Ford Motor Company

 

Important Notice Regarding the Availability of Proxy

Materials for the Shareholder Meeting

to Be Held on May 12, 2011

 

Notice of 2011

Annual Meeting of Shareholders

and Proxy Statement

 

 

Ford Motor Company

One American Road
Dearborn, Michigan 48126-2798

 

April 1, 2011

 

 

Dear Shareholders:

 

Our 2011 annual meeting of shareholders will be held at the Hotel du Pont, 11th and Market Streets, Wilmington, Delaware, on Thursday, May 12, 2011. The annual meeting will begin promptly at 8:30 a.m., Eastern Time. If you plan to attend the meeting, please see the instructions on page 4.

 

Please read these materials so that you’ll know what we plan to do at the meeting. Also, please either sign and return the accompanying proxy card in the postage-paid envelope or instruct us by telephone or via the Internet as to how you would like your shares voted. This way, your shares will be voted as you direct even if you can’t attend the meeting. Instructions on how to vote your shares by telephone or via the Internet are on the proxy card enclosed with this proxy statement.

 

 

William Clay Ford, Jr.

Chairman of the Board

 

Whether or not you plan to attend the meeting, please provide your proxy by calling the toll-free telephone number, using the Internet, or filling in, signing, dating, and promptly mailing the accompanying proxy card in the enclosed envelope.

 

Table of Contents

 

 

 

 

 

Peter J. Sherry, Jr.

Secretary

 

April 1, 2011

 

 

“Annual Incentive Compensation Plan” or “Incentive Bonus Plan” means Ford’s Annual Incentive Compensation Plan.

 

“Class B Stock” means Ford’s Class B Stock.

 

“Deferred Compensation Plan” means Ford’s Deferred Compensation Plan.

 

“Dividend Equivalent” means cash or shares of common stock (or common stock units) equal in value to dividends, if any, paid on shares of common stock.

 

“Final Award” means shares of common stock, Restricted Stock Units, and/or cash awarded by the Compensation Committee under a Performance Unit.

 

“Ford” or “we” or “Company” means Ford Motor Company.

 

“Long-Term Incentive Plan” means Ford’s 1998 or 2008 Long-Term Incentive Plan.

 

“Named Executives” means the executives named in the Summary Compensation Table on p. 51.

 

“NYSE” means the New York Stock Exchange, Inc.

 

“Performance Unit” means, under the Long-Term Incentive Plan, an award of the right to earn up to a certain number of shares of common stock, Restricted Stock Units, or cash, or a combination of cash and shares of common stock or Restricted Stock Units, based on performance against specified goals established by the Compensation Committee.

 

“Restricted Stock Unit” means, under the Long-Term Incentive Plan, the right to receive a share of common stock, or cash equivalent to the value of a share of common stock, when the restriction period ends, as determined by the Compensation Committee.

 

“SEC” means the United States Securities and Exchange Commission.

 

“Senior Convertible Notes” means the Ford Motor Company 4.25% Senior Convertible Notes due 2036 and the Ford Motor Company 4.25% Senior Convertible Notes due 2016.

 

“Trust Preferred Securities” means the Ford Motor Company Capital Trust II 6.50% Cumulative Convertible Trust Preferred Securities.

 

“1998 Plan” means Ford’s 1998 Long-Term Incentive Plan.

 

“2008 Plan” means Ford’s 2008 Long-Term Incentive Plan.

Ford Motor Company

 

 

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The Board of Directors is soliciting proxies to be used at the annual meeting of shareholders to be held on Thursday, May 12, 2011, beginning at 8:30 a.m., Eastern Time, at the Hotel du Pont, 11th and Market Streets, Wilmington, Delaware. This proxy statement and the enclosed form of proxy are being made available to shareholders beginning April 1, 2011.

 

A proxy is another person that you legally designate to vote your stock. If you designate someone as your proxy in a written document, that document also is called a proxy or a proxy card.

 

It is a document that SEC regulations require that we make available to you when we ask you to vote your stock at the annual meeting.

 

At our annual meeting, shareholders will act upon the matters outlined in the notice of meeting, including the election of directors, ratification of the selection of the Company’s independent registered public accounting firm, a non-binding shareholder advisory vote to approve the compensation of the Named Executives, a non-binding shareholder advisory vote on whether an advisory vote to approve the compensation of the Named Executives should be held every one, two, or three years, and consideration of three shareholder proposals, if presented at the meeting. Also, management will report on the state of the Company and respond to questions from shareholders.

 

The record date for the annual meeting is March 16, 2011. The record date is established by the Board of Directors as required by Delaware law. Holders of common stock and holders of Class B Stock at the close of business on the record date are entitled to receive notice of the meeting and to vote at the meeting and any adjournments or postponements of the meeting.

 

Holders of common stock and holders of Class B Stock at the close of business on the record date may vote at the meeting. Holders of Senior Convertible Notes cannot vote at this meeting.

 

On March 16, 2011, 3,725,990,448 shares of common stock and 70,852,076 shares of Class B Stock were outstanding and, thus, are eligible to be voted.

 

Holders of common stock and holders of Class B Stock will vote together without regard to class on the matters to be voted upon at the meeting. Holders of common stock have 60% of the general voting power. Holders of Class B Stock have the remaining 40% of the general voting power.

 

Each outstanding share of common stock will be entitled to one vote on each matter to be voted upon.

 

The number of votes for each share of Class B Stock is calculated each year in accordance with the Company’s Restated Certificate of Incorporation. At this year’s meeting, each outstanding share of Class B Stock will be entitled to 35.059 votes on each matter to be voted upon.

 

If your shares are registered directly in your name with Computershare Trust Company, N.A., the Company’s stock transfer agent, you are considered the shareholder of record with respect to those shares.

 

If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of these shares, and your shares are held in “street name.”

