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

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ARBITRON INC.

(Name of Registrant as Specified In Its Charter)

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Dear Stockholder:

 

On behalf of the Board of Directors of Arbitron Inc. (“Arbitron”), I am pleased to invite you to attend the annual meeting of stockholders. The meeting will be held at the Mandarin Oriental Hotel, 80 Columbus Circle at 60th Street, Time Warner Center, New York, New York 10023, on Tuesday, May 26, 2009, at 9:00 AM local time.

 

The Notice of Annual Meeting of Stockholders and the proxy statement that follow include information about the proposals recommended by Arbitron’s Board of Directors to elect eight (8) individuals to serve as directors of Arbitron, and to ratify the appointment of KPMG LLP as the independent registered public accounting firm of Arbitron for the fiscal year ending December 31, 2009.

 

Our Board of Directors believes that a favorable vote for each of these proposals at the annual meeting is in the best interests of Arbitron and its stockholders, and unanimously recommends a vote FOR the proposals. Accordingly, we urge you to review the accompanying materials carefully and to vote your shares promptly.

 

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

 

We look forward to seeing you at the meeting.

 

Sincerely,

 

Michael P. Skarzynski

President and Chief Executive Officer

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

May 26, 2009

 

 

 

The matters listed above are fully discussed in the proxy statement accompanying this notice. A copy of our 2008 Annual Report also accompanies this notice.

 

Stockholders are entitled to one vote for each share of common stock held of record on the record date listed above. A Notice of Internet Availability of Proxy Materials or the proxy statement and the accompanying proxy card will be first mailed to stockholders on or about April 15, 2009.

 

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

 

By Order of the Board of Directors

 

Timothy T. Smith

Executive Vice President and Chief Legal Officer,

  Legal and Business Affairs, and Secretary

 

April 15, 2009

TABLE OF CONTENTS

 

ARBITRON INC.
9705 Patuxent Woods Drive
Columbia, Maryland 21046
April 15, 2009

 

 

PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 26, 2009

 

 

We will begin mailing our Notice of Internet Availability of Proxy Materials to our stockholders on or about April 15, 2009.

 

We are furnishing this proxy statement to our stockholders in connection with a solicitation of proxies by our Board of Directors for use at our 2009 annual meeting of stockholders to be held on Tuesday, May 26, 2009, at 9:00 AM local time at the Mandarin Oriental Hotel, 80 Columbus Circle at 60th Street, Time Warner Center, New York, New York 10023 (the “Annual Meeting”).

 

The Notice of Annual Meeting and proxy statement are available at http://www.arbitron.com/downloads/proxy_2009.pdf, and our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and our 2009 Shareholder letter are available at http://www.arbitron.com/downloads/annual_2008.pdf.

 

In accordance with rules and regulations recently adopted by the Securities and Exchange Commission (the “SEC”), instead of mailing a printed copy of our proxy materials, including our annual report to stockholders, to each stockholder of record, we may now furnish proxy materials, including our annual report to stockholders, to our stockholders on the Internet. On or about April 15, 2009 we will send electronically a Notice of Internet Availability of Proxy Materials (the “E-Proxy Notice”) to those stockholders who have previously signed up to receive their proxy materials on the Internet. Also on or about April 15, 2009, we will begin mailing the E-Proxy Notice to all other stockholders. If you received the E-Proxy Notice by mail, you will not automatically receive a printed copy of the proxy materials or the annual report to stockholders. Instead, the E-Proxy Notice instructs you as to how you may access and review all of the important information contained in the proxy materials, including our annual report to stockholders. If you have previously signed up on the Internet to receive proxy materials and other stockholder communications on the Internet instead of by mail, you will be receiving the E-Proxy Notice electronically as well. The E-Proxy Notice also instructs you as to how you may submit your proxy on the Internet. If you received the E-Proxy Notice by mail and would like to receive a printed copy of our proxy materials, including our annual report to stockholders, you should follow the instructions for requesting such materials included in the E-Proxy Notice. We may choose to mail written proxy materials, including our annual report to stockholders, to one or more stockholders.

 

If you held any of our common stock at the close of business on April 3, 2009, the record date for the Annual Meeting, you are entitled to receive notice of and to vote at our 2009 Annual Meeting. On that date, there were 26,480,190 shares of common stock outstanding. Our common stock constitutes the only class of securities entitled to vote at the meeting. Stockholders who have not exchanged their Ceridian Corporation common stock certificates for Arbitron Inc. (the “Company”) common stock certificates in connection with the spin-off of Ceridian Corporation by Arbitron Inc. on March 30, 2001, will not be eligible to vote at the Annual Meeting.

 

All holders of our common stock at the close of business on April 3, 2009, the record date for the Annual Meeting, or their duly appointed proxies, are authorized to attend the Annual Meeting. If you attend the

meeting, you may be asked to present valid picture identification, such as a driver’s license or passport, before being admitted. Cameras, recording devices and other electronic devices will not be permitted at the meeting.

 

Please also note that if you hold your shares in “street name” (that is, through a bank, broker or other nominee), you will need to bring a copy of the brokerage statement reflecting your stock ownership as of April 3, 2009, the record date for the Annual Meeting.

 

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

 

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

 

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

 

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

 

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

 

You may vote your shares as follows:

 

 

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

 

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

 

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

 

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

 

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

 

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

 

Our business is managed under the direction of the Board of Directors, which is currently composed of nine directors. Effective upon the Annual Meeting, the Board of Directors will reduce the number of directors to eight. Our bylaws provide for the annual election of directors. The current terms of office of all of our directors expire at the 2009 Annual Meeting. Stephen B. Morris, the current Chairman of the Board and a director of Arbitron since March 31, 2001, informed the Board of Directors on February 25, 2009 that he did not intend to stand for reelection when his term expired in 2009. Our Board of Directors has renominated each of the other eight directors currently serving on the Board to serve as directors for a one-year term until the 2010 annual meeting of stockholders. Each of the nominees has consented to serve if elected.

 

The Board of Directors recommends a vote FOR and solicits proxies in favor of each of the nominees named below. Proxies cannot be voted for more than eight people. Our Board has no reason to believe that any of the nominees for director will be unable or unavailable to serve. However, if any nominee should for any reason become unable or unavailable to serve, proxies will be voted for another nominee selected by the Board. Alternatively, proxies, at our Board’s discretion, may be voted for a fewer number of nominees as a result of a director’s inability or unavailability to serve. Each person elected will hold office until the 2010 annual meeting of stockholders and until his or her successor is duly elected and qualified, or until earlier resignation or removal.

 

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

 

Shellye L. Archambeau, age 46

 

 

David W. Devonshire, age 63

 

 

Philip Guarascio, age 67

 

 

William T. Kerr, age 68

 

 

Larry E. Kittelberger, age 60

 

 

 

Luis G. Nogales, age 65

 

 

Richard A. Post, age 50

 

 

Michael P. Skarzynski, age 52

 

 

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

 

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

 

The Board of Directors has evaluated the status of each director and affirmatively determined that Ms. Archambeau and Messrs. Guarascio, Devonshire, Kerr, Kittelberger, Nogales, and Post are independent. Messrs. Morris and Skarzynski are not independent because they are employees of the Company. Each current member of our Compensation and Human Resources Committee, our Nominating and Corporate Governance Committee, and our Audit Committee is independent.

 

In prior years, in evaluating the independence of Mr. Nogales, the Board of Directors has considered the fact that Mr. Nogales is the managing partner of a general partnership that had a 2% ownership interest in an investment fund that has a 96% ownership interest in two radio stations that had entered into radio ratings contracts with the Company substantially in the form and upon substantially the terms and conditions of the Company’s standard radio ratings contract with third parties. The average annual fees payable to the Company under this agreement were equal to approximately $156,000. The Board of Directors, with Mr. Nogales and Mr. Morris not participating, had reviewed and approved the terms of this transaction. Following its review of this relationship, the Board of Directors affirmatively determined that Mr. Nogales was independent. This agreement terminated during 2008 and there are currently no transactions between the radio station and the Company.

 

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

 

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

 

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

 

Consistent with the New York Stock Exchange listing standards, our corporate governance policies and guidelines provide that, in order to promote open discussion among nonmanagement directors, the Board of Directors will devote a portion of each regularly scheduled Board meeting to executive sessions without management participation. Luis G. Nogales, our Lead Independent Director, has presided at executive sessions of our nonmanagement directors at each regularly scheduled meeting of the Board during 2008. Stephen B. Morris, the Chairman of our Board of Directors, is not standing for reelection at the Annual Meeting. Following the Annual Meeting, the Board of Directors will elect a new chair from among its duly elected members. If the person elected to serve as chair is not independent, as defined in the New York Stock Exchange listing standards, the Board of Directors will also elect a Lead Independent Director to preside at executive sessions of nonmanagement directors. Our corporate governance policies and guidelines provide that if the group of nonmanagement directors includes directors who are not independent, as defined in the New York Stock Exchange listing standards, it is the Company’s policy that at least one such executive session convened per year shall include only independent directors.

 

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

 

The Board of Directors held 13 meetings in 2008, including meetings by telephone conference, and acted by unanimous written consent one time in 2008. Each director attended at least 75% of the meetings of the Board of Directors and applicable committees on which they served during the period that they served on the Board of Directors or such committees. In addition, pursuant to our corporate governance policies and guidelines, directors are expected to attend the annual meetings of stockholders. Last year, all of our then current directors attended the annual meeting of stockholders.

 

The Board of Directors maintains the following five standing committees:

 

Executive
Audit
Compensation and Human Resources
Nominating and Corporate Governance
Technology Strategy

 

In December 2007 the Board of Directors created a special PPM Strategy Committee. Membership on the Audit Committee, the Compensation and Human Resources Committee, and the Nominating and Corporate Governance Committee is limited to directors who are independent, as defined in the New York Stock Exchange listing standards, and as affirmatively determined by our Board of Directors.

 

The following directors currently serve on the Executive Committee:

 

Stephen B. Morris, Chair
Luis G. Nogales
Richard A. Post
Michael P. Skarzynski

Mr. Skarzynski joined the Executive Committee in January 2009. The Executive Committee acts on matters that arise between Board meetings and require immediate action. All actions taken by this committee are reported to, and ratified by, the Board of Directors at its next regularly scheduled meeting. The Executive Committee did not meet during 2008. Mr. Morris is not standing for reelection at the Annual Meeting. Following the Annual Meeting, a new Chair of the Executive Committee will be elected by the Board of Directors.

