UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.        )

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General Mills, Inc.

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NOTICE OF

 

2010 ANNUAL MEETING

 

OF STOCKHOLDERS

 

AND PROXY STATEMENT

 

Meeting Date:

 

Monday, September 27, 2010

at 11:00 a.m. (Central Daylight Time)

 

Meeting Place:

 

Children’s Theatre Company

2400 Third Avenue South

Minneapolis, Minnesota

 

 

 

August 16, 2010

 

Dear Stockholder:

 

It is my pleasure to invite you to the General Mills 2010 Annual Meeting of Stockholders. We will hold the meeting in the auditorium of the Children’s Theatre Company, 2400 Third Avenue South, Minneapolis, Minnesota, on Monday, September 27, 2010, at 11:00 a.m. Central Daylight Time. During the meeting, we will discuss each item of business described in this Notice of Annual Meeting of Stockholders and Proxy Statement, and we will give a current report on our business operations. There also will be time for questions. We expect the meeting to adjourn at about 12:15 p.m. We hope you will be able to attend the meeting. If you need special assistance at the meeting because of a disability, please contact the Corporate Secretary at the address above or via e-mail at corporate.secretary@genmills.com.

 

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

 

Sincerely,

 

 

NOTICE OF

2010 ANNUAL MEETING OF STOCKHOLDERS

SEPTEMBER 27, 2010

 

August 16, 2010

 

Dear Stockholder:

 

The Annual Meeting of Stockholders of General Mills, Inc. will be held on Monday, September 27, 2010, at 11:00 a.m., Central Daylight Time, in the auditorium of the Children’s Theatre Company, 2400 Third Avenue South, Minneapolis, Minnesota. Stockholders will be asked to:

 

 

 

 

 

The record date for the Annual Meeting is July 29, 2010. If you held General Mills stock at the close of business on that date, you are entitled to vote at the Annual Meeting.

 

Your vote is important. We encourage you to vote by proxy, even if you plan to attend the meeting. You may vote your proxy as follows:

 

 

Please consult your Notice of Internet Availability of Proxy Materials or proxy card for specific voting instructions. For questions on accessing proxy materials or voting on the Internet, please contact us at 800-245-5703.

 

To request a printed copy of the proxy materials, please call 800-579-1639, e-mail sendmaterial@proxyvote.com or visit www.proxyvote.com. You will need your 12-digit control number to make your request.

 

Sincerely,

 

 

 

 

TABLE OF CONTENTS

 

GENERAL MILLS, INC.
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
MONDAY, SEPTEMBER 27, 2010

 

The board of directors of General Mills, Inc. (referred to as “General Mills,” “we,” “our,” “us” or the “company”) is soliciting proxies for use at the Annual Meeting of Stockholders to be held on September 27, 2010. This proxy statement summarizes the information you need to know to vote at the Annual Meeting. You do not need to attend the Annual Meeting to vote your shares. We first mailed or made available the proxy materials on or about August 16, 2010.

 

The fourteen director nominees presented below are recommended for election to the board of directors. They will be elected by a majority of votes cast for a one-year term and serve until the next annual meeting where their successors are elected, or, if earlier, until their retirement, resignation or removal. If unforeseen circumstances (such as death or disability) make it necessary for the board of directors to substitute another person for any of the nominees, the proxies will vote your shares for that other person unless you instruct us otherwise when you vote.

 

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

 

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

 

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

 

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

 

 

 

 

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

 

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

 

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

 

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

 

 

 

 

 

 

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

 

Director nominees recommended by the corporate governance committee are subject to full board approval and election by stockholders at an annual meeting of stockholders. From time to time, the corporate governance committee retains a search firm to assist in identifying, evaluating and recruiting director candidates, based on specified criteria, and pays the firm a fee for these services. Suggestions also are received from board members and stockholders. Of the fourteen directors recommended for election at the 2010 Annual Meeting, all nominees were elected as directors at our 2009 Annual Meeting.