 

If you are a shareholder of record, you can give a proxy to be voted at the meeting:

 

 

The telephone and Internet voting procedures have been set up for your convenience and have been designed to authenticate your identity, to allow you to give voting instructions, and to confirm that those instructions have been recorded properly. If you are a shareholder of record and you would like to vote by telephone or the Internet, please refer to the specific instructions set forth on the enclosed proxy card. If you wish to vote using a paper format and you return your signed proxy to us before the annual meeting, we will vote your shares as you direct.

 

If you are a Company employee or retiree participating in either of the Company’s Savings and Stock Investment Plan for Salaried Employees or Tax-Efficient Savings Plan for Hourly Employees, then you may be receiving this material because of shares held for you in those plans. In that case, you may follow the instructions from the plan trustee on how to vote those shares. The trustee will vote the shares in accordance with your instructions and the terms of the plan. If you hold shares in any of these plans, the trustee may vote the shares held for you even if you do not direct the trustee how to vote. In these cases, the trustee will vote any shares for which the trustee does not receive instructions in the same proportion as the trustee votes the shares for which the trustee does receive instructions.

 

If you hold your shares in “street name,” you must vote your shares in the manner prescribed by your broker or nominee. Your broker or nominee has enclosed, or explained how you can access, a voting instruction card for you to use in directing the broker or nominee how to vote your shares.

 

The votes of all shareholders will be held in confidence from directors, officers and employees of the Company except: (a) as necessary to meet applicable legal requirements and to assert or defend claims for or against the Company; (b) in case of a contested proxy solicitation; (c) if a shareholder makes a written comment on the proxy card or otherwise communicates his or her vote to management; or (d) to allow the independent inspectors of

election to certify the results of the vote. We will also continue, as we have for many years, to retain an independent tabulator to receive and tabulate the proxies and independent inspectors of election to certify the results.

 

Yes. If you are a shareholder of record, you may vote your shares at the meeting by completing a ballot at the meeting.

 

However, if you are a “street name” holder, you may vote your shares in person only if you obtain a signed proxy from your broker or nominee giving you the right to vote the shares.

 

If you hold shares in either of the Company’s Savings and Stock Investment Plan for Salaried Employees or Tax-Efficient Savings Plan for Hourly Employees, you cannot vote at the meeting. Your shares will be voted by the trustee of those plans as described on p. 2.

 

Even if you currently plan to attend the meeting, we recommend that you also submit your proxy as described above so that your vote will be counted if you later decide not to attend the meeting.

 

In the election of directors, you may vote for all nominees, or you may vote against one or more nominees. The proposal related to the election of directors is described in this proxy statement beginning at p. 5.

 

For each of the other proposals, you may vote for the proposal, against the proposal, or abstain from voting on the proposal, with the exception of Proposal 4, where you are being asked to vote for “1 year,” “2 years,” “3 years,” or you may abstain. These proposals are described in this proxy statement beginning at p. 71.

 

Proposals 1, 2, 3, and 4 will be presented at the meeting by management, and the rest are expected to be presented by shareholders.

 

The Board of Directors recommends a vote FOR all of the nominees for director (Proposal 1), FOR ratifying the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2011 (Proposal 2), FOR approval of the compensation of the Named Executives (Proposal 3), for “1 YEAR” on the frequency of providing a shareholder advisory vote to approve the compensation of the Named Executives (Proposal 4), and AGAINST the shareholder proposals (Proposals 5 through 7).

 

If you do not specify on your proxy card (or when giving your proxy by telephone or the Internet) how you want to vote your shares, we will vote them FOR all of the nominees for director (Proposal 1), FOR ratifying the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2011 (Proposal 2), FOR approval of the compensation of the Named Executives (Proposal 3), for “1 YEAR” on the frequency of providing a shareholder advisory vote to approve the compensation of the Named Executives (Proposal 4), and AGAINST the shareholder proposals (Proposals 5 through 7).

 

Yes. You can revoke your proxy at any time before it is exercised in any of three ways:

 

 

A majority of the votes that could be cast by shareholders who are either present in person or represented by proxy at the meeting is required to elect the nominees for director and to approve each proposal, other than Proposal 4. With respect to Proposal 4, the option of “1 year,” “2 years,” or “3 years,” that receives a majority of all the votes cast by shareholders will indicate to the Board of Directors the preference of the shareholders with respect to the frequency of the advisory vote on the approval of the compensation of the Named Executives. In the absence of a majority of votes cast in support of any one frequency, the option of 1 year, 2 years, or 3 years that receives the greatest number of votes will indicate such preference. The votes are computed for each share as described on p. 2.

 

The total number of votes that could be cast at the meeting is the number of votes actually cast plus the number of abstentions. Abstentions are counted as “shares present” at the meeting for purposes of determining whether a quorum exists and have the effect of a vote “against” any matter as to which they are specified.

 

Proxies submitted by brokers that do not indicate a vote for some or all of the proposals because they don’t have discretionary voting authority and haven’t received instructions as to how to vote on those proposals (so-called “broker non-votes”) are not considered “shares present” and will not affect the outcome of the vote.

 

If you are a shareholder of record and you plan to attend the annual meeting, please let us know by indicating in the appropriate place when you return your proxy. Please tear off the top portion of your proxy card where indicated and bring it with you to the meeting. This portion of the card will serve as your ticket and will admit you and one guest.

 

If you are a “street name” shareholder, tell your broker or nominee that you’re planning to attend the meeting and would like a “legal proxy.” Then simply bring that form to the meeting and we’ll give you a ticket at the door that will admit you and one guest. If you can’t get a legal proxy in time, we can still give you a ticket at the door if you bring a copy of your brokerage account statement showing that you owned Ford stock as of the record date, March 16, 2011.

 

Each shareholder and guest will be asked to present valid government-issued picture identification, such as a driver’s license or passport, before being admitted to the meeting. Cameras, recording devices, and other electronic devices will not be permitted at the meeting and attendees will be subject to security inspections. We encourage you to leave any such items at home. We will not be responsible for any items checked at the door.