 

The following directors currently serve on the Audit Committee:

 

Richard A. Post, Chair

Shellye L. Archambeau

David W. Devonshire

 

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

 

 

 

 

The Board of Directors has adopted an amended and restated written charter for the Audit Committee, a copy of which is available on our Web site at www.arbitron.com and is available in print, free of charge, to any stockholder who requests it. You can obtain such a print copy by contacting the Treasury Manager at Arbitron Inc., 9705 Patuxent Woods Drive, Columbia, Maryland 21046. The Audit Committee held 13 meetings in 2008, including meetings by telephone conference, and acted by unanimous written consent one time in 2008.

 

The following directors currently serve on the Compensation and Human Resources Committee:

 

William T. Kerr, Chair
Philip Guarascio
Larry E. Kittelberger
Luis G. Nogales

Each member of the Compensation and Human Resources Committee qualifies as an independent director under the New York Stock Exchange listing standards. The principal responsibilities of the Compensation and Human Resources Committee are to:

 

 

The committee has retained the firm of Frederic W. Cook & Co., Inc. as its compensation consultant to assist in the continual development and evaluation of compensation policies and the Compensation and Human Resources Committee’s determinations of compensation awards. The role of Frederic W. Cook & Co., Inc. is to provide independent, third-party advice and expertise on executive and non-employee director compensation issues, as described in the “Compensation Discussion and Analysis” section below. Frederic W. Cook & Co., Inc. maintains no other direct or indirect relationship with the Company.

 

The committee has delegated authority to the CEO under the Company’s 2008 Equity Compensation Plan, 1999 Stock Incentive Plan, and 2001 Broad Based Incentive Plan to make incentive awards to non-executive employees of the Company representing not more than 6,000 shares of the Company’s common stock to any individual.

 

The Board of Directors has adopted an amended and restated written charter for the Compensation and Human Resources Committee, a copy of which is available on our Web site at www.arbitron.com and is available in print, free of charge, to any stockholder who requests it. You can obtain such a print copy by contacting the Treasury Manager at Arbitron Inc., 9705 Patuxent Woods Drive, Columbia, Maryland 21046. The Compensation and Human Resources Committee held six meetings in 2008, including meetings by telephone conference, and acted by unanimous written consent two times in 2008.

 

The following directors currently serve on the Nominating and Corporate Governance Committee:

 

Philip Guarascio, Chair
William T. Kerr
Luis G. Nogales
Richard A. Post

 

Each member of the Nominating and Corporate Governance Committee qualifies as an “independent” director under the New York Stock Exchange listing standards. The principal purposes of the Nominating and Corporate Governance Committee are to:

 

 

 

The Nominating and Corporate Governance Committee has approved, and the Board of Directors has adopted, policies and procedures to be used for considering potential director candidates to continue to ensure that our Board of Directors consists of a diversified group of qualified individuals who function effectively as a group. These policies and procedures provide that qualifications and credentials for consideration as a director nominee may vary according to the particular areas of expertise being sought as a complement to the existing composition of the Board of Directors. However, at a minimum, candidates for director must possess: (1) strength of character; (2) an ability to exercise independent thought, practical wisdom and mature judgment; (3) an ability to make independent analytical inquiries; (4) a willingness and ability to devote adequate time and resources to diligently perform Board of Director duties; and (5) a reputation, both personal and professional, consistent with the image and reputation of Arbitron. In addition to the aforementioned minimum qualifications, the Nominating and Corporate Governance Committee also believes that there are other factors that, while not prerequisites for nomination, should be taken into account when considering whether to recommend a particular person. These factors include: (1) whether the person possesses specific media and marketing expertise and familiarity with general issues affecting Arbitron’s business; (2) whether the person’s nomination and election would enable the Board of Directors to have a member that qualifies as an “audit committee financial expert” as such term is defined by the Securities and Exchange Commission; (3) whether the person would qualify as an “independent” director under the New York Stock Exchange listing standards and the Company’s corporate governance policies and guidelines; (4) the importance of continuity of the existing composition of the Board of Directors; and (5) the importance of a diversified Board membership, in terms of both the individuals involved and their various experiences and areas of expertise. The Nominating and Corporate Governance Committee retains a third-party executive search firm to identify and review candidates upon request of the Nominating and Corporate Governance Committee from time to time.

 

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

 

As part of the identification process, the Nominating and Corporate Governance Committee takes into account the number of expected director vacancies and whether existing directors have indicated a willingness to continue to serve as directors if renominated. Once a director candidate has been identified, the Nominating and Corporate Governance Committee then evaluates this candidate in light of his or her qualifications and credentials, and any additional factors that it deems necessary or appropriate. Existing directors who are being considered for renomination will be reevaluated as part of the Nominating and Corporate Governance Committee’s process of recommending director candidates.

 

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

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

 

The Board of Directors has adopted an amended and restated written charter for the Nominating and Corporate Governance Committee, a copy of which is available on our Web site at www.arbitron.com and is available in print, free of charge, to any stockholder who requests it. You can obtain a copy in print by contacting the Treasury Manager at Arbitron Inc., 9705 Patuxent Woods Drive, Columbia, Maryland 21046. The Nominating and Corporate Governance Committee held seven meetings in 2008, including meetings by telephone conference.

 

The following directors serve on the Technology Strategy Committee:

 

Larry E. Kittelberger, Chair
Shellye L. Archambeau
David W. Devonshire
William T. Kerr

 

The principal purposes of the Technology Strategy Committee are to:

 

 

The Technology Strategy Committee held three meetings in 2008.

 

Effective as of December 17, 2007, the Board of Directors created a special PPM Strategy Committee. Pursuant to its charter and the resolution of the Board of Directors creating the PPM Strategy Committee, the PPM Strategy Committee ceased to exist upon the February 2009 meeting of the Board of Directors. During 2008 and while the PPM Strategy Committee existed during 2009, the following directors served on the PPM Strategy Committee:

 

Philip Guarascio, Chair
Stephen B. Morris
Richard A. Post

 

The primary purpose of the PPM Strategy Committee was to review the Company’s PPM implementation plans and to report promptly all conclusions and recommendations to the full Board of Directors for its information and consideration of any binding action. The Board of Directors had determined that a majority of the members of the PPM Strategy Committee must qualify as “independent” directors under the New York Stock Exchange listing standards. The PPM Strategy Committee held six meetings in 2008, including meetings by telephone conference. The PPM Strategy Committee did not meet in 2009.

 

The table below provides information concerning the compensation of the directors for our most recently completed fiscal year. Except as noted below, all of our directors are paid at the same rate. The differences among directors in the table below are a function of additional compensation for chairing a committee, varying

numbers of meetings attended and corresponding payments of meeting fees, and the form in which each director elects to receive retainer fees. In accordance with SEC regulations, share-based compensation is valued at the grant date fair value computed in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised), Share-Based Payment (“SFAS No. 123R”). We record such expense ratably over the vesting period. We include in the table below the dollar amount recognized for financial statement reporting purposes for compensation expense incurred by the Company in 2008 with respect to share-based compensation awarded to directors.

 

Each director who is not also an employee of Arbitron or its subsidiaries is entitled to receive an annual board retainer fee of $30,000, which is paid in quarterly installments. Our Lead Independent Director receives a supplemental annual cash payment of $25,000. The non-employee chair of the Audit Committee is entitled to receive a supplemental annual cash payment of $20,000; non-employee chairs of the Compensation and Human Resources Committee, the Nominating and Corporate Governance Committee, and the Technology Strategy Committee are entitled to receive a supplemental annual cash payment of $10,000. The chair of the PPM Strategy Committee did not receive a supplemental annual cash payment. For each Board meeting attended, in person or by telephone, participating non-employee directors are entitled to receive $1,500. For each committee meeting attended in person, participating non-employee directors are entitled to receive $1,500 and for each committee meeting attended by telephone, participating non-employee directors are entitled to receive $750.

 

Beginning in 2008, each newly elected non-employee director receives a one-time grant of 4,500 deferred stock units (“DSUs”), which DSUs will vest in three equal installments of 1,500 DSUs over a three-year period and will be payable following the director’s termination of service as a director of the Company. Beginning the year after initial election to the Board of Directors, each continuing non-employee director will receive an annual grant of $100,000 worth of stock options based on a Black-Scholes valuation calculated using the closing price of the Company’s common stock on the grant date. The exercise price per share of each option granted will be equal to 100% of the fair market value of the underlying Company common stock on the date the option is granted, which is equal to the closing price of the Company’s common stock on such date. These options will become fully vested on the date of grant and exercisable in full six months after the date of grant and will expire 10 years from the date of grant.

 

Prior to 2008, each newly elected director received a one-time grant of an option to purchase 15,000 shares of our common stock, which option vests and become exercisable in three equal annual installments of 5,000 shares over a three-year period and expires 10 years from the date of grant. In addition, prior to 2008, beginning the year after initial election to the Board of Directors, each continuing non-employee director received and annual grant of an option to purchase 7,000 shares of our common stock on the date of the annual meeting of stockholders, which option was fully vested on the date of grant, became exercisable in full six months after the date of grant, and expires 10 years from the date of grant. The exercise price of each of the options described in this paragraph was equal to 100% of the fair market value of our common stock on the date of grant.

 

The Company previously adopted a Non-employee Director Incentive Program, which permits non-employee directors to receive, at their discretion, either options or DSUs in lieu of their annual cash retainers and meeting fees. A director who elects to receive options receives a number of options based on a calculation approved by the Compensation and Human Resources Committee. The formula for determining the number of option shares is to divide the cash fees earned in the quarter by the closing price of Arbitron common stock on the date of the grant, which is the last trading day of the quarter. This amount is then multiplied by four to arrive at the number of option shares granted.

 

A director who elects to receive DSUs receives a number of units based on a calculation approved by the Compensation and Human Resources Committee. The formula for determining the number of DSUs is to multiply the cash fees earned in the quarter by 120% and divide the result by the closing price of Arbitron common stock on the date of the grant, which is the last trading day of the quarter. DSUs granted to our directors convert to shares of our common stock after termination from the Board of Directors, based upon a schedule elected by the directors in advance. In the event that a director elects to receive DSUs, the director

will receive dividend equivalent rights on such DSUs to the extent dividends are issued on our common stock. Dividend equivalents are deemed reinvested in additional DSUs (or fractions thereof). The amounts set forth in the table below for each director in the column “Fees Earned or Paid in Cash” represent the cash payment of annual retainers and fees or, if the director elected to receive equity-based compensation in lieu of all or a portion of such retainers and fees, the amount of cash the director would have received if the director had not elected to receive such equity-based compensation. If the director elected to receive equity-based compensation in lieu of annual cash retainers and fees, we report in the columns “Stock Awards” and “Option Awards,” as applicable, the dollar amount recognized for financial statement reporting purposes with respect to 2008 in accordance with SFAS No. 123R of the aggregate incremental value of equity-based compensation received in lieu of annual cash retainers and fees in excess of the cash such director would have received if the director had not elected to receive equity-based compensation.

