant.

 

Under the Company’s Directors’ Deferred Compensation Plan, non-employee directors may defer all or a portion of their cash compensation to a deferred compensation account. Under the Directors’ Deferred Compensation Plan, non-employee directors may elect to: (1) receive cash for all services; (2) defer a percentage of cash compensation and receive 125% of the value of the deferred amounts in phantom Company shares, valued on the last trading day of the calendar quarter in which he or she would have received a cash payment, provided, however, that any such shares that are deferred may generally not be distributed to the director until the earlier of the director’s separation from service or death; or (3) any combination thereof.

 

Shareholder Access to Directors

 

Generally, shareholders who have questions or concerns regarding the Company should contact the Investor Relations department at (856) 848-1800, Ext. 2174. Any shareholders, however, who wish to address questions regarding the business or affairs of the Company directly with the Board of Directors, or any individual director, should direct his or her questions in writing to any director or to all directors c/o Checkpoint Systems, Inc., One Commerce Square, 2005 Market Street, Suite 2410, Philadelphia, Pennsylvania 19103.

 

Compensation Committee Report

 

The Compensation Committee of the Board of Directors, comprised of independent directors, has reviewed and discussed with management the Compensation Discussion and Analysis to be included in the Company’s 2011 Shareholder Meeting Schedule 14A Proxy Statement (the “Proxy Statement”) filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended. Based on the reviews and discussions referred to above, the Compensation Committee recommends to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Proxy Statement and Annual Report on Form 10-K through incorporation by reference.

 

Compensation Committee

 

William S. Antle III, Chairperson

Harald Einsmann

Jack W. Partridge

Sally Pearson

 

Compensation Committee Interlocks and Insider Participation

 

None of our Compensation Committee members is a current or former employee or officer of the Company or its subsidiaries. None of the Compensation Committee members had any relationship requiring disclosure by the Company under Item 404 of the SEC’s Regulation S-K during 2010 or before. None of our executive officers serves as a member of the board of directors or compensation committee of any other company that has an executive officer serving as a member of the Company’s board of directors or Compensation Committee.

 

This proxy statement, including the section entitled “Compensation Discussion and Analysis” set forth below, contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Exchange Act of 1934, as amended (the “Exchange Act”). These statements are based on our current expectations and involve risks and uncertainties which may cause results to differ materially from those set forth in the statements. The forward-looking statements may include statements regarding actions to be taken in the future. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. Forward-looking statements should be evaluated together with the many uncertainties that affect our business, particularly those set forth in the section on forward-looking statements and in the risk factors in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 26, 2010 and in our quarterly reports on Form 10-Q and current reports on Form 8-K as filed with the SEC.

 

Executive Summary

 

In 2010, we continued to contend with many challenges presented by a slow recovering economy. Despite these challenges, 2010 was a busy year and Checkpoint made significant strides toward achieving our longer-term objectives and remains on track to implement our vision.

 

We continue to see the areas of business — shrink management, merchandise visibility and apparel labeling — inevitably converging, and we have positioned Checkpoint to take maximum advantage as this trend accelerates. During 2010, important developments in the retail industry continued to validate our fundamental assumptions about the direction of our industry and the opportunity it presents.

 

In 2010, revenues increased 8.0 percent to $834.5 million over the prior year. Net earnings attributable to Checkpoint Systems, Inc. were $27.4 million, or $0.68 per diluted share, which included non-recurring charges of $13.0 million or $0.32 per diluted share. Cash provided by operating activities was $10.9 million.

 

We believe that our efforts to control expenses and rationalize our operations contributed to our 2010 financial results. We also believe that the manufacturing restructuring plan, which began in 2008, had favorable contributions to our results, in 2010, as we finished transferring portions of our radio frequency electronic article surveillance (RF EAS) and apparel label manufacturing to lower-cost geographies. We also prepared the foundation for our 3 year global (2010 — 2012) streamlined business processes and a single ERP systems (Project INTEGRATE) that we expect may contribute to cost savings, working capital reduction and improved business information in 2011 and beyond.

 

Checkpoint is a multinational manufacturer and marketer of integrated system solutions for retail security, labeling, and merchandising. Operating directly in 31 countries, we have a global network of subsidiaries and distributors, and provide customer service and technical support around the world. We are directly impacted by our customers’ dependence upon retail sales, which is susceptible to economic cycles and seasonal fluctuations. Furthermore, as approximately two-thirds of our revenues and operations are located outside the US, fluctuations in foreign currency exchange rates could have a significant impact on reported results.