 

We do not know of any other matters to be presented or acted upon at the meeting. Under our By-Laws, no business besides that stated in the meeting notice may be transacted at any meeting of shareholders. If any other matter is presented at the meeting on which a vote may properly be taken, the shares represented by proxies will be voted in accordance with the judgment of the person or persons voting those shares.

 

Fourteen directors will be elected at this year’s annual meeting. Each director will serve until the next annual meeting or until he or she is succeeded by another qualified director who has been elected.

 

William Clay Ford, who had been a member of the Board of Directors since 1948, retired from the Board effective May 12, 2005. As with previous years, the Board of Directors has again requested that Mr. Ford serve as Director Emeritus so that the Board can continue to avail itself of his wisdom, judgment and experience, and Mr. Ford has agreed to so serve. Mr. Ford is entitled to attend Board and committee meetings and participate in discussion of matters that come before the Board or its committees, although he is not entitled to vote upon any such matters and no longer receives compensation as a non-employee Board member.

 

We will vote your shares as you specify when providing your proxy. If you do not specify how you want your shares voted when you provide your proxy, we will vote them for the election of all of the nominees listed below. 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, we will vote your shares for that other person.

 

Qualifications Considered for Nominees

 

Because Ford is a large and complex company, the Nominating and Governance Committee considers numerous qualifications when considering candidates for the Board. Among the most important qualities directors should possess are the highest personal and professional ethical standards, integrity, and values. They should be committed to representing the long-term interests of all of the shareholders. Directors must also have practical wisdom and mature judgment. Directors must be objective and inquisitive. Ford recognizes the value of diversity and we endeavor to have a diverse Board, with experience in business, government, education and technology, and in areas that are relevant to the Company’s global activities. Directors must be willing to devote sufficient time to carrying out their duties and responsibilities effectively, and should be committed to serve on the Board for an extended period of time. Directors should also be prepared to offer their resignation in the event of any significant change in their personal circumstances that could affect the discharge of their responsibilities as directors of the Company, including a change in their principal job responsibilities.

 

Each of the nominees for director is now a member of the Board of Directors, which met ten times during 2010. Each of the nominees for director attended at least 75% of the combined Board of Director and committee meetings held during the periods served by such nominee in 2010. The nominees provided the following information about themselves as of February 1, 2011. Additionally, for each director-nominee we have disclosed the particular experience, qualifications, attributes, or skills that led the Board to conclude that the nominee should serve as a director.

Nominees

 

 

The Audit Committee is composed of five directors, all of whom meet the independence standards contained in the NYSE Listed Company rules, SEC rules and Ford’s Corporate Governance Principles, and operates under a written charter adopted by the Board of Directors. A copy of the Audit Committee Charter may be found on the Company’s website, www.ford.com. The Audit Committee selects, subject to shareholder ratification, the Company’s independent registered public accounting firm.

 

Ford management is responsible for the Company’s internal controls and the financial reporting process. The independent registered public accounting firm, PricewaterhouseCoopers LLP (“PricewaterhouseCoopers”), is responsible for performing independent audits of the Company’s consolidated financial statements and internal control over financial reporting and issuing an opinion on the conformity of those audited financial statements with United States generally accepted accounting principles and on the effectiveness of the Company’s internal control over financial reporting. The Audit Committee monitors the Company’s financial reporting process and reports to the Board of Directors on its findings.

 

Audit Fees

 

The Company paid PricewaterhouseCoopers $35.9 million and $42.7 million for audit services for the years ended December 31, 2010 and 2009, respectively. Audit services consisted of the audit of the financial statements included in the Company’s Annual Report on Form 10-K, reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q, attestation of the effectiveness of the Company’s internal controls over financial reporting, preparation of statutory audit reports, and providing comfort letters in connection with Ford and Ford Motor Credit Company funding transactions.

 

Audit-Related Fees

 

The Company paid PricewaterhouseCoopers $5.4 million and $4.4 million for audit-related services for the years ended December 31, 2010 and 2009, respectively. Audit-related services included support of funding transactions, due diligence for mergers, acquisitions and divestitures, employee benefit plan audits, attestation services, internal control reviews, and assistance with interpretation of accounting standards.

 

Tax Fees

 

The Company paid PricewaterhouseCoopers $3.6 million and $4.1 million for tax services for the years ended December 31, 2010 and 2009, respectively. The types of tax services provided included assistance with tax compliance and the preparation of tax returns, tax consultation, planning and implementation services, assistance in connection with tax audits, and tax advice related to mergers, acquisitions and divestitures. Of the fees paid for tax services, the Company paid 72% and 59% for tax compliance and the preparation of Company tax returns in 2010 and 2009, respectively.

 

All Other Fees

 

The Company did not engage PricewaterhouseCoopers for any other services for the years ended December 31, 2010 and 2009.

 

Total Fees

 

The Company paid PricewaterhouseCoopers a total of $44.9 and $51.2 million in fees for the years ended December 31, 2010 and 2009, respectively.

Auditor Independence

 

During the last year, the Audit Committee met and held discussions with management and PricewaterhouseCoopers. The Audit Committee reviewed and discussed with Ford management and PricewaterhouseCoopers the audited financial statements and the assessment of the effectiveness of internal controls over financial reporting contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. The Audit Committee also discussed with PricewaterhouseCoopers the matters required to be discussed by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, as well as by SEC regulations.

 

PricewaterhouseCoopers submitted to the Audit Committee the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the audit committee concerning independence. The Audit Committee discussed with PricewaterhouseCoopers such firm’s independence.

 

Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, filed with the SEC.

 

The Audit Committee also considered whether the provision of other non-audit services by PricewaterhouseCoopers to the Company is compatible with maintaining the independence of PricewaterhouseCoopers and concluded that the independence of PricewaterhouseCoopers is not compromised by the provision of such services.