 

It is also the philosophy of the Company that directors should have a meaningful equity ownership in the Company. In 2004, the Board established ownership guidelines covering directors. The guidelines are for each director to own shares with a value of four times the annual board retainer. These guidelines are expected to be achieved over five years and include all owned shares, as well as DSUs credited to the directors, but outstanding and unexercised stock options are not counted. As of mid-2008, all directors who had served on the Board for more than five years had satisfied or exceeded the stock ownership guideline. Since mid-2008, the fair market value of our Common Stock has declined. The Board will consider during 2009 whether any changes to our stock ownership guidelines for directors and executives are necessary or appropriate.

 

Messrs. Morris and Skarzynski are employees of Arbitron and are not separately compensated for their service as a director.

 

2008 Director Compensation

 

 

 

 

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

 

Michael P. Skarzynski, age 52, President and Chief Executive Officer since January 2009

 

 

Sean R. Creamer, age 44, Executive Vice President of Finance and Planning and Chief Financial Officer since November 2005

 

 

Timothy T. Smith, age 45, Executive Vice President and Chief Legal Officer, Legal and Business Affairs since August 2006

 

 

Alton L. Adams, age 51, Executive Vice President, Chief Marketing Officer since March 2009

 

 

Pierre C. Bouvard, age 47, Executive Vice President, Sales since February 2009

 

 

Robert F. Henrick, Ph.D, age 54, Executive Vice President, Customer Solutions since March 2009

 

 

Scott Henry, age 47, Executive Vice President and Chief Information Officer since February 2005

 

 

Steven M. Smith, 48, Executive Vice President, Survey Operations, since August 2008

 

 

In this section, we discuss certain aspects of our compensation program as it pertains to our principal executive officer (“CEO”), our principal financial officer (“CFO”) and our three other most highly compensated executive officers in 2008. We refer to these five persons throughout this proxy statement as the named executive officers or “NEOs.” Our discussion focuses on compensation and practices relating to 2008, our most recently completed fiscal year.

 

We believe that the performance of the NEOs and other executive officers has the potential to impact both our short- and long-term profitability. Therefore, our Compensation and Human Resources Committee (referred to as the “Committee” in the remainder of this section) and management place considerable importance on the design and administration of our executive compensation program.

 

Our executive compensation program is designed to attract, motivate and retain high-quality executives by providing total compensation that is performance-based and competitive in the various labor markets and industries where we compete for talent. We provide incentives to advance the interests of our stockholders and deliver levels of compensation that are commensurate with performance. Overall, we design our executive compensation program to:

 

 

These objectives are designed to support and promote our key strategic business objectives of growing our radio audience measurement business and expanding our information services to a broader range of media, including broadcast television, cable, out-of-home media, satellite radio and television, Internet broadcasts and mobile media.

 

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

 

 

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

 

When making compensation decisions with respect to each component of compensation, the Committee considers the competitive market for executives and also looks at the compensation of our CEO and the other NEOs relative to the compensation paid to similarly-situated executives at companies that we consider to be our peers. We believe, however, that a comparison to peer group compensation information should be one reference point for consideration, but not the determinative factor for setting our executives’ compensation. The purpose of the comparison is to augment and not to supplant the analyses of the relative pay among our NEOs and individual performance that we consider when making compensation decisions.

 

We refer to the current peer group of 16 similarly-sized media, market-research, and information-based business services companies considered by the Committee in 2008, collectively, as our “Compensation Peer Group.” With the assistance of its compensation consultant, the Committee reviews the composition of the Compensation Peer Group annually to ensure that such comparison companies are relevant and appropriate.

 

The Committee selected the Compensation Peer Group companies for 2008 based primarily on the following criteria:

 

 

 

Our 2008 Compensation Peer Group consisted of the following companies:

 

 

In February 2009, the Committee deleted Catalina Marketing and TeleTech Holdings from the Compensation Peer Group because they no longer met the above criteria. Also in February 2009, the Committee added comScore, Inc., First Advantage Corporation, and Harris Interactive Inc. to the Compensation Peer Group. As of February 2009, our revenue and market capitalization were approximately between the 25th percentile and the median of the Compensation Peer Group.

 

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

 

The purpose of base salary is to reflect job responsibility, experience, value to the Company and individual performance with respect to market competitiveness. During 2008, the minimum salary for Mr. Morris was specified in his employment agreement. The Committee determines the salaries for our other NEOs based on the following:

 

 

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

 

Base salary is the foundation of our executive compensation program and is designed to compensate executives for services rendered during the year. In setting base salaries, the Committee considers the importance of linking a high proportion of executive officers’ compensation to performance in the form of the annual non-equity incentive plan payment, which is tied to both Company performance measures and individual performance as well as long-term stock-based compensation, the grant value of which is tied to Company stock price performance and performance compared to the Compensation Peer Group, and which vests subject to continued employment.

 

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

 

We design our annual non-equity incentive plan to reward executives for achieving corporate goals and provide significant upside for exceeding such goals. Early in the fiscal year, the Committee, working with our CEO, CFO, and the Committee’s independent consultant, sets overall performance goals for the Company. The annual non-equity incentive plan compensation for which our executives other than the CEO are eligible is equal to between 40% and 55% of salary at the “target” performance level for full achievement of the performance goals, and up to two times “target” for superior performance. The Committee has discretion to grant non-equity incentive payments in excess of the “superior” level of performance in order to reward actual performance that exceeds the “superior” level. If performance goals do not meet the “threshold” level of performance, no compensation will be awarded for the specific performance category; however, if performance goals are achieved at threshold levels, but not at target levels, the Committee has discretion to award non-equity incentive compensation in an amount between 50% of the target level and the target level, based on the Committee’s assessment of the value of the relevant performance. During 2008, pursuant to the terms of his employment agreement, the target annual non-equity incentive plan payment for Mr. Morris was equal to 75% of his base salary at the “target” performance level and 150% of his base salary at the “superior” performance level.

 

During 2008, we determined that corporate-wide continuous improvement of our electronic and Diary-based radio ratings services, including without limitation resumption of our delayed PPM commercialization program, represented our highest priorities for the year. Because these priorities required our executives to focus collaboratively on overall corporate initiatives, we determined that 2008 annual non-equity incentive payments for all NEOs should be based entirely on the achievement of corporate goals, subject to the Committee’s discretion to adjust payments based on the individual performance of the executives.

 

The Committee established 2008 Incentive Plan performance goals to provide for an annual cash payment that is performance linked based upon our diluted earnings per share (weighted 30%), revenue growth rate (excluding our discontinued Project Apollo initiative and the discontinued operations of our former CSW subsidiary in both 2007 and 2008) (weighted 10%), and commercialization of our Portable People Meter-based radio ratings service (weighted 60%). We selected the two financial targets, earnings per share and revenue, in order to motivate executives to achieve the Company’s overall financial objectives. We weighted these two financial targets, in the aggregate, at 40% of the total corporate goals to reflect the importance we place on the Company’s financial performance. Between the two financial targets, earnings per share is emphasized in order to focus executives’ attention on a financial measure that we believe aligns the interests of management with those of long-term stockholders and rewards management for creating value for such long-term stockholders. PPM commercialization was weighted at 60% overall, given the importance of commercialization of the service in driving stockholder value, particularly in light of the delay in commercialization of the service we had announced in November 2007.

 

The Committee ultimately exercises its discretion in assessing corporate performance under the plan. In evaluating performance, the Committee reviews performance against the goals utilizing a number of metrics and assigns a performance factor for each goal. If the Committee determines that actual performance for any goal fell below the threshold level, it assigns a performance factor of zero for that goal. While the Committee exercises its discretion in each case, there is a presumption with respect to each individual goal that performance (i) at the threshold level will result in a performance factor of .5, (ii) at the target level will result in a performance factor of 1.0, and (iii) performance at the superior level will result in a performance factor of 2.0. For performance either between threshold and target or between target and superior, the Committee uses its discretion to assign a performance factor generally utilizing the guidelines set forth above.

 

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

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

 

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

 

The Committee also considered the recommendation of the CEO (for executive officers other than himself) in exercising its judgment. Following consideration of a variety of data regarding 2008 results, and following the guidelines set forth above, the Committee approved the following overall assessment of 2008 performance:

 

 

In February 2009, the Company reported 2008 diluted earnings per share of $1.37. The Committee determined that actual performance was 87.5% of the difference between Threshold and Target and assigned a performance factor of .875 for the EPS goal.

 

 

The Committee assessed revenue growth as 9.0%, slightly above the Superior target. Accordingly, the Committee assigned a performance factor of 2.0 for the revenue goal.

 

 

The Committee determined that the Company had commercialized all scheduled markets as of December 31, 2008 and, therefore, the objective criteria for assessing corporate performance at Superior had been satisfied. However, in light of a number of factors generally considered proprietary by the Company, including, but not limited to, our interactions with various governmental entities, the Committee exercised its negative discretion and assessed corporate performance against the PPM commercialization goal at the Target level and assigned a performance factor of 1.0 for the PPM commercialization goal.

 

Accordingly, the Committee approved an overall corporate assessment of 106.25% of target for the 2008 Non-Equity Incentive Plan. Following this overall assessment, and in view of individual executive performance during 2008, the Committee further exercised its discretion and directed the Company to adjust Mr. Charlebois’s non-equity incentive payment downward in consideration of a variety of factors including, among others, the overall performance of our PPM radio ratings service during 2008, adjust Mr. Creamer’s non-equity incentive payment upward in consideration of his individual performance during a difficult period for the Company, and adjust Mr. Smith’s non-equity incentive payment above superior in consideration of outstanding individual performance with regard to a number of extraordinary legal matters during the year. The Committee further delegated authority to the CEO to adjust the non-equity incentive payments of other non-NEO employees, as he deemed appropriate and in furtherance of the Committee’s findings on corporate performance. As a result of these determinations, the Company awarded 2008 non-equity incentive plan payments in the amounts set forth in the Summary Compensation Table.