 

Stockholders who wish to suggest a candidate for our board of directors may submit a written recommendation to the Corporate Secretary, General Mills, Inc., P.O. Box 1113, Minneapolis, Minnesota 55440, along with the stockholder’s name, address and the number of General Mills shares beneficially

owned; the name of the individual being nominated and number of General Mills shares beneficially owned by the candidate; the candidate’s biographical information describing experience and qualifications; a description of all agreements, arrangements or understandings between the stockholder and individual being nominated; and the candidate’s consent to serve as a director, if elected. The corporate governance committee may request that the stockholder provide certain additional information. For a candidate to be considered for the slate recommended in our proxy statement for the 2011 Annual Meeting, stockholders should submit the required information to the Corporate Secretary by April 18, 2011.

 

The corporate governance committee will consider and evaluate stockholder-recommended candidates by applying the same criteria used to evaluate director-recommended candidates. If the corporate governance committee decides the candidate is suitable for board membership, the corporate governance committee will make a recommendation to the board of directors for its approval to include the candidate in the slate of directors nominated for election by stockholders in the proxy statement. During fiscal 2010, we received no director nominations from our stockholders.

 

Under our By-laws, stockholders may also nominate a candidate for election at an annual meeting of stockholders. Our annual meeting is typically held on the fourth Monday in September. Stockholders who intend to present a nomination at our 2011 Annual Meeting are required to notify the Corporate Secretary in writing and provide the information described in our By-laws no earlier than May 30, 2011 and no later than June 29, 2011. Director nominees submitted through this process will be eligible for election at the annual meeting, but will not be included in proxy materials sent to stockholders prior to the meeting.

 

 

 

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

 

 

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

 

Compensation Risk Assessment

 

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

 

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

 

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

 

The board has five standing committees that are each composed entirely of independent directors. The corporate governance committee reviews committee and committee chair assignments annually, and recommends committee rosters to the full board after considering factors such as the directors’ business and corporate governance experience, their preferences, criteria for specific committee service, the directors’ other responsibilities and scheduling flexibility. Assignments are rotated to ensure that each committee has an appropriate mix of tenure and experience. Committee membership shown below is as of August 1, 2010:

 

 

Audit Committee

 

Number of meetings in fiscal 2010: Six

 

 

Compensation Committee

 

Number of meetings in fiscal 2010: Four

 

 

Corporate Governance Committee

 

Number of meetings in fiscal 2010: Four

 

 

Finance Committee

 

Number of meetings in fiscal 2010: Five

 

 

Public Responsibility Committee

 

Number of meetings in fiscal 2010: Two

 

 

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

 

Directors are expected to attend all board and committee meetings, as well as the annual meetings of stockholders, absent exigent circumstances. All of our 14 directors attended the 2009 Annual Meeting of Stockholders. During fiscal 2010, the board of directors met six times and various committees of the board met a

total of 27 times. All directors attended at least 75% of the aggregate total meetings of the board and board committees on which they served during fiscal 2010.

 

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

 

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

 

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

 

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

 

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

 

The compensation committee has sole authority to retain or replace the independent compensation consultant. In order to maintain consultant independence, the compensation committee adopted a formal policy in fiscal 2008 requiring compensation committee pre-approval of work performed by the independent compensation consultant.

 

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

The audit committee of the board of directors has established procedures for employees, stockholders, vendors and others to communicate concerns about our ethical conduct or business practices, including accounting, internal controls or financial reporting issues, to the audit committee, which has responsibility for these matters.

 

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

 

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

 

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

 

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

 

Stock Ownership Policy.  A substantial portion of director compensation is linked to our stock performance, and directors can elect to receive their entire board remuneration in stock and stock-related compensation. Our policy requires that directors keep all of the shares that they receive as compensation until they own shares equal in market value to at least five-times their annual retainer. As of [July 29, 2010], all non-employee directors had met or exceeded these stock ownership requirements, except for those directors who were elected within the past three years and who are still accumulating shares.

 

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

 

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

 

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

 

Other Benefits.  We have a Planned Gift Program for Directors (the “Planned Gift Program”) that has been discontinued for all directors elected during or after fiscal 2007. The Planned Gift Program is funded by General Mills-paid life insurance policies on each participating director. Upon the death of a participating director, we donate $1 million to a qualifying charity recommended by the director, and we receive the entire charitable deduction. We are then reimbursed by life insurance proceeds. We have calculated the change in the accrued liability for the benefit in fiscal 2010 and included it under footnote 5, All Other Compensation.

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

 

The fiscal 2010 compensation of our non-employee directors is shown in the following table. Stock and option awards reflect the company’s two-for-one stock split with a record date of May 28, 2010.