 

Annually, the Audit Committee pre-approves categories of services to be performed (rather than individual engagements) by PricewaterhouseCoopers. As part of this approval, an amount is established for each category of services (Audit, Audit-Related, and Tax Services). In the event the pre-approved amounts prove to be insufficient, a request for incremental funding will be submitted to the Audit Committee for approval during the next regularly scheduled meeting. In addition, all new engagements greater than $250,000 will be presented in advance to the Audit Committee for approval. A regular report is prepared for each regular Audit Committee meeting outlining actual fees and expenses paid or committed against approved fees.

 

Audit Committee

 

Stephen G. Butler (Chair)
Kimberly A. Casiano
James H. Hance, Jr.
Irvine O. Hockaday, Jr.
Gerald L. Shaheen

 

Ford has operated under sound corporate governance practices for many years. We believe it is important to disclose to you a summary of our major corporate governance practices. Some of these practices have been in place for many years. Others have been adopted in response to regulatory and legislative changes. We will continue to assess and refine our corporate governance practices and share them with you.

 

Nominating and Governance Committee

 

The Nominating and Governance Committee is composed of eleven directors, all of whom are considered independent under the NYSE Listed Company rules and Ford’s Corporate Governance Principles. The Committee operates under a written charter adopted by the Board of Directors. A copy of the charter may be found on Ford’s website at www.ford.com.

 

Composition of Board of Directors/Nominees

 

The Nominating and Governance Committee recommends the nominees for all directorships. The Committee also reviews and makes recommendations to the Board on matters such as the size and composition of the Board in order to ensure the Board has the requisite expertise and its membership consists of persons with sufficiently diverse and independent backgrounds. Between annual shareholder meetings, the Board may elect directors to vacant Board positions to serve until the next annual meeting.

 

The Board proposes to you a slate of nominees for election to the Board at the annual meeting. You may propose nominees (other than self-nominations) for consideration by the Committee by submitting the names, qualifications and other supporting information to: Secretary, Ford Motor Company, One American Road, Dearborn, MI 48126. Properly submitted recommendations must be received no later than December 2, 2011 to be considered by the Committee for inclusion in the following year’s nominations for election to the Board. Your properly submitted candidates are evaluated in the same manner as those candidates recommended by other sources. All candidates are considered in light of the needs of the Board with due consideration given to the qualifications described on p. 5 under Election of Directors.

 

Identification of Directors

 

The Charter of the Nominating and Governance Committee provides that the Committee conducts all necessary and appropriate inquiries into the backgrounds and qualifications of possible candidates as directors. It has the sole authority to retain and terminate any search firm to be used to assist it in identifying and evaluating candidates to serve as directors of the Company. The Company on behalf of the Committee has paid fees to third-party firms to assist the Committee in the identification and evaluation of potential Board members.

 

The Committee identifies candidates through a variety of means, including search firms, recommendations from members of the Committee and the Board, including the Executive Chairman and the President and CEO, and suggestions from Company management. Our newest director, James H. Hance, Jr., was first proposed to the Committee by an independent director and was selected from among several names submitted by directors following a review by a search firm. Mr. Hance was interviewed prior to his election by the Chair of the Committee, the Chairman, and the President and CEO, and certain other Board members. Upon recommendation of the Committee, Mr. Hance was elected to the Board of Directors on July 8, 2010.

 

Director Independence

 

A majority of the directors must be independent directors under the NYSE Listed Company rules. The NYSE rules provide that no director can qualify as independent unless the Board affirmatively determines that the director has no material relationship with the listed company. The Board has adopted the following standards in determining whether

or not a director has a material relationship with the Company and these standards are contained in Ford’s Corporate Governance Principles and may be found at the Company’s website, www.ford.com.

 

 

 

Based on these independence standards and all of the relevant facts and circumstances, the Board determined that none of the following directors had any material relationship with the Company and, thus, are independent: Stephen G. Butler, Kimberly A. Casiano, Anthony F. Earley, Jr., Richard A. Gephardt, James H. Hance, Jr., Irvine O. Hockaday, Jr., Richard A. Manoogian, Ellen R. Marram, Homer A. Neal, Gerald L. Shaheen, and John L. Thornton.

 

Disclosure of Relevant Facts and Circumstances

 

With respect to the independent directors listed above, the Board considered the following relevant facts and circumstances in making the independence determinations:

 

From time to time during the past three years, Ford purchased goods and services from, or financing arrangements were provided by, various companies with which certain directors were or are affiliated either as members of such

companies’ boards of directors or, in the case of Ms. Casiano and Mr. Earley, as officers. In addition to Ms. Casiano and Mr. Earley, these directors included Mr. Gephardt, Mr. Hance, Mr. Hockaday, Mr. Manoogian, Ms. Marram, Dr. Neal, and Mr. Thornton. The Company also made donations to certain institutions with which certain directors are affiliated. These included Ms. Casiano, Mr. Earley, Mr. Gephardt, Mr. Manoogian, and Dr. Neal. Additionally, companies with which Mr. Manoogian and Mr. Earley are affiliated purchased products from Ford. None of the relationships described above were material under the independence standards contained in our Corporate Governance Principles.

 