 

The long-term incentive program provides a periodic award (typically annual) that is based on competitive grant guidelines and adjusted for individual contributions. The objectives of this program are to align compensation for NEOs over a multiyear period with the interests of stockholders by motivating and rewarding creation and preservation of long-term stockholder value. The level of long-term incentive compensation for each NEO is determined based on an evaluation of competitive factors in conjunction with total compensation provided to NEOs and the other goals of the compensation program described above. Committee meetings, at which grants are determined, are normally scheduled well in advance and are not scheduled with an eye to announcements of material information regarding the Company. The Committee has refrained from making equity grants at regularly scheduled meetings if the Company is in possession of material non-public information, and has deferred such grants until a subsequent meeting following disclosure by the Company of any material non-public information.

 

On March 3, 2008, the Committee approved grants of options and restricted stock units to executive officers, including the NEOs, as set forth in “— 2008 Grants of Plan-Based Awards” below. In 2007, the Company exclusively granted restricted stock units, and not options to NEOs, as had been the mix in prior years. In 2008, the Company returned to its prior practice and granted to NEOs a mix of stock option awards and restricted stock grants. These two vehicles reward stockholder value creation in slightly different ways. Stock options (which have exercise prices equal to the fair market value of the common stock on the date of grant) reward executives only if the stock price increases. Restricted stock is impacted by all stock price changes and, therefore, the value to NEOs is affected by both increases and decreases in stock price. The grants to NEOs, other than to Mr. Morris, were approximately equally weighted in value between restricted stock units and stock options. This mix of grant types was determined by the Committee to most effectively balance risk and reward for future stockholder value creation with ownership and retention objectives of the executive compensation program.

 

Restricted stock units granted to NEOs, except for Mr. Morris’s 2008 grant, vest in equal annual installments over the first four anniversaries of the grant date, based on continued employment. Except as provided in an Executive Retention Agreement, all unvested restricted stock units are forfeitable upon termination of employment, unless otherwise indicated in individual employment agreements. See “Potential Payments Upon Change in Control — Executive Retention Agreements” below for more information regarding these Executive Retention Agreements. The restricted stock units do not provide voting or dividend rights until the units are vested and converted into common stock. Option grants to named executive officers vest ratably over three years, beginning on the first anniversary of the date of grant and have a term of 10 years.

 

Mr. Morris’s 2008 grant of restricted stock units vests, subject to continued employment, in two equal installments beginning on December 31, 2008 and ending on December 31, 2009. On the vesting date of each annual installment, Mr. Morris will receive a number of shares of common stock representing 50% of that annual installment, rounded down to the next whole share, of the restricted stock units vesting on that date, with the number of remaining restricted stock units vesting on such date credited to Mr. Morris’s account as

an equivalent number of deferred stock units. This vesting schedule was designed to balance annual pay delivery and future ownership.

 

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

 

Although it currently intends to do so during the second quarter, the Committee has not approved, and the Company has not made any equity grants to NEOs during 2009.

 

We reimburse executive officers (and in the case of Mr. Morris only, his spouse) for the cost of an annual physical examination. During 2008, we also assisted NEOs with the payment of taxes associated with spousal travel to a single meeting. We have discontinued this practice during 2009. With these limited exceptions, our NEOs are provided with benefits and perquisites that are substantially the same as those offered to other employees of the Company.

 

Mr. Morris participates in a defined benefit pension plan and a supplemental retirement plan, the Arbitron Benefit Equalization Plan (“BEP”), and Mr. Morris is the sole participant in the Supplemental Executive Retirement Plan (“SERP”). The amounts payable under such retirement plans to Mr. Morris are determined by the plans’ benefit formulas, which we describe in the section “Pension Benefits Table” below. The amount of benefits varies based upon the plan, the executive’s years of service with us and the executive’s compensation.

 

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

 

Under the terms of the 401(k) Plan, employees may defer from 1% to 17% of their eligible earnings, and we make a matching contribution of 50% of before-tax employee contributions up to a maximum of 3% to 6% of eligible employee earnings. We may also make an additional discretionary matching contribution of 0% to 30% of before-tax employee contributions up to a maximum of 3% to 6% of eligible employee earnings (depending on the Company’s profitability). The 3% maximums referred to in the previous sentences relate to employees who are pension participants and the 6% maximums relate to employees who are not pension participants.

 

Our matching contributions to the 401(k) Plan for each NEO are set forth in the Summary Compensation Table below. See also “Summary of Cash and Certain Other compensation and Other Payments to the NEOs — 2008 Nonqualified Deferred Compensation — 401(k) Plan.”

 

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

 

On December 30, 2008, we entered into an Executive Transition Agreement with Mr. Morris (the “Morris Agreement”). The Morris Agreement generally replaces and supersedes all prior agreements and undertakings between Mr. Morris and the Company with respect to Mr. Morris’s employment. Mr. Morris’s prior employment agreement, most recently amended as of July 3, 2006, had incented Mr. Morris to remain with the Company until December 31, 2009, as well as to manage a strategic/succession plan, including assisting the Board with the selection of his successor.

 

Pursuant to the terms and conditions of the Morris Agreement, Mr. Morris’s employment as President and Chief Executive Officer (collectively, “CEO”) of the Company would continue until the earlier to occur of December 31, 2009 or the Board’s approval and appointment of a successor as Chief Executive Officer of the Company. After the appointment of such a successor, Mr. Morris will remain an employee of the Company and be available to provide transition assistance, consultation, and advice through December 31, 2009 and will serve, for such time as the Board chooses, as Chairman of the Board. Mr. Morris will not be required to provide consulting services after December 31, 2009. As noted, Mr. Morris is not standing for reelection to the Board at the Annual Meeting, and as such will no longer serve as Chairman of the Board following the Annual Meeting.

 

We will pay Mr. Morris a base salary at the rate of $57,240 per month for each month of 2009 prior to and including the month in which the Board appoints a successor as our Chief Executive Officer and at a reduced rate of $11,250 per month thereafter. As specified below, the Board appointed Michael P. Skarzynski as our President and Chief Executive Officer on January 12, 2009. Accordingly, beginning in February 2009 we will pay Mr. Morris a base salary at the rate of $11,250 per month through December 31, 2009. Bonus or incentive compensation will be at the sole discretion of the Committee, but the Agreement contemplates that Mr. Morris will be eligible for a bonus equal to 75% of his Blended Base Salary for 2009. For purposes of the Morris Agreement, “Blended Base Salary” means a blended rate of base salary determined using the higher base salary applicable to January and the remainder of 2009 at the lower rate.

 

Subject to approval by the Committee, we will grant Mr. Morris in 2009 a restricted stock award covering 43,333 shares of common stock. The restricted stock award will vest in full on December 31, 2009, provided that Mr. Morris remains on the Board or in the continuous employ or service of the Company as of such date. Upon vesting, we will issue the restricted stock award in the form of shares of Common Stock as to 50% of the number of shares covered by the award and DSU as to 50% of the number of shares of Common Stock covered by the award, which DSUs are convertible into shares of Common Stock after termination of Mr. Morris’s employment. Pursuant to the Morris Agreement, Mr. Morris confirms his earlier waiver of any right to accelerate the vesting of any outstanding restricted stock award or any outstanding stock option upon his retirement, and his agreement not to sell, transfer or otherwise dispose of more than 25% of the aggregate number of shares of Common Stock covered by his restricted stock awards during any consecutive 12-month period.

 

Mr. Morris will be entitled to participate during 2009 in any of our benefit plans that cover him and provide for participation based on his level of continuing services. If medical coverage ceases under the terms of our plan, Mr. Morris will be entitled to obtain continuation coverage for the lesser of the period for which he is entitled to such coverage and 18 months, at his own expense. We will provide Mr. Morris and his spouse with an annual physical examination in 2009, even if his services as CEO have already ceased.

 

Consistent with his prior employment agreement, Mr. Morris will be entitled to a supplemental retirement benefit following his separation from service with the Company for any reason, other than breach of the Morris Agreement or termination for cause, as defined in the Morris Agreement. In consideration for his service as required in the transition to a new Chief Executive Officer and as Chairman of the Board during all or part of 2009, and assuming his employment is not terminated for cause, as defined in the Agreement, we will pay Mr. Morris or his estate, on July 10, 2010 (or such later date as required by Section 409A), a lump sum cash payment equal to $1,018,888, reduced by any required tax withholdings. See “Potential Payments Upon Change in Control — Morris Agreement” below for a discussion of potential compensation payable to Mr. Morris under the Morris Agreement upon the termination of his employment.

 

The Morris Agreement contains provisions pursuant to which Mr. Morris has agreed that, while employed by us or a member of the Board and for a period of 12 months thereafter (the “Restrictive Period”), he will not directly or indirectly, subject to certain de minimis exceptions involving the ownership of publicly traded securities, compete with any part of our business. Mr. Morris has agreed during the Restrictive Period not to initiate or actively participate in any other employer’s recruitment or hiring of our employees. Mr. Morris has also agreed to non-disparagement provisions.

 

If payments to Mr. Morris under the Morris Agreement would result in imposition of an excise tax (a “parachute tax”) under Section 4999 of the Code, Mr. Morris will also be entitled to be paid an amount to compensate for the imposition of the tax. The payment will be in an amount such that after payment of all taxes, income and excise, Mr. Morris will be in the same after-tax position as if no parachute tax under the Code had been imposed.

 

In August 2008, we entered into Executive Retention Agreements with members of our senior executive management, including each of our NEOs other than Mr. Morris that provide for severance payments under some circumstances, including termination without cause or resignation as a result of position diminishment following a change in control or leadership change, and for accelerated vesting with respect to stock options and restricted stock grants upon a change in control. These agreements have a fixed five-year term and replace prior executive retention agreements, which otherwise would have remained in place indefinitely. We entered into the Executive Retention Agreements because we do not want our executives distracted by a rumored or actual change in control of the Company. Further, if a change in control should occur, we want our executives to be focused on the business of the organization and the interests of stockholders. In addition, we believe it is important that our executives should react neutrally to a potential change in control and not be influenced by personal financial concerns. We also entered into these agreements to incent our executives to remain employed with the Company to provide continuity and assist in the transition process to a new Chief Executive Officer during 2009. We believe our Retention Agreements assist us in retaining our executive talent. In April 2009, our continuing NEOs and certain of our other non-NEO executive officers entered into Waiver and Amendment of Executive Retention Agreements eliminating the leadership change provisions. The material terms of the Executive Retention Agreements are discussed in the section “Potential Payments Upon Change in Control — Executive Retention Agreements” below.

 

In this section, we discuss significant compensation-related developments that have occurred since December 31, 2008.