 

Given the complexities of running operations in 31 countries and selling into the cyclical retail sector, it is critical to our long-term success and ability to create sustainable value for our shareholders that we attract and retain the best talent with experience in global operations and knowledge of local retail markets. Our executive compensation programs are an important component of our ability to achieve our business objectives. Our named executive officers, or NEOs for the fiscal year ended December 26, 2010 included Robert P. van der Merwe, President and Chief Executive Officer; Raymond D. Andrews, Senior Vice President and Chief Financial Officer; Per H. Levin, President, Merchandise Visibility; S. James Wrigley, Group President, Global Customer Management; John R. Van Zile, Senior Vice President, General Counsel and Secretary, and Farrokh K. Abadi, President, Shrink Management Solutions. Under the supervision of the Compensation Committee of the Board of Directors, or the Committee, we have developed and implemented compensation policies, plans and programs that seek to enhance shareholder value by aligning the financial interests of our executive officers with those of our shareholders. Annual base salary, annual incentive bonuses, and long-term incentive compensation are tied to our performance in a manner that encourages a sharp and continuing focus on effective capital allocation, cash flow management, revenue growth and long-term profitability, while motivating senior management to perform to the full extent of their abilities in the long-term interests of shareholders. Our executive compensation programs also provide an important incentive in attracting and retaining executive officers.

 

The Compensation Committee oversees our executive compensation program. The members of the Committee are: William S. Antle III, Chairperson, Harald Einsmann, Jack W. Partridge and Sally Pearson. In order to maintain objectivity, the Committee has a three-year rotation schedule of its members, who are all independent directors; the chair rotates every two years. Mr. Antle was elected as Chairperson in June 2010. The Committee retains the services of an outside compensation consultant to support the Committee’s oversight of the executive compensation programs and authorizes the compensation consultant to work with management.

 

Several members of senior management participated in the Committee’s executive compensation process for fiscal year 2010. To assist in carrying out its responsibilities, the Committee also regularly received reports and recommendations from an outside compensation consultant, Mercer (US) Inc. (“Mercer”). At the request of the Committee, Mercer provided market data, historical compensation information, and advice regarding best practices in executive compensation and compensation trends for the NEOs. The Committee discussed the data and reached consensus on executive compensation decisions during an executive session without management or its consultant present. Executive and

Board of Director compensation consulting fees to Mercer in 2010 totaled $198,410. Fees totaling $54,856 were paid to Mercer in 2010 for salary survey data information services unrelated to Executive and Board of Director consulting services. Also, fees totaling $95,851 were paid to Mercer in 2010 for pension consulting services for existing pension plans in Europe, which are unrelated to Executive and Board of Director consulting services. The decision to engage Mercer for the salary survey data information and pension consulting services was made by management and was not approved by the Committee because these services were unrelated to Executive and Board of Director consulting services.

 

Management’s Role in the Executive Compensation Process

 

Mr. van der Merwe and Mr. Robert Wiley, our Senior Vice President and Chief Human Resources Officer, each played an important role in the Committee’s executive compensation process for fiscal year 2010 and attended all Committee meetings. For fiscal year 2010, Messrs. van der Merwe and Wiley provided their perspectives to the Committee regarding both executive compensation matters generally and the performance of the executives reporting to Mr. van der Merwe. At the Committee’s February 2010 meeting to approve 2009 incentive compensation and 2010 long-term incentive grants, Mr. Wiley presented recommendations to the Committee on the full range of annual executive compensation decisions, including: (i) annual incentive bonus plan structure and determination of performance targets, (ii) long-term incentive compensation strategy, (iii) target competitive positioning of executive compensation based on prior year performance; and (iv) target total direct compensation for each executive officer, including base salary adjustments, target incentive bonus and equity grants. The compensation recommendations were developed in consultation with Mr. van der Merwe, and were accompanied by market data provided by Mercer. The Committee exercised its independent discretion regarding whether to accept management’s recommendations and made final decisions about each executive officer’s compensation levels and targets in executive session without management present. Ms. Pearson (the former Committee Chairperson) and Mr. Antle also met periodically with Mr. Wiley to confer on current and upcoming topics likely to be brought before the Committee.