In addition, Richard A. Manoogian is a member of the Board of Trustees of The Henry Ford, Mr. Earley is a member of the board of United Way for Southeastern Michigan, and both Messrs. Manoogian and Earley are members of the Board of Directors of Business Leaders for Michigan, formerly known as Detroit Renaissance. The Company and its affiliates contributed to The Henry Ford and the United Way for Southeastern Michigan amounts that exceeded the greater of $1 million or two percent of those entities’ total annual discretionary receipts during its three most recently completed fiscal years. It was further noted that in February 2008, Ford, with the approval of the Board, decided to invest up to $10 million over the next two to four years in the Business Leaders for Michigan’s Venture Capital Fund I. Other large companies in Southeastern Michigan have also made monetary commitments to the fund in order to support local venture capital firms in Southeast Michigan. Pursuant to the Company’s Corporate Governance Principles, the independent directors listed above (excluding Mr. Earley and Mr. Manoogian), considering all of the relevant facts and circumstances, determined that the Company’s contributions to The Henry Ford, the United Way for Southeastern Michigan, and Business Leaders for Michigan, and the presence of Mr. Earley and Mr. Manoogian on those Boards, did not constitute a material relationship between Ford and Messrs. Earley and Manoogian. Consequently, these independent directors determined Messrs. Earley and Manoogian to be independent. With respect to The Henry Ford, the directors gave due consideration to the composition of the Board of Trustees of The Henry Ford, which includes Edsel B. Ford II, William Clay Ford and William Clay Ford, Jr., and the Company’s history of support for The Henry Ford, which predated Mr. Manoogian’s service. Likewise, with respect to the United Way for Southeastern Michigan and Business Leaders for Michigan, the directors gave due consideration to the composition of the Board of Directors of Business Leaders for Michigan, which includes William Clay Ford, Jr., and James Vella, President of the Ford Fund, as well as those entities’ mission to promote the welfare and economic development of Michigan, and the Company’s history of contributions to those organizations and to the development of Michigan. In each case, the directors determined that the Company was not unduly influenced to make contributions to The Henry Ford, the United Way for Southeastern Michigan, or Business Leaders for Michigan because of Mr. Earley’s or Mr. Manoogian’s presence on those boards, nor was Mr. Earley or Mr. Manoogian unduly influenced by the contributions made by the Company to those organizations.

 

Corporate Governance Principles

 

The Nominating and Governance Committee developed and recommended to the Board a set of corporate governance principles, which the Board adopted. Ford’s Corporate Governance Principles may be found on its website at www.ford.com. These principles include: a limitation on the number of boards on which a director may serve, qualifications for directors (including a director retirement age and a requirement that directors be prepared to resign from the Board in the event of any significant change in their personal circumstances that could affect the discharge of their responsibilities), director orientation, continuing education and a requirement that the Board and each of its Committees perform an annual self-evaluation. Although Messrs. Hockaday and Manoogian have reached the normal retirement age of 72 years, the Board has waived the retirement age for them as permitted under our Corporate Governance Principles. Shareholders may obtain a printed copy of the Company’s Corporate Governance Principles by writing to our Shareholder Relations Department, Ford Motor Company, One American Road, Suite 1026, Dearborn, Michigan 48126-2798.

Leadership Structure

 

The Board of Directors has chosen to separate the roles of CEO and Chairman of the Board of Directors. Alan Mulally is our President and CEO and William Clay Ford, Jr., is Chairman of the Board of Directors as well as our Executive Chairman. We believe this structure is optimal for Ford because it allows Mr. Mulally to focus on the day-to-day operation of the business, in particular the implementation of our ONE Ford Plan, while allowing Mr. Ford to focus on leadership of the Board of Directors in addition to providing the Company with direction on Company-wide issues such as sustainability and stakeholder relationships. Furthermore, the Board has appointed Irvine O. Hockaday, Jr., as our Presiding Independent Director. We believe this to be an important governance practice given that the Chairman of the Board, Mr. Ford, is not an independent director under our Corporate Governance Principles. Mr. Hockaday chairs the executive sessions of our independent directors and works with Mr. Ford and Mr. Mulally to ensure management is adequately addressing the matters identified by the Board. This structure optimizes the roles of CEO, Chairman, and Presiding Independent Director and provides Ford with sound corporate governance practices in the management of its business.

 

Board’s Role in Risk Management

 

The Board of Directors of the Company has overall responsibility for the oversight of risk management at Ford. Day-to-day risk management is the responsibility of management, which has implemented Enterprise Risk Management processes to identify, manage and monitor risks that face the Company.

 

The oversight responsibility of the Board and its Committees is supported by Company management and the risk management processes that are currently in place. Ford has extensive and effective risk management processes, relating specifically to compliance, reporting, operating and strategic risks. Compliance risk encompasses matters such as legal and regulatory compliance (e.g., Foreign Corrupt Practices Act, environmental, OSHA/safety, etc.). Reporting risk covers Sarbanes-Oxley compliance, disclosure controls and procedures, and accounting compliance. Operating risk addresses the myriad of matters related to the operation of a complex company such as Ford (e.g., quality, supply chain, sales and service, financing and liquidity, product development and engineering, labor, etc.). Strategic risk encompasses somewhat broader and longer-term matters, including, but not limited to, technology development, sustainability, capital allocation, management development, retention and compensation, competitive developments and geopolitical developments.

 

We believe that key success factors in the risk management at Ford include strong Board and senior management commitment, effective top-down and bottom-up communication (including communication between management and the Board and Committees), and active cross-functional participation among the Business Groups and Functional Skill Teams. More specifically, our Chief Executive Officer, Alan Mulally, has institutionalized a Business Plan Review and Special Attention Review process where, on a weekly basis (and more often where circumstances dictate), the senior leadership of the Company from each of the Business Groups and the Functional Skill Teams, reviews the status of the business, the risks presented to the business, (once again in the areas of compliance, reporting, operating and strategic risks), and develops specific plans to address those risks.

 

As noted above, the full Board of Directors has overall responsibility for the oversight of risk management at Ford and oversees operating risk management, with reviews at each of its regular Board meetings. The Board of Directors has delegated responsibility for the oversight of specific areas of risk management to certain Committees of the Board, with each Board Committee reporting to the full Board following each Committee meeting. The Audit Committee assists the Board of Directors in overseeing compliance and reporting risk. The Board, the Sustainability Committee, the Compensation Committee, and the Finance Committee all play a role in overseeing strategic risk management.

Risk Assessment Regarding Compensation Policies and Practices

 

We conducted an assessment of our compensation policies and practices, including our executive compensation programs, to evaluate the potential risks associated with these policies and practices. We reviewed and discussed the findings of the assessment with the Compensation Committee and concluded that our compensation programs are designed with an appropriate balance of risk and reward in relation to our ONE Ford Plan and do not encourage excessive or unnecessary risk-taking behavior. As a result, we do not believe that risks relating to our compensation policies and practices for our employees are reasonably likely to have a material adverse effect on the Company.