 

Effective as of January 12, 2009, upon the appointment of his successor, Mr. Morris transitioned from his position as our President and Chief Executive Officer to become an advisor to the Board. Pursuant to the terms

and conditions of the Morris Agreement, Mr. Morris will remain an employee of the Company and be available to provide transition assistance, consultation, and advice through December 31, 2009 and will serve until the Annual Meeting as Chairman of the Board. Also, effective January 12, 2009, the Board appointed Michael P. Skarzynski as our President and Chief Executive Officer. On January 21, 2009, the Board elected Mr. Skarzynski as a director for a term ending at the Annual Meeting.

 

In connection with a strategic review of our operations, effective as of February 24, 2009, the positions of President, Sales and Marketing and President, Technology, Research and Development of the Company have been eliminated and certain other executive positions have been restructured.

 

The employment of each of Owen Charlebois, formerly President, Technology, Research and Development, Linda Dupree, formerly Executive Vice President, Multimedia, and Kathleen Ross, formerly Executive Vice President and Chief Administrative Officer terminated in March 2009. Each of these former employees will be entitled to receive severance compensation pursuant to the terms of their Executive Retention Agreements with us.

 

On March 30, 2009, we announced the appointment of Alton L. Adams as Executive Vice President, Chief Marketing Officer, and Dr. Robert F. Henrick as Executive Vice President, Customer Solutions. See below for a discussion of the Executive Employment Agreements between us and Messrs. Adams and Henrick.

 

On January 7, 2009, the Company and Mr. Skarzynski entered into an Executive Employment Agreement, effective as of January 12, 2009 (the “Skarzynski Agreement”) covering Mr. Skarzynski’s employment as our President and Chief Executive Officer. For so long as Mr. Skarzynski remains our Chief Executive Officer, the Board intends to nominate him to the Board, and if elected by our stockholders, Mr. Skarzynski will serve as a member of the Board without additional consideration while employed.

 

Pursuant to the terms and conditions of the Agreement, we will pay Mr. Skarzynski an annual base salary of $500,000 and Mr. Skarzynski will be eligible to receive an annual incentive bonus equal to 100% of his annual base salary upon meeting applicable performance criteria set by the Committee. For performance exceeding such applicable performance criteria, the annual incentive bonus will be increased to an amount in excess of the target bonus up to a maximum of 200% of annual base salary, at the sole discretion of the Committee. We will pay an annual bonus in the minimum amount of $250,000 for 2009, provided that Mr. Skarzynski is an employee in good standing on December 31, 2009. The Committee will review the base salary no less frequently than annually. If increased, the increased base salary will become the base salary for all purposes under the Agreement.

 

Pursuant to the Skarzynski Agreement and upon approval of the Committee, we have granted to Mr. Skarzynski an option to purchase 324,504 shares of our common stock and 81,539 restricted stock units. Approximately one half of this equity grant represents the Inducement Grant under the Skarzynski Agreement and approximately one half of this equity grant represents the First Year Grant under the Skarzynski Agreement. These grants were made under our 1999 Stock Incentive Plan and our 2008 Equity Compensation Plan, as determined by the Committee. Assuming continued employment, the stock options under the Inducement Grant and the First Year Grant will vest in equal amounts on an annual basis over a three-year period following the date of grant (beginning with one-third on the first anniversary), and otherwise will contain substantially the same terms and conditions as the Company’s standard form of nonqualified stock option agreement adopted for use under the applicable Stock Plan. Assuming continued employment, the restricted stock units under the Inducement and First Year Grants will vest in equal amounts over a four-year period following the date of grant (beginning with 25% on the first anniversary) and otherwise will contain the same terms and conditions as the Company’s standard form of restricted stock unit agreement adopted for use under the applicable Stock Plan.

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

 

Mr. Skarzynski will, to the extent eligible, be entitled to participate at a level commensurate with his position in all employee welfare, benefit, and retirement plans and programs we provide to our executives in accordance with our policies. Mr. Skarzynski will work at our offices in Columbia, Maryland. Providing that Mr. Skarzynski relocates to a primary residence in proximity to Columbia, Maryland, we will reimburse him for relocation expenses and temporary living expenses up to a maximum of $300,000. If Mr. Skarzynski’s employment ends before December 31, 2010 as a result of resignation or termination for Cause (as defined in the Agreement), Mr. Skarzynski will repay a pro rata portion of the relocation expenses to us. We will also pay Mr. Skarzynski an annual allowance of $10,000 for tax preparation and financial planning.

 

See “Potential Payments Upon Change in Control — Executive Retention Agreements — Skarzynski Executive Employment Agreement” below for a discussion of potential compensation payable to Mr. Skarzynski under the Skarzynski Agreement upon the termination of his employment.

 

The Skarzynski Agreement contains provisions pursuant to which Mr. Skarzynski has agreed that, while employed and for the longest of 12 months following termination for any reason not involving termination by us without Cause, 18 months following termination by us without Cause, and 24 months following termination by us without Cause within 12 months after a Change in Control, he will not directly or indirectly, subject to certain de minimis exceptions involving the ownership of publicly traded securities, compete with any part of our business. Mr. Skarzynski has agreed during employment and for 12 months thereafter not to initiate or actively participate in any other employer’s recruitment or hiring of our employees. The Skarzynski Agreement also contains mutual non-disparagement provisions.

 

The Company and Mr. Adams have entered into an Executive Employment Agreement, effective as of March 30, 2009 (the “Adams Agreement”) covering Mr. Adams employment as Executive Vice President, Chief Marketing Officer of the Company.

 

Pursuant to the terms and conditions of the Adams Agreement, we will pay Mr. Adams an annual base salary of $400,000 and Mr. Adams will be eligible to receive an annual incentive bonus equal to 50% of his annual base salary upon meeting applicable performance criteria set by the Committee. For performance exceeding such applicable performance criteria, the annual incentive bonus will be increased to an amount in excess of the target bonus up to a maximum of 150% of annual base salary, at the sole discretion of the Committee. The Committee will review the base salary no less frequently than annually. If increased, the increased base salary will become the base salary for all purposes under the Adams Agreement.

 

Subject to approval by the Committee, we will grant to Mr. Adams an equity award to be valued at $1,600,000 on the date of grant, with the award divided by value into 75% stock options and 25% restricted stock units, each with respect to our Common Stock (where the value for the options is determined using the Company’s standard Black-Scholes assumptions applied as of the date of grant and where the value for the restricted stock units is determined by dividing the target value for the restricted stock units by the fair market value of the Common Stock on the grant date) (the “Adams Inducement Grant”). Assuming continued employment, the stock options under the Adams Inducement Grant will vest in equal amounts on an annual

basis over a three-year period following the date of grant (beginning with one-third on the first anniversary), and otherwise will contain substantially the same terms and conditions as our standard form of nonqualified stock option agreement adopted for use under its stock plans. Assuming continued employment, the restricted stock units under the Adams Inducement Grant will vest in equal amounts over a four-year period following the date of grant (beginning with one quarter on the first anniversary) and otherwise will contain the same terms and conditions as our standard form of restricted stock unit agreement adopted under its stock plans.

 

The Committee, at its sole discretion, will consider the grant of future compensatory equity awards to Mr. Adams.

 

Mr. Adams will, to the extent eligible, be entitled to participate at a level commensurate with his position in all employee welfare, benefit, and retirement plans and programs that we provide to our executives in accordance with our policies. Mr. Adams will work at our Columbia, Maryland headquarters. Providing that Mr. Adams relocates to a primary residence in proximity to Columbia, Maryland, the company will reimburse Mr. Adams for qualified relocation expenses and temporary living expenses incurred during 2009 up to a maximum of $200,000. If Mr. Adams’s employment ends before December 31, 2010 as a result of resignation or termination for Cause (as defined in the Adams Agreement), Mr. Adams will repay a pro rata portion of the relocation expenses to the Company.

 

See “Potential Payments Upon Change in Control — Executive Retention Agreements — Adams Executive Employment Agreement” below for a discussion of potential compensation payable to Mr. Adams under the Adams Agreement upon the termination of his employment.

 

The Adams Agreement contains provisions pursuant to which Mr. Adams has agreed that, while employed and for the longest of (i) 12 months following termination for any reason not involving termination by us without Cause, (ii) 18 months following termination by us without Cause or following a resignation for Position Diminishment, and (iii) 24 months following termination by us without Cause or a resignation as a result of a Position Diminishment within 12 months after a Change in Control, he will not directly or indirectly, subject to certain de minimis exceptions involving the ownership of publicly traded securities, compete with any part of the Company’s business. Mr. Adams has agreed during employment and for 12 months thereafter not to initiate or actively participate in any other employer’s recruitment or hiring of our employees. Mr. Adams has also agreed to non-disparagement provisions.

 

The Company and Mr. Henrick have entered into an Executive Employment Agreement, effective as of March 30, 2009 (the “Henrick Agreement”) covering Mr. Henrick’s employment as Executive Vice President, Customer Solutions of the Company.

 

Pursuant to the terms and conditions of the Henrick Agreement, we will pay Mr. Henrick an annual base salary of $375,000 and Mr. Henrick will be eligible to receive an annual incentive bonus equal to 50% of his annual base salary upon meeting applicable performance criteria set by the Committee. For performance exceeding such applicable performance criteria, the annual incentive bonus will be increased to an amount in excess of the target bonus up to a maximum of 150% of annual base salary, at the sole discretion of the Committee. The Committee will review the base salary no less frequently than annually. If increased, the increased base salary will become the base salary for all purposes under the Henrick Agreement.

 

Subject to approval by the Committee, we will grant to Mr. Henrick an equity award to be valued at $1,300,000 on the date of grant, with the award divided by value into 75% stock options and 25% restricted stock units, each with respect to the Common Stock (where the value for the options is determined using the our standard Black-Scholes assumptions applied as of the date of grant and where the value for the restricted stock units is determined by dividing the target value for the restricted stock units by the fair market value of the Common Stock on the grant date) (the “Henrick Inducement Grant”). Assuming continued employment, the stock options under the Henrick Inducement Grant will vest in equal amounts on an annual basis over a three-year period following the date of grant (beginning with one-third on the first anniversary), and otherwise will contain substantially the same terms and conditions as our standard form of nonqualified stock option agreement adopted for use under its stock plans. Assuming continued employment, the restricted stock units under the Henrick Inducement Grant will vest in equal amounts over a four-year period following the date of grant (beginning with 25% on the first anniversary) and otherwise will contain the same terms and conditions as our standard form of restricted stock unit agreement adopted under its stock plans.