 

The Role of the Consultants in the Executive Compensation Process

 

Mercer has been a consultant to us and the Committee since 2004 and representatives of Mercer have regularly attended Committee meetings and attended executive sessions as requested by the Committee chairperson. In 2010, Mercer performed the following consulting services: (i) conducted competitive assessments of compensation paid to the top executives; (ii) commented on share and run rate dilution practices among peers; (iii) reconfirmed our peer group for compensation comparison; (iv) conducted competitive assessments of compensation paid to the Board’s Directors; and (v) completed an assessment of pay and performance alignment. Specific to 2010 compensation recommendations, the SVP of HR and CEO utilized analyses that were conducted by Mercer in 2010 to make compensation decisions for the NEO’s as it pertains to salary, bonus and long-term incentives.

 

Our Executive Compensation Program Objectives

 

This section covers the objectives of the executive compensation program, including the types of behavior and focus the program is designed to reward and how the various compensation components fit into the program. The following core principles reflect our compensation philosophy and objectives. We believe that this compensation program encourages superior performance and rewards executives only when specific results have been attained. The program is used to reinforce and encourage the attainment of performance objectives. Ultimately, executives who do not meet expected levels of performance over time could be terminated.

 

 

We operate in a competitive market for executive talent and strive to provide compensation that is sufficient to attract and retain the best talent. We have articulated a philosophy for competitive pay with respect to each compensation element and with respect to the compensation elements in the aggregate, as described below. We regularly ask our outside compensation consultant, Mercer, to complete a review of market pay levels to assess the competitiveness of our executive compensation program. In determining what constitutes the “market” against which NEO pay is evaluated for appropriateness, we reference two sets of competitive data: peer data and broader published survey data.

 

In October 2009, Mercer conducted a review of our peer group and adjusted the group to reach a level of 15 representative peers. The peer group adjustment was made because a number of the companies in our prior peer group had fallen out due to consolidation and other factors, and because the Committee wanted the peer group to reflect global manufacturing companies of a similar size to us. The peer companies below are U.S.-based manufacturing

organizations with global operations. This peer group was reconfirmed in October 2010 and includes the following organizations:

 

 

 

 

Note that Varian, Inc. is no longer a public company.

 

These peers were selected and reconfirmed because they are all of a similar size to us and they:

 

 

In addition to the above peer companies, we also look at Avery Dennison and Tyco Fire & Security (formerly, Sensormatic) to provide additional perspective on larger companies who operate and compete with Checkpoint on a more direct basis. While these companies are not currently part of the formal peer group, we find it prudent to review their compensation practices given our growth strategy.

 

Competitive data is compiled from this group based on public filings to provide information on the magnitude of total executive pay, the mix between base salary, annual incentives and long-term incentives, and executive compensation practices and plan designs. The Committee also references broader published survey data for companies within the electronics and general manufacturing industries for purposes of general background information. This data, which includes broadly-available compensation survey data from leading survey providers, including Mercer and other companies, is used to provide a general reference of competitive pay data for purposes of consistency. This data was compiled by Mercer and includes data from Mercer’s proprietary database, as well as other published surveys from compensation survey firms. We do not use this broad survey data for bench-marking purposes. Although the Committee reviews and considers the aggregated survey data for purposes of developing a baseline understanding of types of compensation, including compensation levels and elements derived from this supplementary pooled data, the Committee does not see the identity of any of the surveyed companies and the aggregated data is reviewed only to ensure that our compensation levels and elements are consistent with market standards.

 

After considering the broad survey data as background for purposes of determining whether the elements of compensation that we offer are generally consistent with the types of compensation offered by other companies, we then consider the data from our peer group as a reference for the competitive market for pay for individual positions. Our executive pay packages are evaluated against this peer group data and, in combination with other factors, judgments about appropriate compensation levels are determined. Our philosophy is to, over time, provide base salaries (fixed salaries) that fall within a competitive range and take into consideration a series of factors, such as compensation levels

required to recruit talent capable of leading significant growth. Our six NEO’s base salaries are aligned with the 75th percentile of the peer group. When compared to the broader published survey data, three of our NEO’s have base salaries that are aligned with the median of the survey data and three are aligned with the 75th percentile. Performance-based, variable incentives are emphasized to deliver total compensation levels that vary depending upon individual and company performance. In 2010, we determined total cash compensation (“TCC”) comparative levels for the NEOs based on Mercer’s December 2009 review.