 

In conducting this review, we considered the following attributes of our programs:

 

 

Our Compensation Committee considered compensation risk implications during its deliberations on the design of our 2011 executive compensation programs with the goal of appropriately balancing short-term incentives and long-term performance. In addition to the above, the Committee formally adopted a policy of recoupment of compensation in certain circumstances. The purpose of this policy is to help ensure executives act in the best interests of the Company. The policy requires any Company officer to repay or return cash bonuses and/or equity awards in the event: (i) the Company issues a material restatement of its financial statements and where the restatement was caused by such officer’s intentional misconduct; (ii) such officer was found to be in violation of non-compete provisions of any plan or agreement; or (iii) such officer has committed ethical or criminal violations. The Committee will consider all relevant factors and exercise business judgment in determining any appropriate amounts to recoup up to 100% of any awards. The policy applied to awards for the 2010 Incentive Bonus Plan performance period and to equity awards beginning with grants made in 2011.

 

Policy and Procedure for Review and Approval of Related Party Transactions

 

Business transactions between Ford and its officers or directors, including companies in which a director or officer (or an immediate family member) has a substantial ownership interest or a company where such director or officer (or an immediate family member) serves as an executive officer (“related party transactions”), are not prohibited. In fact, certain related party transactions can be beneficial to the Company and its shareholders.

It is important, however, to ensure that any related party transactions are beneficial to the Company. Accordingly, any related party transaction, regardless of amount, is submitted to the Nominating and Governance Committee in advance for review and approval. All existing related party transactions are reviewed at least annually by the Nominating and Governance Committee. The Office of the General Counsel reviews all such related party transactions, existing or proposed, prior to submission to the Nominating and Governance Committee, and our General Counsel opines on the appropriateness of each related party transaction. The Nominating and Governance Committee may, at its discretion, consult with outside legal counsel.

 

Any director or officer with an interest in a related party transaction is expected to recuse himself or herself from any consideration of the matter.

 

The Nominating and Governance Committee’s approval of a related party transaction may encompass a series of subsequent transactions contemplated by the original approval, i.e., transactions contemplated by an ongoing business relationship occurring over a period of time. Examples include transactions in the normal course between the Company and a dealership owned by a director or an executive officer (or an immediate family member thereof), transactions in the normal course between the Company and financial institutions with which a director or officer may be associated, and the ongoing issuances of purchase orders or releases against a blanket purchase order made in the normal course by the Company to a business with which a director or officer may be associated. In such instances, any such approval shall require that the Company make all decisions with respect to such ongoing business relationship in accordance with existing policies and procedures applicable to non-related party transactions (e.g., Company purchasing policies governing awards of business to suppliers, etc.).

 

In all cases, a director or officer with an interest in a related party transaction may not attempt to influence Company personnel in making any decision with respect to the transaction.

 

Committee Charters/Codes of Ethics

 

The Company has published on its website (www.ford.com) the charter of each of the Audit, Compensation, Finance, Nominating and Governance, and Sustainability Committees of the Board, as well as its Code of Conduct Handbook, which applies to all officers and employees, a code of ethics for directors, and a code of ethics for the Company’s chief executive officer as well as senior financial and accounting personnel. Any waiver of, or amendments to, the codes of ethics for directors or executive officers, including the chief executive officer, the chief financial officer and the principal accounting officer, may be approved only by the Nominating and Governance Committee and any such waivers or amendments will be disclosed promptly by the Company by posting such waivers or amendments to its website. The Nominating and Governance Committee also reviews management’s monitoring of compliance with the Company’s Code of Conduct. Printed copies of each of the committee charters and the codes of ethics referred to above are also available by writing to our Shareholder Relations Department, Ford Motor Company, One American Road, Suite 1026, Dearborn, Michigan 48126-2798.

 

Executive Sessions of Non-Employee Directors

 

Non-employee directors ordinarily meet in executive session without management present at regularly scheduled Board meetings and may meet at other times at the discretion of the Presiding Independent Director or at the request of any non-employee director. Currently, Irvine O. Hockaday, Jr., is the Presiding Independent Director for the executive sessions of non-management directors. Additionally, all of the independent directors meet periodically (but not less than annually) without management or non-independent directors present.

 

Audit Committee

 

The Charter of the Audit Committee provides that a member of the Audit Committee generally may not serve on the audit committee of more than two other public companies. The Board has designated Stephen G. Butler as an Audit Committee financial expert. Mr. Butler meets the independence standards for audit committee members under the

NYSE Listed Company and SEC rules. The lead partner of the Company’s independent registered public accounting firm is rotated at least every five years.

 

Compensation Committee Operations

 

The Compensation Committee establishes and reviews our executive compensation philosophy and strategy and oversees our various executive compensation programs. The Committee is responsible for evaluating the performance of and determining the compensation for our Executive Chairman, the President and CEO, and other executive officers, and approving the compensation structure for senior management, including officers. The Committee is composed of four directors who are considered independent under the NYSE Listed Company rules and our Corporate Governance Principles. The Committee’s membership is determined by our Board of Directors. The Committee operates under a written charter adopted by our Board of Directors. The Committee annually reviews the charter. A copy of the charter may be found on our website at www.ford.com.

 

The Committee makes decisions regarding the compensation of our officers that are Vice Presidents and above, including the Named Executives. The Committee has delegated authority, within prescribed share limits, to a Long-Term Incentive Compensation Award Committee (comprised of William Clay Ford, Jr., Alan Mulally, and L. W. K. Booth) to approve grants of options, Performance Units, Restricted Stock Units and other stock-based awards, and to the Annual Incentive Compensation Award Committee to determine bonuses, for other employees.

 

The Board of Directors makes decisions relating to non-employee director compensation. Any proposed changes are reviewed in advance and recommended to the Board by the Nominating and Governance Committee.