 

The Committee, at its sole discretion, will consider the grant of future compensatory equity awards to Mr. Henrick.

 

Mr. Henrick will, to the extent eligible, be entitled to participate at a level commensurate with his position in all employee welfare, benefit, and retirement plans and programs we provide to our executives in accordance with our policies. Mr. Henrick will work at our Columbia, Maryland headquarters.

 

See “Potential Payments Upon Change in Control — Executive Retention Agreements — Henrick Executive Employment Agreement” below for a discussion of potential compensation payable to Mr. Henrick under the Henrick Agreement upon the termination of his employment.

 

The Henrick Agreement contains provisions pursuant to which Mr. Henrick has agreed that, while employed and for the longest of (i) 12 months following termination for any reason not involving termination by us without Cause, (ii) 18 months following termination by us without Cause or following a resignation for Position Diminishment, and (iii) 24 months following termination by us without Cause or a resignation as a result of a Position Diminishment within 12 months after a Change in Control, he will not directly or indirectly, subject to certain de minimis exceptions involving the ownership of publicly traded securities, compete with any part of the Company’s business. Mr. Henrick has agreed during employment and for 12 months thereafter not to initiate or actively participate in any other employer’s recruitment or hiring of our employees. Mr. Henrick has also agreed to non-disparagement provisions.

 

During 2004, the Committee recommended and the Board established stock ownership requirements for our executive officers. These officers are expected, over time, to acquire and hold Company stock (including restricted stock units) equal in value to at least the following:

 

 

These guidelines are expected to be achieved within three years of becoming an executive officer, and include owned shares of common stock, restricted shares, and restricted stock units or DSUs that only can be settled in common stock. However, no outstanding unexercised stock options are taken into account for

purposes of satisfying these guidelines. The purpose of stock ownership requirements is to more closely align our key executives’ interests with our stockholders. As of mid-2008, all NEOs who had been in their positions for more than three years had either satisfied or exceeded the applicable stock ownership guideline. Since mid-2008, the fair market value of our Common Stock has declined. The Board will consider during 2009 whether any changes to our stock ownership guidelines for directors and executives are necessary or appropriate.

 

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

 

 

Section 162(m) of the Internal Revenue Code of 1986, as amended (“Section 162(m)”), disallows any tax deductions for compensation exceeding $1 million and paid in a taxable year to any NEO other than the CFO, all of whom are “covered employees” under Section 162(m). However, certain performance-based compensation, determined under pre-established objective performance goals, can be deducted even in excess of the $1 million limit. The Committee considers the potential impact of Section 162(m) as one factor to be taken into account in setting total compensation and its component elements. However, the Committee believes that it must retain flexibility, in observing its overall compensation philosophy and objectives, to structure total compensation to include components, such as service-vesting restricted stock units, that would not be treated as performance-based compensation under the Section, both in order to attract and retain top talent and to appropriately gauge the performance of executives. Achieving the desired flexibility in the design and delivery of total compensation, therefore, may result in some compensation not being deductible for federal income tax purposes. In this regard, approximately $21,000 of Mr. Morris’s compensation in 2008 was not deductible for federal income tax purposes.

 

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

 

Submitted by the Compensation and

Human Resources Committee of the

Board of Directors

 

William T. Kerr, Chair

Philip Guarascio

Larry E. Kittelberger

Luis G. Nogales

 

2008 Summary Compensation Table

 

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

 

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

 

In the columns “Stock Awards” and “Option Awards,” SEC regulations require us to disclose the dollar amount of the award of stock or options recognized for financial statement reporting purposes in accordance with SFAS No. 123R, disregarding any estimate of forfeitures relating to service-based vesting conditions applicable to that award. For restricted stock, the SFAS No. 123R fair value per share is equal to the closing price of our stock on the date of grant. Except with respect to Mr. Morris, restricted stock awards typically vest in four equal annual installments beginning on the first anniversary of the date of grant. Awards are conditioned on the participant’s continued employment with Arbitron, but may have additional restrictions. We recognize such expense ratably over the vesting period. For stock options, the SFAS No. 123R fair value per share is based on certain assumptions, which we explain in note 15 to the consolidated financial statements contained in our Annual Report on Form 10-K. We recognize such expense ratably over the vesting period. The amounts shown in the 2008 Summary Compensation Table also include a ratable portion of each grant we made in prior years to the extent a portion of the vesting period occurred in 2008. Please also refer to the second table in this Proxy Statement, “Summary of Cash and Certain Other Compensation and Other Payments to the NEOs — 2008 Grants of Plan-Based Awards.” In the column “Non-equity Incentive Plan Compensation,” we disclose the dollar value of all earnings for services performed during the fiscal year pursuant to awards under non-equity incentive plans.

 

In the column “Change in Pension Value and Nonqualified Deferred Compensation Earnings,” we disclose the sum of the dollar value of (1) the aggregate change in the actuarial present value of the NEO’s accumulated benefit under all defined benefit and actuarial pension plans (including supplemental plans) in 2008; and (2) any above-market or preferential earnings on nonqualified deferred compensation, including on nonqualified defined contribution plans.

 

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

 

 

 

 

 

 

 

 

 

2008 Grants of Plan-Based Awards

 

In this table, we provide information concerning each grant of an award made to a NEO in the most recently completed fiscal year under any plan. In the fourth column, we report the number of restricted stock units granted in the fiscal year. In the fifth column, we report the aggregate SFAS No. 123R value of all awards made in 2008; in contrast to how we present amounts in the Summary Compensation Table, we report such figures here without apportioning such amount over the service or vesting period. In all cases, the grant date fair value was equal to the closing market price of our common stock on the grant date, which was the date on which the Compensation and Human Resources Committee approved the grant, which price we report in the sixth column.

 

 

 

 

 

Outstanding Equity Awards at Fiscal Year-End

 

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

 

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

 

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

 

 

 

 

Option Exercises and Stock Vested

 

The following table provides information concerning exercises of stock options and similar instruments, and vesting of restricted stock and similar instruments, during the most recently completed fiscal year for each of the NEOs on an aggregated basis. The table reports the number of securities for which the options were exercised; the aggregate dollar value realized upon exercise of options; the number of shares of restricted stock that have vested; and the aggregate dollar value realized upon vesting of stock.

 

2008 Pension Benefits Table

 

Arbitron has established a voluntary, tax-qualified, defined benefit pension plan funded by employee and employer contributions. The plan covers Arbitron employees who, as of December 31, 2000, were eligible to participate in the Ceridian Corporation (“Ceridian”) pension plan. The Ceridian plan was closed to new participants effective January 2, 1995. Benefits earned under the Ceridian plan prior to December 31, 2000, are payable from the Arbitron plan for participants employed by Arbitron on December 31, 2000. The amount of the annual benefit under Arbitron’s plan is based upon an employee’s average annual compensation during the employee’s highest consecutive five-year earnings period while participating in the Ceridian plan or the Arbitron plan. Because the Internal Revenue Code of 1986, as amended, limits the annual benefit that may be paid from tax-qualified plans such as Arbitron’s retirement plan, Arbitron also established a benefit equalization plan (“BEP”) to provide retirees with supplemental benefits so that they will receive, in the aggregate, the benefits they would have been entitled to receive under the retirement plan had these limits not been in effect. Benefits earned under the Ceridian BEP prior to December 31, 2000, are payable from the Arbitron plan for participants employed by Arbitron on December 31, 2000. Arbitron also established and funded a benefit protection trust to pay BEP benefits. Normal retirement age under the pension plan and the BEP is 65.

 

Annual compensation for purposes of the pension plan and the Arbitron BEP consists of salary and any annual non-equity incentive plan payments paid during the year, less the amount contributed by the employee to the pension plan that year on a pretax basis. Mr. Morris is the only NEO eligible to participate in these plans. Compensation of Mr. Morris for 2008 for the pension plan was $230,000. Eligible compensation for purposes of the Arbitron BEP was $844,942 during 2008. For purposes of the pension plan and the Arbitron BEP, an annual non-equity incentive plan payment is considered part of annual compensation in the year in which it is paid, rather than the year in which it was earned (the latter formulation being the basis on which such amounts are reported in our Summary Compensation Table).

 

The Arbitron Supplemental Executive Retirement Plan (“SERP”) is designed to provide a targeted level of postretirement income to Mr. Morris. The SERP benefit supplements the retirement benefits provided to Mr. Morris under the pension plan and the Arbitron BEP. Covered compensation for Mr. Morris during 2008 for the SERP was $844,942. Normal retirement age under the SERP is 63.

 

Benefit amounts in the Pension Benefits Table below are computed assuming payments are made on the normal life annuity basis and not under any of the various survivor options. Benefits listed in the table are not subject to deduction for Social Security or other offset amounts.

 

 

 

 

No NEO participated in any nonqualified deferred compensation plan during 2008.

 

Arbitron maintains a 401(k) plan that permits participating employees to contribute a portion of their compensation to the plan on a pretax basis. Arbitron makes matching contributions in amounts determined by Arbitron.

 

The 401(k) plan accounts are invested among a number of available investment options, including shares of Arbitron common stock, according to the directions of the participating employees. Voting and tender rights with respect to shares of Arbitron common stock credited to participants’ accounts will be passed through to the participants.

 

While employed, participating employees may access their accounts through loans and, in some cases, in-service withdrawals. Following termination of employment, benefits are either distributed in a lump-sum payment or, if minimum requirements are met, can be kept in the plan. To the extent a participant’s account is invested in full shares of Arbitron’s common stock, the shares may be distributed to the participant when the account is distributable.

 

Arbitron retains the right to amend or terminate the 401(k) plan at any time.

 

The following table summarizes the estimated payments to be made under each contract, agreement, plan or arrangement that provides for payments to a NEO at, following, or in connection with any termination of employment including by resignation, retirement, disability or a constructive termination of a NEO, or our change in control or a change in the NEO’s responsibilities. However, in accordance with SEC regulations, we do not report any amount to be provided to a NEO under any arrangement that does not discriminate in scope, terms, or operation in favor of our executive officers and which is available generally to all salaried employees. Also, the following table does not repeat information disclosed above under the pension benefits table, except to the extent that the amount payable to the NEO would be enhanced by the termination event.

 

For the purpose of the quantitative disclosure in the following table, and in accordance with SEC regulations, we have assumed that the termination took place on the last business day of our most recently completed fiscal year, and that the price per share of our common stock is the closing market price as of that date — $13.28.

 

Mr. Morris currently has an employment agreement with the Company, the material terms of which are described in “Compensation Discussion and Analysis — Employment Agreements — Morris Executive Transition Agreement” above.