 

 

We believe that the higher the level of executive responsibility, the more pay should be tied to performance. Our targeted compensation mix is aligned with competitive market pay mix practices so that on average approximately 40% of each NEO’s compensation is in base salary and approximately 60% is in variable compensation. In keeping with this philosophy, only 32% of our CEO’s compensation is in base salary. As described more fully below, variable compensation consists of awards for both annual and long-term performance. The mix of variable compensation is intended to emphasize achievement of both short and long range goals. As a result, of the total amount of variable compensation target opportunity, approximately one-half focuses on long-term performance and one-half focuses on the achievement of annual goals. This mix helps us support the objective of focusing the NEOs on achieving long-term results, but also placing meaningful weight on the achievement of annual operating objectives.

 

 

 

Our ultimate objective is to increase the value of our shares for our shareholders. The compensation program is designed to align management with this objective through the use of long-term incentives that are delivered in the form of equity, including stock options and performance-contingent stock grants. In other words, a significant portion of each executive’s compensation package serves to align the level of compensation received with the benefits delivered to shareholders. We also have share ownership guidelines that require each executive and director to hold a meaningful economic stake in our stock. Finally, we offer a voluntary deferred compensation plan under which executives may defer cash compensation in the form of stock units, which encourages executives to invest in our stock. These programs are described in more detail below. See “ Elements of the Executive Compensation Program ”.

Differentiate Compensation for Individual Performance

 

We foster a performance-oriented culture that recognizes differing contributions of our executives in our success. The executive compensation program is administered to reinforce the specific contributions of individuals in furthering our goals. Specifically, each year an annual performance evaluation of each NEO is completed to assess individual contributions to the Company. The evaluation for NEOs other than the CEO is conducted by the CEO and reviewed by the Committee. The CEO submits a self evaluation to the Committee for its consideration in determining overall performance and related compensation decisions. Performance is assessed based on agreed upon objectives and other criteria. The performance rating of each individual NEO, in addition to performance of the Company as whole, is measured through annual and long-term incentive goals, directly affecting compensation levels. For example, base salary increases, annual incentive awards, and grants of long-term incentives are tied to both Company and individual performance. Individual performance is determined by a review of management business objectives (“MBO’s”), leadership competencies and other significant contributions made outside stated MBO’s. In 2010, the CEO had 80% of his annual incentive tied to Corporate Financial Performance and 20% tied to MBO’s. The remaining NEOs each had 50% of their annual incentives tied to Corporate Financial Performance and 50% tied to MBO’s that we deemed to create greater shareholder value. In 2010, Corporate Financial Performance was measured by Revenue Growth, Operating Margin and Return on Invested Capital (ROIC). The CEO’s bonus target opportunity was 100% of base salary and the other NEOs’ bonus targets were 75% of base salary. As per his employment agreement, Mr. van der Merwe can receive an additional performance bonus of up to 50% of his base salary.

 

We aim to provide compensation to our NEOs on a global level that is competitive with pay in the United States. We have established levels of pay in order to recognize that the business operates on a global basis and that we need talent that can be recruited from a variety of locations around the world. Our compensation structure also enables our most senior executives to maintain a consistent emphasis on achieving annual and long-term performance results regardless of the executive’s location. Total compensation levels for each NEO may differ based on his or her responsibilities and level of performance.

 

Elements of the Executive Compensation Program

 

This section describes each element of compensation used by us, the rationale for each element, why we chose to incorporate each element into our compensation practices, how each element furthers our compensation goals and philosophies and the methodology used to determine the amount of each element.

The primary elements of our executive compensation program are as follows:

 

 

Base Salary

 

NEO base salaries are intended to provide a base level of fixed compensation for performance of the core function of each position’s responsibilities. Salary levels are set based on a variety of factors, including the executive’s responsibilities, skill, experience and performance, as well as competitive norms. As we believe in rewarding performance, our policy is not to

implement across the board standard salary increases, but rather to base salary increases on merit and particular market circumstances.

 

Salaries for NEOs are adjusted periodically if a significant change in market salary level occurs, a NEO is promoted, or internal inequities warrant an adjustment. Performance achievements are considered in base salary adjustments. The CEO’s salary is established by the Committee. For other NEOs, the CEO recommends a base salary adjustment to the Committee for its approval. The salary increases are meant to make our base salaries competitive as compared to our peer group, to recognize increasing levels of responsibilities, and due to inflation.

 

Annual Incentive

 

NEOs are also eligible for annual incentive awards, which are approved by the Committee. Annual incentive awards are dependent on the achievement of (1) Checkpoint’s Corporate Financial Performance objective and (2) individual objectives (i.e., MBO’s). For 2010, performance awards were provided under the shareholder-approved Omnibus Plan. The purpose of the annual incentive awards is to reinforce the importance of attaining targeted financial performance and other objectives determined to be important for each year based on our business strategy. For 2010, the Corporate Financial Performance (CFP) measures were Revenue Growth, Operating Margin and Return on Invested Capital (ROIC).