 

DIRECTOR COMPENSATION FOR FISCAL 2010

 

 

 

All Other Compensation

 

 

The following table shows the amount of General Mills common stock beneficially owned by (a) each director and director nominee, (b) each named executive officer listed in the Summary Compensation Table, (c) all directors, director nominees and executive officers as a group and (d) each person or group owning more than 5% of our outstanding shares on the dates indicated. Unless otherwise noted, all amounts are estimated as of July 29, 2010, and the stockholders listed in the table have sole voting and investment power with respect to the shares owned by them. Shares and exerciseable options reflect the company’s two-for-one stock split with a record date of May 28, 2010.

 

 

 

 

 

Based on a review of reports filed with the SEC by our directors and executive officers regarding their ownership and transactions in our common stock and written representations from those directors and officers, we believe that each director and executive officer has filed timely reports under Section 16(a) of the Securities Exchange Act of 1934 during fiscal 2010.

 

Introduction

 

Stockholders are asked to adopt a proposed Executive Incentive Plan (the “New EIP” or the “Plan”). The New EIP would replace the existing Executive Incentive Plan (the “Current EIP”), which was approved by stockholders in 2000 and which terminates according to its terms on September 25, 2010.

 

The purpose of the New EIP is to provide cash incentive awards to key executives in recognition of their contributions to the success of the company, and to align the interests of such executives with the interests of the stockholders of the company.

 

The terms of the New EIP are substantially similar to those of the Current EIP, except that:

 

 

There is no change in the employees who are eligible to receive awards. The compensation committee currently expects that plan administration and cash awards under the New EIP will be substantially similar to those under the Current EIP. Stockholder approval of the New EIP is being sought to ensure that awards granted under the plan will be fully tax-deductible pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).

 

No cash incentive awards have been granted under the New EIP. The compensation committee will establish the terms of future awards, and it is not currently possible to determine what eligible participants will receive if the New EIP is approved by our stockholders. Awards to our named executive officers under the Current EIP during fiscal 2010 are described under Grants of Plan-Based Awards for Fiscal 2010.

 

Summary of Material Features of the New EIP

 

The following summary of the material features of the New EIP is subject to the full text of the Plan contained in Appendix B to this proxy statement.

 

 

The board of directors unanimously recommends a vote FOR the adoption of the General Mills, Inc. Executive Incentive Plan.

 

The following table provides certain information as of May 30, 2010 with respect to our equity compensation plans. The number of securities and the weighted-average exercise price of outstanding options reflect the company’s two-for-one stock split with a record date of May 28, 2010.

 

 

 

 

The compensation committee of the company has reviewed and discussed the following Compensation Discussion and Analysis with management and, based on such review and discussions, the compensation committee recommended to the board that the Compensation Discussion and Analysis be included in this proxy statement and in our annual report on Form 10-K for the fiscal year ended May 30, 2010.

 

SUBMITTED BY THE COMPENSATION COMMITTEE

 

Michael D. Rose, Chair

Bradbury H. Anderson

R. Kerry Clark

Raymond V. Gilmartin

Lois E. Quam

 

Executive Summary of 2010 Company Performance and Compensation Actions

 

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

 

Fiscal 2010 was a very strong year for General Mills. Our performance was generally superior to that of the consumer packaged goods industry peer group, and especially strong against food companies in that industry peer group. In fact, performance on each of our four equally-weighted corporate performance measures (net sales growth, segment operating profit growth, earnings per share growth, and improvement in return on average total capital) exceeded the median one-, two- and five-year compound growth rates for the consumer packaged goods industry peer group over comparable timeframes. Performance also met or exceeded General Mills’ publicly stated long-term performance goals of low single-digit net sales growth, mid-single-digit segment operating profit growth, high single-digit earnings per share growth and improvement in return on average total capital.

 

Our financial performance in fiscal 2010 resulted in superior returns to General Mills stockholders. For the year, stock price appreciation plus reinvested dividends represented a 43% return. This was well above our consumer packaged goods industry peer group’s return of 29%, and it was double the 21% return generated by the Standard & Poor’s 500 Index over this same time period.