 

Mr. Morris’s agreement with us provides for payments under certain circumstances at, following, or in connection with a termination of employment. Mr. Morris’s agreement does not provide for any additional incremental payments upon our change in control.

 

If we terminate Mr. Morris’s employment for Cause, as defined in the Morris Agreement, we will pay Mr. Morris his then applicable rate of base salary through the date of termination specified in any written notice of termination.

 

If we or Mr. Morris terminate Mr. Morris’s employment without Cause, we will generally pay Mr. Morris, starting on the 60th day after the date employment ends, an amount equal to the sum of the base salary scheduled to be paid for the remainder of 2009 and 75% of his Blended Base Salary (as described above in “Compensation Discussion and Analysis”). We would make this payment ratably over the remainder of 2009. To receive the payments specified in this paragraph, Mr. Morris must execute a release in the form provided by us of all legally-releasable claims that Mr. Morris may then have against us and any of our affiliates.

 

If Mr. Morris’s employment terminates because of his death during 2009, we will generally pay to Mr. Morris’s designated beneficiary, surviving spouse, or estate an amount equal to 175% of his Blended Base

Salary in a lump sum. In the event of disability, as defined in the Morris Agreement, during 2009, base salary will be terminated as of the date such disability is determined. In the event of termination by reason of death or disability during 2009, we will pay to Mr. Morris or his heirs an amount, if any, equal to (i) the amount Mr. Morris would have received in annual non-equity incentive for 2009 had “target” goals been achieved, multiplied by (ii) a fraction, the numerator of which is the number of whole months Mr. Morris was employed during 2009 and the denominator of which is 12. Any amount determined pursuant to the preceding sentence will be paid within 15 days after the date such payment would have been paid had Mr. Morris remained employed for all of 2009.

 

The parties agree that Mr. Morris will not be entitled to any other termination or severance payment under any other agreement between Mr. Morris and us.

 

Consistent with his prior employment agreement, Mr. Morris will be entitled to a supplemental retirement benefit following his separation from service with us for any reason, other than breach of the Morris Agreement or termination for Cause. The amount of the supplemental retirement benefit provided under the Morris Agreement is determined substantially by multiplying the number of years of Mr. Morris’s employment, giving credit from 1994, by a percentage of Mr. Morris’s final average earnings (as defined in the our Retirement Plan) and subtracting from this gross amount an offset amount. The offset amount consists of the annual amounts payable to Mr. Morris under our Retirement Plan (a tax-qualified, defined benefit plan), our benefit equalization plan, and the tax-qualified pension plan of any of Mr. Morris’s previous employers. The supplemental retirement benefit will be paid on July 1, 2010 (or such later date as is required by Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A” of the “Code”)) in the form of a lump sum cash payment.

 

If Mr. Morris dies before the first day of the first calendar month following separation from service with us (the “Determination Date”), we will pay to Mr. Morris’s surviving spouse, if any, a benefit equal to 50% of the amount of the supplemental retirement benefit that would have otherwise been paid to Mr. Morris under the Morris Agreement if Mr. Morris had lived until he received the supplemental retirement benefit. If Mr. Morris dies on or after the Determination Date but before payment of the supplemental retirement benefit, we will pay to Mr. Morris’s estate the supplemental retirement benefit that would have otherwise been paid had Mr. Morris lived.

 

In consideration for his service as required in the transition to a new Chief Executive Officer and as Chairman of the Board during all or part of 2009, and assuming his employment is not terminated for Cause, we will pay Mr. Morris or his estate, on July 10, 2010 (or such later date as required by Section 409A), a lump sum cash payment equal to $1,018,888, reduced by any required tax withholdings.

 

Messrs. Creamer, Bouvard, Charlebois, and Smith have entered into Executive Retention Agreements with us that provide for severance payments under some circumstances and for accelerated vesting with respect to stock options and restricted stock grants upon a change of control.

 

The Agreement also provides for a release of claims and enhanced non-competition, non-recruitment, and non-disparagement obligations on the part of the executive for the benefit of the Company as a condition to the Company’s obligation to provide any severance or other payments thereunder.

 

The Agreement provides that if the executive’s employment is terminated: (A) by the Company other than for cause, or (B) by the executive for Position Diminishment (as defined below), and in either case the date of termination does not occur during a Window Period (as defined below), the executive will receive a lump-sum

cash payment in an amount equal to the sum of: (i) 18 times the executive’s Reference Compensation (a number based in part on monthly salary as described below), plus (ii) the product of (x) a decimal equal to a number between 0.40 and 0.55 (as applicable depending on the individual executive) times the executive’s annual salary divided by 12, times (y) the number of full months elapsed in the calendar year before the executive’s date of employment termination.

 

In addition, if the executive is entitled to receive a lump-sum cash payment pursuant to the conditions described in the immediately preceding paragraph, the Company will also provide the executive with certain outplacement services (to a maximum of $50,000), and for a period of 18 months following termination, or, if sooner, until reemployment with an equivalent benefit, with the same or equivalent health, dental, accidental death and dismemberment, short-term and long-term disability, life insurance coverage, and all other insurance and other health and welfare benefits programs he or she was entitled to on the day before the termination, if and to the extent such coverage is available from the Company’s benefit plans with respect to former employees. If and to the extent such coverage is not available or ceases to be available, the Company will take commercially reasonable steps to arrange for coverage under individual or conversion policies and will, in any event, pay as premiums the same dollar level of premiums as it paid for the executive as an active employee (with a tax gross up if the payment of premiums would be tax-free for active employees but is taxed for a former employee).

 

For purposes of the Agreement, “Position Diminishment” means: (i) a change in the executive’s reporting responsibilities, titles, duties, or offices as in effect immediately prior to a relevant measurement date, or any removal of executive from, or any failure to re-elect executive to, any of such positions, that has the effect of materially diminishing executive’s responsibility, duties, or authority, (ii) a relocation of the executive’s principal place of employment to a location more than 25 miles from its then current location and that increases the distance from executive’s primary residence by more than 25 miles, or (iii) a material reduction in executive’s annual salary.

 

An executive may only resign as a result of a Position Diminishment that occurs other than during a Window Period if he or she (i) provides notice to the Company within 90 days following the date of Position Diminishment that he or she considers the Position Diminishment grounds to resign; (ii) provides the Company a period of 30 days to cure the Position Diminishment; and (iii) actually ceases employment, if the Position Diminishment is not cured, by six months following the date of Position Diminishment.

 

For purposes of the Agreement, “Window Period” means the one-year period commencing on the date of a Change of Control. For purposes of the Agreement, a “Change of Control” is generally defined as any of the following: (i) a merger or consolidation involving the Company if less than 50% of its voting stock after the merger or consolidation is held by persons who were stockholders before the merger or consolidation; (ii) ownership by a person or group acting in concert of at least 51% of the Company’s voting securities; (iii) ownership by a person or group acting in concert of between 25% and 50% of the Company’s voting securities if such ownership was not approved in advance by the Company’s Board of Directors; (iv) a sale of the assets of the Company substantially as an entirety; (v) the liquidation of the Company; (vi) specified changes in the composition of the Company’s Board of Directors; or (vii) any other events or transactions the Company’s Board of Directors determines constitute a change of control.

 

For purposes of the Agreement, “Reference Compensation” means the product of: (i) a decimal equal to a number between 1.40 and 1.55 (as applicable depending on the individual executive), times (ii) the quotient of: (a) the executive’s annual salary, divided by (b) 12.

 

The Agreement provides that if the executive’s employment terminates: (A) during a Window Period, or (B) because the executive resigns as a result of a Position Diminishment on or before the Position Diminishment Termination Date (as defined below), in either case other than (X) a termination by the Company for cause, (Y) the executive’s resignation other than as a result of Position Diminishment, or (Z) the executive’s death or disability, the executive will receive a lump-sum cash payment in an amount equal to the sum of: (i) 24 times the executive’s Reference Compensation, and (ii) the product of: (a) a decimal equal to a

number between 0.40 and 0.55 (as applicable depending on the individual executive) times the executive’s annual salary divided by 12, times (b) the number of full months elapsed in the calendar year before the executive’s employment termination date.

 

If the executive’s employment terminates and the executive is entitled to receive a lump-sum cash payment pursuant to the conditions described in the immediately preceding paragraph: (i) the Company will provide the executive with the outplacement services, and benefits continuation described above, but for a period of 24 months, and (ii) all outstanding equity incentive awards granted on or after June 1, 2008 and before the expiration of the Agreement will fully and immediately vest (subject to the Board of Directors’ ability to suspend exercises or sales until the executive has released all claims).

 

An executive may only resign as a result of a Position Diminishment and be eligible to receive the severance payments specified in the preceding two paragraphs if: (i) the Position Diminishment occurs during a Window Period, and (ii) he or she (x) provides notice to the Company within 90 days following the date of Position Diminishment that he or she considers the Position Diminishment grounds to resign; (y) provides the Company a period of 30 days to cure the Position Diminishment, and (z) actually ceases employment, if the Position Diminishment is not cured, by the later to occur of: (1) six months following the date of Position Diminishment and (2) the end of the Window Period (the “Position Diminishment Termination Date”).

 

In addition, notwithstanding anything to the contrary contained in the Agreement, in the event that the Company determines that any portion of any payment, compensation, or other benefit provided to the executive in connection with his or her employment termination constitutes “nonqualified deferred compensation” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A” of the “Code”), and the executive is a specified person as defined in Section 409A, such portion of the payment, compensation, or other benefit shall not be paid before the day that is six months plus one day after the date of “separation from service” as determined under Section 409A.

 

If payments to an executive under the Agreement would result in imposition of an excise tax (a “parachute tax”) under Section 4999 of the Code, the executive will also be entitled to be paid an amount to compensate for the imposition of the tax. The payment will be in an amount such that after payment of all taxes, income and excise, the executive will be in the same after-tax position as if no parachute tax under the Code, had been imposed.

 

Upon a Change of Control, all outstanding equity incentive awards granted on or before May 31, 2008 will fully and immediately vest, without regard to whether the executive’s employment terminates (unless the equity incentive cannot be so accelerated under Section 409A, in which case acceleration will only occur in accordance with Section 409A), subject to the Company’s Board of Directors’ ability to suspend exercises or sales until the executive has released all claims.

 

Prior to April 2009, our Executive Retention Agreements also provided that if the employment an executive who was party to an Executive Retention Agreement was terminated without Cause or the executive resigned as a result of a Position Diminishment during a one year window period beginning on the date that Mr. Morris ceased to be our President and Chief Executive Officer (a “Leadership Change”), the same enhanced severance benefits applicable to an equivalent termination (or resignation) during a Window Period following a Change of Control would be payable to the executive.