 

The target annual incentive payouts for the NEOs for 2010, as approved by the Committee, were as follows:

 

 

 

These levels were established to ensure a competitive annual incentive opportunity with a range of payouts tied to performance achievements, consistent with the Company’s philosophy of linking compensation to performance. Payment of maximum annual incentive amounts is targeted so that cash compensation approximates the 75th percentile of the market of our stated peer group, with strong business performance. The maximum percentage was determined by the Committee after reviewing market data and consulting with Mercer.

 

After individual MBO results are tabulated, the Corporate Financial Performance multiplier is applied to calculate the final bonus. The Corporate Financial Performance multiplier can range from 0% up to 150%. If the 3 CFP metrics are achieved at threshold, the multiplier would be 50%. In 2010, Operating Margin had the highest weight (50%) in the plan, while Revenue Growth and ROIC were each weighted at 25%.

 

MBO’s and Incentive Payouts

 

The most significant component of annual incentive compensation is determined on an individualized basis according to a list of MBO’s, which is set for each of our executives, including each NEO, at the beginning of each year. Each NEO is eligible for a targeted payout, measured as a percentage of base salary for achieving the MBO’s at target. Actual results against the stated MBO will determine the ultimate payout. The maximum payout percentages are set forth in the table above. For the maximum payout to be realized, all MBO’s and Corporate Financial Performance need to be achieved at the maximum performance levels.

 

The MBO’s represent performance targets and are directly linked to each year’s financial and strategic objectives of the Company. In addition to a Corporate Financial Performance MBO, each executive is assigned between five and eight individual performance goals to achieve. The MBO’s are assigned a weight based on their relative importance which corresponds to the portion of the annual incentive that is linked to achievement of a particular goal. If the MBO threshold

achievement is reached, a portion of the annual incentive is paid. If it is not reached, that portion of the incentive is not paid. The Committee’s intent in establishing these goals and target percentages is to provide a comparable level of difficulty in achieving the goals and receiving annual incentive awards for each NEO annually. Payment of annual incentives will vary from year to year based on both individual and company performance.

 

A primary component of each NEO’s MBO’s is the achievement of Corporate Financial Performance. In 2010, we introduced a Corporate Financial Performance multiplier, which acts as a modifier for bonus pool funding. For 2010, the following payout schedule applied to the NEOs:

 

 

The 2010 Corporate Financial Performance Multiplier was calculated as follows:

 

 

 

 

 

Note: Operating Margin and ROIC Calculations are based on adjusted non-GAAP

 

operating margin and net earnings attributable to Checkpoint Systems, Inc.

 

The individual MBO’s for 2010 for each NEO and the percentages assigned to each MBO are set forth in the tables below.

 

 

 

 

 

 

Abbreviation Key

 

ALS = Apparel Labeling Solutions

CM = Customer Management

DII = Days in Inventory

DSO = Days Sales Outstanding

GP = Gross Profit

H1 = Horizon 1 (innovations that expand market share and/or the market itself)

H3 = Horizon 3 (innovations considered to be disruptive new products, services or solutions)

IP = Intellectual Property

IT = Information Technology

LOB = Line of Business

SDP = Solution Development Process

SMS = Shrink Management Solutions

WW = World Wide

 

2010 Bonuses

 

The Committee met in February 2011, to review which of the MBO’s were met and the amount of each NEO’s MBO bonus for 2010.

 

After reviewing all information related to 2010 performance, the Committee approved the following bonuses for the NEO’s.

 

 

 

Each NEO realized about a 60% reduction in their annual bonus due to the effects of the 2010 CFP multiplier. As summarized in the table above, CFP has significant weighting for our NEO’s (80% for the CEO and 50% for all other NEO’s) and the CFP also impacts the bonus payment for the other MBO’s.

 

Long-Term Incentives

 

We grant long-term compensation pursuant to the shareholder-approved Omnibus Plan. The plan provides that the Committee has the authority to award stock options (incentive and non-qualified stock options), stock appreciation rights, stock awards (restricted and unrestricted), phantom shares, dividend equivalent rights and cash awards to eligible individuals.