 

The Compensation Committee considers recommendations from Mr. Ford, Mr. Mulally, and the Group Vice President — Human Resources and Corporate Services, in developing compensation plans and evaluating performance of other executive officers. The Committee’s consultant also provides advice and analysis on the structure and level of executive compensation. Final decisions on any major element of compensation, however, as well as total compensation for executive officers, are made by the Compensation Committee.

 

As in prior years, in 2010, the Committee engaged Semler Brossy Consulting Group, LLC, an independent compensation consulting firm, to advise the Committee on executive compensation and benefits matters. Semler Brossy is retained directly by the Committee and it has the sole authority to review and approve the budget of the independent consultant. Semler Brossy does not advise our management and receives no other compensation from us. The same Semler Brossy principal attended all eight of the Committee meetings in 2010. In addition, the Committee relied on survey data provided by the Towers Watson Executive Compensation Database. See “How We Determine Compensation — C. Competitive Survey” in the “Compensation Discussion and Analysis” on pp. 35-36. Towers Watson does not assist the Compensation Committee in determining or recommending compensation of executive officers. Towers Watson is retained by Ford management, not the Committee.

 

Committee meetings typically occur prior to the meetings of the full Board of Directors. Bonus target grants, bonus awards, stock option grants, Performance Unit grants, final stock awards, and Final Awards of Restricted Stock Units typically are decided at the February or March Committee meeting (see “Compensation Discussion and Analysis — Equity-Based Compensation — C. Timing of Awards” on pp. 45-46). Officer salaries are reviewed in March each year.

 

See the “Compensation Discussion and Analysis” on pp. 32-49 for more detail on the factors considered by the Committee in making executive compensation decisions.

 

The Committee reviews our talent and executive development program with senior management. These reviews are conducted periodically and focus on executive development and succession planning throughout the organization, at the Vice President level and above.

Our policy, approved by the Compensation Committee, to limit outside board participation by our officers, is shown below:

 

 

Board Committees

 

Only independent directors serve on the Audit, Compensation, and Nominating and Governance Committees, in accordance with the independence standards of the NYSE Listed Company rules and the Company’s Corporate Governance Principles. The Board, and each committee of the Board, has the authority to engage independent consultants and advisors at the Company’s expense.

 

Communications with the Board/Annual Meeting Attendance

 

The Board has established a process by which you may send communications to the Board. You may send communications to our Directors, including any concerns regarding Ford’s accounting, internal controls, auditing, or other matters, to the following address: Board of Directors, Ford Motor Company, P.O. Box 685, Dearborn, MI 48126-0685 U.S.A. You may submit your concern anonymously or confidentially. You may also indicate whether you are a shareholder, customer, supplier, or other interested party. Communications relating to the Company’s accounting, internal controls, or auditing matters will be relayed to the Audit Committee. A summary of the other communications will be relayed to the Nominating and Governance Committee. Communications will be referred to other areas of the Company for handling as appropriate under the facts and circumstances outlined in the communications. Ford will acknowledge receipt of all communications sent to the address above that disclose a return address. You may also find a description of the manner in which you can send communications to the Board on the Company’s website (www.ford.com).

 

All members of the Board are expected to attend the annual meeting, unless unusual circumstances would prevent such attendance. Last year, eleven of the thirteen nominated directors attended the annual meeting.

 

Pursuant to SEC filings, the Company was notified that as of December 31, 2010, the entities included in the table below had more than a 5% ownership interest of Ford common stock, or owned securities convertible into more than 5% ownership of Ford common stock, or owned a combination of Ford common stock and securities convertible into Ford common stock that could result in more than 5% ownership of Ford common stock.

 

 

The following table shows how much Ford stock each director, nominee, and Named Executive beneficially owned as of February 1, 2011. No director, nominee or executive officer, including Named Executives, beneficially owned more than 0.47% of Ford’s total outstanding common stock nor did any such person beneficially own more than 0.01% of Ford common stock units as of February 1, 2011. These persons held options exercisable on or within 60 days after February 1, 2011 to buy, and/or beneficially owned as of February 1, 2011, Trust Preferred Securities convertible into, 34,258,838 shares of Ford common stock.

 

 

Notes

 

⁽¹⁾For executive officers, included in the amounts for “All Directors and Executive Officers as a group” are Restricted Stock Units issued under the 1998 Plan and the 2008 Plan as long-term incentive grants in 2010 and prior years for retention and other incentive purposes.

 

Also, amounts shown include restricted shares of common stock issued under the 2008 Plan as follows: 22,344 restricted shares for Edsel B. Ford II as payment for his services pursuant to a consulting agreement with the Company (see pp. 28-30). In addition, amounts shown include Restricted Stock Units issued under the 1998 Plan and the 2008 Plan as follows: 4,958,708 units for Mr. Mulally; 651,786 units for L. W. K. Booth; 1,786,074 units for William Clay Ford, Jr.; 760,637 units for Mr. Fields; and 725,468 units for Mr. Fleming.

 

⁽²⁾Included in the stock ownership shown in the table above: Edsel B. Ford II has disclaimed beneficial ownership of 61,401 shares of common stock and 32,508 shares of Class B Stock that are either held directly by his immediate family, by charitable funds which he controls or by members of his immediate family in custodial or conservatorship accounts for the benefit of other members of his immediate family. William Clay Ford, Jr., has disclaimed beneficial

ownership of 24,822 shares of common stock and 115,986 shares of Class B Stock that are either held directly by members of his immediate family or by members of his immediate family in custodial accounts for the benefit of other members of his immediate family. Present directors and executive officers as a group have disclaimed beneficial ownership of a total of 86,223 shares of common stock and 148,494 shares of Class B Stock.