 

The compensation committee believes that the company’s long-standing executive compensation programs have been effective at incenting the achievement of superior results, appropriately aligning pay and performance, creating an ownership culture in which company managers think and act like stockholders, and enabling General Mills to attract and retain some of the most talented executives in the global consumer products industry.

 

The compensation actions taken in fiscal 2010, as approved by the compensation committee in conjunction with counsel from their independent compensation consultant Frederic W. Cook & Co., Inc., included the following:

 

 

 

 

 

Compensation Philosophy and Principles

 

General Mills’ guiding philosophy is to maintain a compensation system that will attract, motivate, reward and retain competitively superior leaders who are able consistently to achieve corporate performance and total stockholder return that is in the top tier of the consumer packaged goods industry peer group. The compensation committee bases its compensation decisions on the following core principles:

 

 

 

 

Consumer Packaged Goods Industry Peer Group

 

The compensation committee, with the assistance of management and the independent compensation consultant, benchmarks our performance and compensation against the consumer packaged goods industry peer group, a group of 13-16 major consumer packaged goods companies, which we sometimes refer to as the “industry peer group.” The industry peer group was established using the following five selection criteria:

 

 

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

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

 

*Excluded from compensation comparisons due to lack of publicly available pay information.

 

Source: Standard & Poor’s Capital IQ

 * As of and for the most recent fiscal year

** As of May 28, 2010

 

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

 

Elements of the General Mills Total Rewards Program

 

During fiscal 2010, the General Mills executive pay program consisted of base salary, annual incentive, long-term incentive, broad-based benefits and other perquisites. The Chief Executive Officer and other named executive officers participate in most of the same benefit programs and are subject to the same policies in all material respects as all company officers.

 

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

 

 

 

Pay and Performance Relationship

 

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

 

 

Performance Measurement

 

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

 

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

 

Our performance rating on each metric can vary from 0 to 1.80. The ranges for each metric are set with the following goals in mind:

 

 

Performance Results

 

The company’s annual Corporate Performance Ratings can vary significantly based on the company’s performance in the fiscal year. One way to assess how difficult or likely it would be for the company to achieve incentive goals is to look at historical results. In the past 10 years (fiscal years 2001 through 2010), Corporate

Performance Ratings have ranged from a low of 1.16 to a high of 1.80. In the past 20 years (fiscal years 1991 through 2010), Corporate Performance Ratings have ranged from 0 to 1.80. Over this 20-year period, annual Corporate Performance Ratings have averaged 1.49.

 

Fiscal 2010 results on the four corporate performance measures are set forth below and resulted in a 1.76 Corporate Performance Rating.

 

 

 

Total Stockholder Return

 

The graph below demonstrates that the company’s financial performance has resulted in superior returns to General Mills stockholders, well above the returns delivered by an index of our consumer packaged goods industry peer group and the Standard & Poor’s 500 Index over a three-year time period.

 

Source: Bloomberg

Performance-Based Compensation

 

There is a significant difference in total direct compensation (base salary; annual incentive, including cash and restricted stock unit (RSU) match portions; and long-term incentive) paid to the named executive officers when the company has superior performance (resulting in a 1.80 Corporate Performance Rating) versus significantly below intended performance (resulting in a 1.00 Corporate Performance Rating). The charts below demonstrate the fiscal 2010 range of performance goals and corresponding range of total direct compensation for our Chairman and Chief Executive Officer, Kendall J. Powell. The column “Superior Performance (1.80 Rating)” presents the maximum payout; however, there is no minimum payout. If performance fell below the level indicated under “Significantly Below Intended Performance (1.00 Rating),” total direct compensation similarly would fall below the level indicated in the bar chart, and long-term incentive award values would likely not deliver the estimated grant values.

 

 

 

 

Annual Incentive Awards

 

General Mills has an Executive Incentive Plan that provides the named executive officers with an opportunity to earn an annual incentive award that is paid partially in cash. The balance of the annual incentive award is paid in a restricted stock unit match that requires deposit of an equivalent number of personally-owned shares for the duration of the vesting period.

 

For the named executive officers, the value of the restricted stock unit match is equal to 30% of their cash incentive award. The restricted stock unit match can be increased or decreased by as much as 30% based on the Corporate Performance Rating for that fiscal year. In fiscal 2010, all employees eligible for the restricted stock unit match received a 26% upward adjustment in grant size based on the 1.76 Corporate Performance Rating.