 

Long-term incentives are typically structured to reward multi-year performance, focusing both on the achievement of multi-year financial objectives and long-term increases in shareholder value. For NEOs, long-term incentive target amounts are set by referencing a variety of factors. Actual awards may fall above or below the target level (typically within 10-15%) for an individual based on the individual and/or company performance.

 

The Committee determined equity incentive awards for 2010 for our employees, including our NEOs, with assistance from Mercer. In 2010, long-term incentive awards to our NEO’s were in the form of stock options (representing 30% of the total grant value), RSU’s (representing 30% of the total grant value) and performance shares (representing 40% of the total grant value at target performance shares issued). Mercer regularly provides us with data from our peer group to provide examples of equity incentive awards granted to similarly situated executives, and recommends target equity awards based upon such data. Mercer provides its recommendations in the form of dollar values. The targeted LTI values for the NEO’s approximate 75th percentile for Total Direct Compensation (TDC) when added to their targeted short-term incentive opportunity.

The dollar amounts for stock options, RSU’s and performance shares awarded during 2010 were converted into options and shares by forecasting a stock price for the date of grant. The equity incentive award target amounts provided by Mercer were then reviewed by our senior management and recommended to the Committee for approval. Senior management and the Committee, at its discretion, may modify the amounts recommended by Mercer to take into account historical factors such as legacy grants, previous equity incentive awards received by an executive officer or prior awards granted to our other executive officers and/or to take into account management’s qualitative review of performance. In addition, the amount of equity incentive awards provided to NEOs may also be adjusted by senior management and the Committee based upon the level of achievement by the NEOs of the MBO’s discussed above under the section regarding Annual Incentives. In addition, the Committee may also evaluate the expected future contributions needed by NEO’s to achieve our strategies when determining the long-term incentive awards to ensure proper retention and alignment of each NEO.

 

Awarding stock options, restricted stock units and performance shares reinforces the achievement of shareholder value objectives, because the ultimate award payout is denominated in our stock, reinforcing management’s alignment with shareholder interests. As more fully described below, the performance share program also provides an incentive to attain high-priority, multi-year financial objectives to reinforce management’s long-term performance orientation. The Committee believes that there is a significant amount of difficulty in meeting the long-term incentive compensation targets, as demonstrated by the fact that none of the NEOs received a long term incentive compensation payout in 2007, 2008 or 2009 and there was no payout in 2010 in relation to the 2007 — 2009 Long Term Incentive Plan (i.e., minimum targets were not met).

 

Under the terms of Mr. van der Merwe’s negotiated employment agreement he is entitled to receive annual long-term compensation at the discretion of the Board of Directors under the Omnibus Plan and existing compensation practices, including stock options, long-term incentive program awards, restricted stock awards, stock appreciation rights, or SARs, or other awards as determined by the Board of Directors.

 

The following discussion provides additional detail regarding our stock options, RSU’s and performance share grant practices and the policies behind these practices.

 

Stock Options

 

Stock options are used to provide an incentive to increase the share price of our stock. We believe stock options are particularly effective since a recipient receives economic value only when our share price appreciates. Option grants also support NEO retention by providing for vesting in installments over three years. If an NEO’s employment is terminated prior to vesting for any reason other than in connection with a Change in Control, any remaining unvested awards are forfeited. As shown in the Outstanding Equity Awards Table, Mr. van der Merwe’s option vesting provisions differ from those of other NEOs as a result of employment contract negotiations. For all NEOs, vested awards may continue to be exercised for a defined period of time following termination of employment, which varies depending upon the reason for termination of employment. The ability to exercise the stock options for limited periods of time post-termination enables the employee to realize any gain on options that were earned prior to termination, which is consistent with the incentive aspect of the award. In the event of a Change in Control of the Company, any unvested options become fully vested and exercisable only if the NEO’s employment is also terminated without “cause” by us or our successor. We provide for the vesting upon termination of employment in connection with a Change in Control of the Company in order to encourage executives to seek out and support transactions that are in the best interest of the Company and its shareholders even though they may personally experience potential loss of employment and other economic risk as a result of the transaction.

 

We follow a process of granting equity awards annually. This is typically reviewed at the first Committee meeting each year. The exercise price of an option is equal to the average trading price on the date of grant. Outside of this timeframe, grants are sometimes provided to new hires.

 

Performance Shares

 

The Long Term Incentive Plan (“LTIP”), which was developed and adopted in 2005, provides for distributions under the plan in the form of shares of our stock. With the introduction of this performance share plan, we began a shift in the composition of our equity-based awards, in line with market trends, away from awarding primarily options and toward a mix of performance share awards and stock options, as appropriate for the individual receiving the awards.