 

On April 6, 2009, Messrs. Creamer, Bouvard, and Smith and certain other of our other non-NEO executive officers entered into Waiver and Amendment of Executive Retention Agreements with us (collectively, “Waivers”). Pursuant to these Waivers, the Company and these executives acknowledged that the Company had undergone a Leadership Change, that the executive’s responsibilities may have been restructured, that we wished to continue to employ the executive, that the executive desired to remain employed by the Company in the executive’s current position as of April 6, 2009, and that the executive agreed to waive any further protections under the Leadership Change provisions of the Executive Retention Agreements. The

Waivers also amended the Executive Retention Agreements to remove all references to a Leadership Change and eliminate any enhanced severance benefits triggered as a result of a Leadership Change.

 

Mr. Charlebois’s employment with us terminated effective on March 22, 2009. Pursuant to his Executive Retention Agreement, Mr. Charlebois is entitled to receive enhanced severance benefits under the Leadership Change provisions described above. Provided that Mr. Charlebois timely executes, and does not revoke, a release of claims in favor of us, we will pay Mr. Charlebois a lump sum payment of $1,259,848 within 90 days of his termination date. In addition, provided that he is eligible for and elects to continue receiving group medical, dental, and vision benefits pursuant to the federal COBRA law, we will, between April 1, 2009 and March 31, 2011 (the “Benefits Continuation Period”), continue to pay the share of the premium for such coverage that is paid by us for active and similarly situated employees who receive the same type of coverage for the period in which Mr. Charlebois is eligible for continued health coverage. If and to the extent continued coverage is not available or ceases, we will take commercially reasonable steps to arrange for coverage under individual or conversion policies, and will, in any event, pay as premiums (or to Mr. Charlebois if coverage cannot reasonably be obtained), the same dollar level of premiums that we paid for Mr. Charlebois as an active employee, with the premium payments grossed up for taxes to the extent that providing the coverage post-employment under an employer’s insured plan would be tax-free if such coverage were available. Notwithstanding the foregoing, in the event Mr. Charlebois becomes eligible for medical, dental, or vision benefits under a plan, program, or arrangement of a subsequent employer, our obligations to provide such coverage will immediately cease.

 

During the Benefit Continuation Period, we will reimburse Mr. Charlebois monthly for an amount equal to the monthly premiums that the Company would have paid on his behalf immediately prior to his termination date for purposes of maintaining (i) coverage under the Company’s life insurance program, and (ii) his short-term, long-term, and accidental death and dismemberment insurance policies, which amounts will be grossed up for taxes. Notwithstanding the above, in the event Mr. Charlebois becomes eligible for such coverages under a plan, program or arrangement of a subsequent employer, our obligations to reimburse him for such coverages will immediately cease.

 

Two of our other former non-NEO executive officers, Linda Dupree and Kathleen Ross have exercised their rights under their Executive Retention Agreements to resign for Position Diminishment and will be entitled to receive severance payments from us provided that they execute, and do not revoke, a release of claims against us.

 

We have entered into an Executive Employment Agreement with Mr. Skarzynski. For a discussion of the material terms and conditions of the Skarzynski Agreement other than potential payments upon termination or change in control, see “Compensation Discussion and Analysis — 2009 Developments — Skarzynski Executive Employment Agreement” above.

 

We or Mr. Skarzynski may terminate Mr. Skarzynski’s employment at any time for any reason, or for no reason. If Mr. Skarzynski’s employment terminates for any reason (including for Cause), we will pay to Mr. Skarzynski (i) any earned but unpaid annual base salary; (ii) any earned but unpaid annual bonus; (iii) any unreimbursed business expenses, in accordance with the Company’s policies; (iv) any unpaid relocation or temporary living expenses (subject to the repayment obligation described above); and (v) any amounts or benefits payable under any Company benefit plans then in effect.

 

In addition to the payments described above, if we terminate Mr. Skarzynski’s employment without Cause, Mr. Skarzynski will be entitled to receive cash severance and the full cost of health care continuation until the earlier of 18 months or subsequent coverage. If Mr. Skarzynski is entitled to receive cash severance in connection with a without Cause termination, we will pay to him in cash (i) an amount equal to two times his then applicable base salary; and (ii) a bonus component. If Mr. Skarzynski’s employment is terminated without Cause during 2009, the bonus component will be $500,000. If, in subsequent years, the annual bonus

for the year of termination is determined by the Committee under a program intended to qualify as performance-based for purposes of Section 162(m) (an “Exempt Bonus”), the bonus component will be determined under the factors for such bonus, but without the exercise by the Committee of negative discretion (with the expectation, if all performance factors are satisfied, that the bonus component would be two times target bonus). If the annual bonus for the year of termination is not intended to be an Exempt Bonus, the bonus component will be two times target bonus.

 

In addition to the payments described above, if, within 12 months following a Change in Control (as defined in the Agreement), Mr. Skarzynski’s employment ends on a termination without Cause, any outstanding equity compensation awards will fully and immediately vest and become exercisable.

 

In order to receive the severance benefits provided under the Skarzynski Agreement, Mr. Skarzynski must execute a release in the form provided by the Company of all legally-releasable claims that Mr. Skarzynski may then have against the Company and any of its affiliates.

 

We have entered into an Executive Employment Agreement with Mr. Adams. For a discussion of the material terms and conditions of the Adams Agreement other than potential payments upon termination or change in control, see “Compensation Discussion and Analysis — 2009 Developments — Adams Executive Employment Agreement” above.

 

We or Mr. Adams may terminate Mr. Adams’s employment at any time for any reason, or for no reason. If Mr. Adams’s employment terminates for any reason, we will pay to Mr. Adams (i) any earned but unpaid annual base salary; (ii) any earned but unpaid annual bonus; (iii) any unreimbursed business expenses, in accordance with the Company’s policies; (iv) any unpaid relocation or temporary living expenses (subject to the repayment obligation described above); and (v) any amounts or benefits payable under any Company benefit plans then in effect.

 

In addition to the payments described above, if we terminate Mr. Adams’s employment without Cause (as defined in the Adams Agreement) or if Mr. Adams resigns as a result of a Position Diminishment (as defined in the Adams Agreement), Mr. Adams will be entitled to receive cash severance and the full cost of health care continuation until the earlier of 18 months or subsequent coverage.

 

Except as provided in the next paragraph, if Mr. Adams is entitled to receive cash severance in connection with a without Cause (as defined in the Adams Agreement) termination or a resignation as a result of a Position Diminishment (as defined in the Adams Agreement), we will pay to him in cash an amount equal to 1.75 times his then applicable base salary, in equal installments over a 12-month period. Payment will cease if Mr. Adams obtains subsequent employment prior to the end of the 12-month period.

 

If Mr. Adams is entitled to receive cash severance in connection with a without Cause termination or a resignation as a result of a Position Diminishment within 12 months following a Change in Control, we will pay to him in cash an amount equal to 2.625 times his then applicable base salary, in equal installments over a 12 month period. Payment will cease if Mr. Adams obtains subsequent employment prior to the end of the 12 month period. In addition, any outstanding equity compensation awards will fully and immediately vest and become exercisable.

 

In order to receive the severance benefits provided under the Adams Agreement, Mr. Adams must execute a release in the form provided by us of all legally releasable claims that Mr. Adams may then have against us and any of our affiliates.

 

We have entered into an Executive Employment Agreement with Mr. Henrick. For a discussion of the material terms and conditions of the Henrick Agreement other than potential payments upon termination or change in control, see “Compensation Discussion and Analysis — 2009 Developments — Henrick Executive Employment Agreement” above.

We or Mr. Henrick may terminate Mr. Henrick’s employment at any time for any reason, or for no reason. If Mr. Henrick’s employment terminates for any reason, we will pay to Mr. Henrick (i) any earned but unpaid annual base salary; (ii) any earned but unpaid annual bonus; (iii) any unreimbursed business expenses, in accordance with our policies; (iv) any unpaid relocation or temporary living expenses (subject to the repayment obligation described above); and (v) any amounts or benefits payable under any Company benefit plans then in effect.

 

In addition to the payments described above, if the Company terminates Mr. Henrick’s employment without Cause or if Mr. Henrick resigns as a result of a Position Diminishment, Mr. Henrick will be entitled to receive cash severance and the full cost of health care continuation until the earlier of 18 months or subsequent coverage.

 

Except as provided in the next paragraph, if Mr. Henrick is entitled to receive cash severance in connection with a without Cause termination or a resignation as a result of a Position Diminishment, we will pay to him in cash an amount equal to 1.75 times his then applicable base salary, in equal installments over a 12-month period. Payment will cease if Mr. Henrick obtains subsequent employment prior to the end of the 12-month period.

 

If Mr. Henrick is entitled to receive cash severance in connection with a without Cause termination or a resignation as a result of a Position Diminishment within 12 months following a Change in Control, we will pay to him in cash an amount equal to 2.625 times his then applicable base salary, in equal installments over a 12 month period. Payment will cease if Mr. Henrick obtains subsequent employment prior to the end of the 12 month period. In addition, any outstanding equity compensation awards will fully and immediately vest and become exercisable.

 

In order to receive the severance benefits provided under the Henrick Agreement, Mr. Henrick must execute a release in the form provided by us of all legally releasable claims that Mr. Henrick may then have against us and any of our affiliates.

 

 

 

 

William T. Kerr, Philip Guarascio, Larry E. Kittelberger and Luis G. Nogales served on the Compensation and Human Resources Committee of the Board of Directors during 2008. No member of the Compensation and Human Resources Committee was at any time during 2008, or formerly, an officer or employee of Arbitron or any of its subsidiaries, and no member of the Compensation and Human Resources Committee had any relationship with Arbitron during 2008 requiring disclosure under Item 404 of Regulation S-K under the Exchange Act. None of our executive officers serves as a member of the board of directors or executive compensation committee of any entity that has one or more executive officers serving as a member of our Board of Directors.

 

The following table sets forth the number of shares of our common stock beneficially owned, directly or indirectly, as of April 3, 2009, by (i) each nominee for election as a director, (ii) each person who served as a director during 2008, (iii) the NEOs, and (iv) our directors, nominees, and executive officers as a group. Each person has sole voting and investment power with respect to the shares beneficially owned by that person, except as otherwise indicated. The percentages below are based on the number of shares of our common stock issued and outstanding as of April 3, 2009.