 

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

 

* 50%-75% based on level of responsibility

 

 

 

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

 

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

 

The current Executive Incentive Plan expires in 2010, and we are asking that stockholders approve a new plan at this time. See Proposal Number 2- Approval of the Executive Incentive Plan. Once the current Executive

Incentive Plan expires, restricted stock unit matches will come from the 2009 Stock Compensation Plan and future stock plans.

 

Long-Term Incentive Awards and Retention Awards

 

A significant portion of the named executive officers’ pay opportunity is provided through long-term incentive awards granted under the 2009 Stock Compensation Plan.

 

Awards for each fiscal year are granted annually in June just after fiscal year end. The size of the awards is periodically benchmarked against the long-term incentive awards made by compensation peer group companies to executives holding comparable positions. Each named executive officer’s standard award can be increased or decreased by as much as 30% based on the Corporate Performance Rating for the fiscal year. For the June 2010 awards, all employees eligible for stock compensation received an increase to their long-term incentive grant value of 26% based on the 1.76 Corporate Performance Rating for fiscal 2010.

 

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

 

The options issued as part of the long-term incentive awards granted for fiscal 2010 performance also vest 100% four years after the grant date. The exercise price per share equals the closing price of our common stock on the New York Stock Exchange on the grant date. The options generally expire 10 years and one month from the grant date. They include the right to pay the exercise price in cash or previously acquired common stock and the right to have shares withheld by the company to pay withholding tax obligations due upon exercise.

 

Special off-cycle restricted stock unit awards are made periodically by the compensation committee to named executive officers for the purposes of performance recognition and retention. At vest, the awards will be settled in stock. The restricted stock units earn dividend equivalents equal to regular dividends paid on our common stock, which are held and paid only to the extent the underlying restricted stock units vest. In fiscal 2010, the compensation committee granted awards to Mr. Friendly and Mr. O’Leary that vest 100% five years after the April 1, 2010 grant date.

 

CEO Performance and Compensation

 

Mr. Powell was promoted to Chairman and Chief Executive Officer in fiscal 2008. Based on the most recent proxy analysis conducted by the independent compensation consultant, Mr. Powell’s total direct compensation for fiscal 2010 is positioned just below the 25th percentile of chief executive officer compensation for U.S. companies in the consumer packaged goods industry peer group.

 

In assessing Mr. Powell’s individual performance for fiscal 2010, the compensation committee solicited written feedback from all non-employee directors and subsequently discussed the consolidated input with all non-employee directors in executive session. The criteria used to measure Mr. Powell’s performance included the company’s financial and operational performance for fiscal 2010, the overall level of leadership he provided, and his continued ability to develop and implement strategies to enhance stockholder value. The compensation committee also considered Mr. Powell’s performance against his pre-established fiscal year objectives in a number of additional areas such as brand building, key customer initiatives, international expansion, marketplace innovation, margin expansion, productivity improvement, organizational development, diversity, and stockholder relations.

 

Based on the annual assessment of his performance by the board of directors, the compensation committee recommended and the full board of directors approved a fiscal 2010 annual incentive payment to Mr. Powell of $1,926,622 in cash and a 19,473 restricted stock unit match requiring a deposit of an equivalent number of personally-owned shares; this award includes an upward adjustment of 26% based on the Corporate

Performance Rating of 1.76. Along with the rest of company officers, Mr. Powell received a mid-year merit increase to base salary of $19,300 (or approximately 2%) effective January 1, 2010, which was postponed from July 1, 2009.

 

Given his outstanding performance and the competitive positioning of his compensation, the compensation committee also recommended and the full board of directors approved an increase to Mr. Powell’s long-term incentive award which resulted in a grant of 91,468 restricted stock units and 457,340 stock options, including an upward adjustment of 26% based on the Corporate Performance Rating of 1.76.

 

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

 

 

Compensation Policies

 

Stock Ownership Requirements

 

Since 1991 the company has maintained stock ownership requirements for senior executives. Currently these targets are ten-times salary for the Chief Executive Officer, five-times salary for senior vice presidents and above, including the named executive officers other than the Chief Executive Officer, and three-times salary for all other corporate officers. Newly-hired or promoted executives are given five years to attain the ownership target. General Mills executives who have been in their role for multiple years generally exceed the stock ownership requirements by significant amounts. As of [July 29, 2010], all of our named executive officers had stock ownership levels at or above their respective ownership requirements. Stock ownership includes direct ownership, unvested restricted stock units and shares net of tax withholding from exerciseable options.