 

Under the LTIP, an NEO is granted a target number of shares that would be paid to the NEO at the end of a three-year period if specific corporate performance objectives are met. The actual number of shares paid may range from 0% to 200% of the target award amount based on the achievement of performance objectives. The performance goals are

company-wide financial measures selected and set by the Committee and may be different for different performance periods.

 

2008 — 2010 Performance Shares

 

No performance shares were granted in 2008 for the 2008 —  2010 cycle. However, restricted stock units were granted in lieu thereof in December 2008, as we and the Committee reconsidered the structure of the LTIP.

 

2009 — 2011 Performance Shares

 

The 2009 — 2011 Performance Share plan uses 3 relative performance metrics: Revenue Growth, Return on Invested Capital (ROIC) and EPS% growth. A composite index (CI), which is a straight average of these measures, is compared to the performance of the Company’s peer group. If the Company performs at or above the 25th percentile relative to the peer group, the program pays out in accordance with the following schedule:

 

 

Payouts will be interpolated linearly between minimum, target and maximum levels.

 

A participant who is terminated for any reason (other than in connection with a Change in Control) forfeits performance share awards. The termination of the employee may be (1) by us or the acquiring company (other than for cause); or (2) by the employee for “good reason” which includes a reduction or change in duties, reduction in base salary or a relocation. The awards use this approach so that accelerated vesting and payments are made only upon a Change in Control accompanied with a termination to account for situations where the NEO has lost his or her job and has engaged in actions to further the incentive intent of the program.

 

2010 — 2012 Performance Shares

 

The 2010 — 2012 Performance Share plan uses 2 performance metrics: 3-year average Return on Invested Capital (ROIC) and EPS percent Growth. The ROIC metric is measured on an absolute basis, while the EPS metric is measured on a relative basis versus the Russell 2000 Index. The program pays out in accordance with the following schedule:

 

 

Payouts will be interpolated linearly between threshold, target and maximum levels.

 

A participant who is terminated for any reason (other than in connection with a Change in Control) forfeits performance share awards. The termination of the employee may be (1) by us or the acquiring company (other than for cause); or (2) by the employee for “good reason” which includes a reduction or change in duties, reduction in base salary or a relocation. The awards use this approach so that accelerated vesting and payments are made only upon a Change in Control accompanied with a termination to account for situations where the NEO has lost his or her job and has engaged in actions to further the incentive intent of the program.

 

Restricted Stock Units (RSU’s)

 

Restricted Stock Units are used to provide a retention-based, time-vested, long-term incentive award to our NEO’s. The other long-term incentive vehicles (stock options and performance shares), which are typically weighted at 70% of the grant value for an NEO, require an increase in stock price (in the case of stock options) or attainment of aggressive performance goals (in the case of LTIP shares). Approximately 30% of the total LTI grant value is provided to our NEO’s in the form of RSU’s. The greater the company’s stock price on the day the RSU vests, the greater the value delivered to the NEO.

Share Ownership Guidelines

 

To ensure that the interests of all executives and senior managers are aligned with shareholder interests, we have established a program that requires that the non-employee directors and NEOs (and other executives and managers) have a meaningful equity stake in the Company by investing and holding a significant amount of our stock. The Stock Ownership Program requires non-employee directors to achieve a level of ownership of 10,000 shares after five years. The Stock Ownership Program sets stock ownership levels for the NEOs, which are set forth below. Vested “in the money” options, vested restricted stock, deferred compensation units, all of the stock held in our 423 Employee Stock Purchase Plan, and all exercised stock options or RSUs that are held count toward compliance. Each NEO has five years from the new requirement in which to meet their holding requirements. Each NEO is currently on schedule to meet such requirements. We changed our share ownership guidelines in 2008 because the drop in stock price due to poor economic conditions would have made the ownership targets unrealistically high under the prior guidelines. The current guidelines are set forth in the table below:

 

 

 

In 2008, the guidelines were amended to provide that for an NEO with a grade of 18 or higher, including the CEO, the level is set as the lesser of 1) a dollar value or 2) a fixed number of shares.