 

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

Stock Compensation Award Approval

 

We have strict administrative guidelines on the timing and approval of stock compensation awards. The compensation committee pre-approves all awards to senior vice presidents and higher-level executive officers, and the board pre-approves awards to the Chief Executive Officer. They typically approve these awards at the regularly scheduled June board meeting, when the rest of the annual and long-term incentive awards are granted to our employees. Under the terms of the 2007 and 2009 Stock Compensation Plans, the company cannot grant stock options at a discount to fair market value on the grant date. Except for the annual June grant, awards to executive officers may not be approved during trading blackout periods.

 

Independent Compensation Consultant Engagement

 

The compensation committee has adopted a policy for engagement of the committee’s independent compensation consultant, in order to ensure the consultant’s continuing independence and its accountability to the committee. The compensation committee has the sole authority to retain or replace the independent compensation consultant. Compensation committee approval is required prior to the company retaining the independent compensation consultant for any executive compensation services or other consulting services or products above an aggregate annual amount of $25,000. In accordance with the policy, the compensation committee selected the firm of Frederic W. Cook & Co., Inc. to be its independent compensation consultant for fiscal 2010. This firm advises the compensation committee on executive and director compensation but performs no other services for the company.

 

Executive Compensation Clawback Policy

 

In June 2009, the company adopted an Executive Compensation Clawback Policy. In the event the company is required to restate financial results due to fraud, intentional misconduct, gross negligence or otherwise, the compensation committee may adjust the future compensation, cancel outstanding stock or performance-based awards, or seek recoupment of previous awards for company officers whose conduct contributed significantly to a financial restatement. Also, the compensation committee may take action where it reasonably believes the company’s Employee Code of Conduct or the terms of a separation agreement have been violated. The policy was adopted in response to emerging market practices and to protect stockholder interests, but may be amended to comply with pending federal legislation.

 

Tax Deductibility of Compensation

 

Our Executive Incentive Plan, the 2007 Stock Compensation Plan and the 2009 Stock Compensation Plan have each been structured with the intention that cash incentive payments, restricted stock units, stock options, stock appreciation rights and performance awards under these plans can qualify as performance-based compensation, which is tax-deductible to the company under Section 162(m) of the Internal Revenue Code.

 

The following tables and accompanying narrative disclosure should be read in conjunction with the Compensation Discussion and Analysis. They present compensation for individuals who served as Chief Executive Officer and Chief Financial Officer during fiscal 2010, and for each of the other three most highly-compensated executive officers who were serving as executive officers at the end of fiscal 2010 (the “named executive officers”). Mr. O’Leary was not a named executive officer in fiscal 2008, and therefore information about his compensation for that fiscal year is not included. Equity awards reflect the company’s two-for-one stock split with a record date of May 28, 2010.

 

The Summary Compensation Table below contains values calculated and disclosed according to SEC reporting requirements. This table reports salary and non-equity incentive plan compensation for the fiscal year in which they are earned. However, it reports stock and option awards granted during the fiscal year, as opposed to those earned for fiscal year performance, which are granted after fiscal year end. For example, fiscal 2010 compensation includes stock and option awards based on fiscal 2009 performance.

 

In order to more appropriately reflect the total compensation earned by the named executive officers for each fiscal year, we have created the subsequent table, Compensation Earned for Fiscal Year Performance. In

this table, we include the stock and option awards earned for fiscal year performance, as opposed to those granted during the fiscal year. The table also includes the annualized value of unvested special off-cycle stock awards that vest over a five-year period, and adjusts out fluctuations in pension value due solely to changes in discount rate from year to year. It is this view of total compensation earned that the compensation committee considers in making compensation decisions for the named executive officers.

 

Summary Compensation Table

 

 

 

 

Stock and Option Awards Based on Fiscal 2010 Performance

 

 

 

 

Change in Actuarial Present Value of Accumulated Pension Benefits

 

 

 

All Other Compensation

 

 

 

Matching Contributions on Retirement Savings Plans