 

Deferred Compensation Program

 

To assist NEOs in meeting their capital accumulation objectives and to provide for income tax deferral opportunities, each NEO may defer up to 50% of base salary and up to 100% of bonus (Annual Cash Incentive Compensation) into our deferred compensation plan. All deferred amounts are invested in our stock, with a three-year vesting period, except for executives who are 55 years old or older, the match vests immediately. This facilitates ownership of our stock by participants. We currently match 25% of the deferred amounts, up to the indicated maximum amounts. The 25% match is provided to give executives an incentive to acquire and hold our stock. It also facilitates compliance with the Share Ownership Guidelines discussed above.

 

Benefits and Perquisites

 

The NEO’s generally receive the same benefits as other employees. During 2010, nominal benefits and perquisites were paid to NEOs. These are described more fully in the footnotes to the Summary Compensation Table.

 

Employment Agreements and Termination Policy for NEOs

 

We believe that providing a fair severance in the event of termination of employment of our NEOs is an important retention tool and provides security to the NEOs with respect to their terms of employment. On December 27, 2007, the Company entered into an Employment Agreement with Mr. van der Merwe, which was amended on March 17, 2010. The initial term of the agreement, as amended, began on December 27, 2007 and ends on December 31, 2012, after which the term of Mr. van der Merwe’s employment will be renewed for successive one-year periods ending on December 31 each year, unless Mr. van der Merwe or the Company gives a notice of termination at least six months before the end of an employment term. In addition, we have a severance policy for the other NEOs that provide severance benefits for terminations other than voluntary terminations or terminations for “cause.” Please see the section below titled “Potential Payments Upon Termination or Change of Control” for a description of the terms of these agreements.

 

Severance/Change in Control Arrangements for Named Executive Officers

 

Mr. van der Merwe is entitled to severance upon various types of termination of employment, both in connection with and not in connection with a Change of Control. We have also established certain severance arrangements (including benefits upon a Change in Control) under a Termination Policy for our NEOs other than Mr. van der Merwe (Please see the section

below titled “Potential Payments Upon Termination or Change of Control” for a description of the payments he may receive). Our policies on severance are intended to provide fair and equitable compensation in the event of severance of employment.

 

For Change in Control situations, the policy helps to ensure that NEOs will undertake transactions and other corporate actions that may be in our and our shareholders’ best interests, but that may lead to the termination of the NEOs’ employment. By providing severance upon termination of employment in connection with a Change in Control of the Company, we intend to provide executive compensation that is sufficient to mitigate the risk of loss of employment and make the executives willing to undertake a transaction. The severance amounts are balanced against our need to be responsible to our shareholders and preserve our assets.

 

The provisions on severance include:

 

The purpose of our Termination Policy for executives is to provide a fair framework in the event of the termination of employment of executives for reasons other than for Cause. The policy does not apply to executives who voluntarily terminate or who are terminated for Cause. The amount of severance is the greater of that provided by the policy, any employment contract, local law or other entitlement, but is not cumulative. With respect to the NEOs, except for Mr. van der Merwe, any severance provided under the Termination Policy would be in excess of any severance the individual NEO may be entitled to under the NEO’s employment agreement, and therefore severance is generally not paid pursuant to the terms of the NEO employment agreements but rather the Termination Policy. A condition of receiving severance under the policy is that the executive must sign a general release and non-compete agreement in a form satisfactory to us at the time of termination. The non-compete period under this policy is twelve months. The severance payment periods under the Termination Policy not in connection with a Change of Control are 24 months for the NEOs.

 

If an NEO is terminated or properly terminates employment pursuant to a Change of Control as defined in the Termination Policy the executive will be entitled to receive the following:

 

Additional Tax and Accounting Implications

 

Section 162(m) of the Internal Revenue Code limits to $1 million per year the federal income tax deduction to public corporations for compensation paid for any fiscal year to the corporation’s Chief Executive Officer and the other NEOs (other than the CFO) included in the Summary Compensation Table. This limitation does not apply to qualifying “performance-based compensation.” Section 162(m) considerations, as well as financial accounting implications, are factors we consider when developing our executive compensation programs. However, we primarily consider our business purpose when structuring our compensation arrangements with our NEOs as appropriate to support our strategic business objectives and the attraction and retention of executives.

EQUITY COMPENSATION PLAN INFORMATION

 

The following table sets forth our shares authorized for issuance under our equity compensation plan as of December 26, 2010:

 

 

 

SUMMARY COMPENSATION TABLE FOR FISCAL YEARS 2008, 2009, AND 2010

 

The following table shows the compensation for each of the Named Executive Officers (collectively, the “NEOs”) for fiscal years 2008, 2009, and 2010.