 

Also, on February 1, 2011 (or within 60 days after that date), the Named Executives and directors listed below have rights to acquire shares of common stock through the exercise of stock options under Ford’s stock option plans and/or through conversion of Trust Preferred Securities, as follows:

 

Person		Number of Shares
L. W. K. Booth			1,753,141
Mark Fields			2,233,086
John Fleming			469,889
William Clay Ford, Jr.			9,968,317
Richard A. Manoogian			56,498
Alan Mulally			12,135,218

 

The amounts of common stock shown above for Mr. Manoogian are a result of his ownership of Trust Preferred Securities, which were convertible into Ford common stock until March 15, 2011, at which time the Trust Preferred Securities, including those deemed owned by Mr. Manoogian, were redeemed for cash. In Mr. Manoogian’s case, he was deemed to be the beneficial owner of Trust Preferred Securities as a result of his being a trustee of a charitable foundation that owned the Trust Preferred Securities. Additionally, Mr. Manoogian pledged as security 100,000 shares of common stock held in a trust of which he is a trustee. William Clay Ford, Jr., has pledged 469,097 shares of common stock.

 

⁽³⁾In general, these are common stock units credited under a deferred compensation plan and payable in cash.

 

As of February 1, 2011, the persons included in the table below beneficially owned more than 5% of the outstanding Class B Stock.

 

 

Based on Company records and other information, Ford believes that all SEC filing requirements applicable to its directors and executive officers were complied with for 2010 and prior years, except that, due to oversight by the Company, there were 31 late reports disclosing 32 transactions with respect to a Trust, consisting primarily of 29 purchases of common shares pursuant to a dividend reinvestment policy, of which Edsel B. Ford II is the Trustee but not a beneficiary.

 

 

⁽¹⁾Standard Compensation Arrangements

 

Fees.  On July 13, 2006, the Board of Directors voluntarily reduced Board fees payable to non-employee directors by half resulting in the following fee structure:

 

Annual Board membership fee		$	100,000
Annual Committee chair fee		$	2,500
Annual Presiding Director fee		$	5,000

 

For 2009, the Board voluntarily agreed to forgo the cash portion of the annual fees. Consequently, $60,000 (60% of the Annual Board membership fee) was credited to the directors’ accounts under the Deferred Compensation Plan for Non-Employee Directors (see below). Directors did not receive any other cash payments relative to board fees during 2009.

 

We disclosed in our 2010 Proxy Statement that in light of our significant progress during 2009, our positive financial projections for 2010 and, following an analysis of director compensation being paid by peer group companies, including the payment of director compensation at General Motors following its bankruptcy, the Board of Directors determined that it was appropriate that compensation paid to non-employee directors of the Company return to

2006 levels. Accordingly, effective as of January 1, 2010, the Board of Directors agreed that the following compensation will be paid to non-employee directors of the Company:

 

Annual Board membership fee		$	200,000
Annual Committee chair fee		$	5,000
Annual Presiding Director fee		$	10,000

 

The Board of Directors also considered that restoring compensation to prior levels would help the Company attract new directors in an environment where it is increasingly difficult to attract qualified directors.

 

Deferred Compensation Plan.  Under this plan, 60% of a director’s annual Board membership fee must be deferred in common stock units. Directors also can choose to have the payment of all or some of the remainder of their fees deferred in the form of cash and/or common stock units. Each common stock unit is equal in value to a share of common stock and is ultimately paid in cash. These common stock units generate Dividend Equivalents in the form of additional common stock units (if dividends are paid on common stock). These units are credited to the directors’ accounts on the date common stock cash dividends are paid. Any fees deferred in cash are held in the general funds of the Company. Interest on fees deferred in cash is credited semi-annually to the directors’ accounts at the then-current U.S. Treasury Bill rate plus 0.75%. In general, deferred amounts are not paid until after the director retires from the Board. The amounts are paid, at the director’s option, either in a lump sum or in annual installments over a period of up to ten years. In light of the requirement that 60% of annual director fees are deferred into common stock units, and that directors do not realize the cash value of such units until after they leave the Board, there is no minimum share ownership requirement for members of the Board.

 

Insurance.  Ford provides non-employee directors with $200,000 of life insurance. Effective December 31, 2008, the Board amended this plan so that life insurance coverage ends for all currently retired directors and directors who retire in the future, except for those currently retired directors who had previously elected a reduction in life insurance and the $15,000 annuity discussed below, in which case only the annuity would continue. A director who retired from the Board after age 70 or, after age 55 with Board approval, and who had served for at least five years, may have elected to have the life insurance reduced to $100,000 and receive $15,000 a year for life. Edsel B. Ford II does not participate in this plan because, as a former employee, he is entitled to $25,000 of Company-provided life insurance. The life insurance premiums paid by the Company for each director are reflected in the All Other Compensation in 2010 table below.

 

Evaluation Vehicle Program.  We provide non-employee directors with the use of up to two Company vehicles free of charge. Directors are expected to provide evaluations of the vehicles to the Company.

 

⁽²⁾The amount shown for Edsel B. Ford II reflects the FASB ASC Topic 718 grant date fair value resulting from grants of restricted shares of common stock awarded under the 2008 Plan pursuant to a January 1999 consulting agreement between the Company and Mr. Ford. Under the agreement, the consulting fee is $125,000 per calendar quarter, payable in restricted shares of common stock. The assumptions used for the 2010 calculations can be found at footnote 21 to our audited financial statements in Ford’s Annual Report on Form 10-K for the year ended December 31, 2010. The restrictions on the shares lapse one year from the date of grant and are subject to the conditions of the 2008 Plan. Beginning in the third quarter 2010, Mr. Ford began receiving the consulting fee in cash. Mr. Ford is available for consultation, representation, and other duties under the agreement. Additionally, the Company provides facilities (including office space), an administrative assistant, and security arrangements. This agreement will continue until either party ends it with 30 days’ notice.

⁽³⁾The following table summarizes the amounts shown in column (d).

 

All Other Compensation in 2010

 

 

⁽ⁱ⁾As noted above, Edsel B. Ford II began receiving his consultancy fee in cash effective with the third quarter 2010. The amount shown for Dr. Neal reflects fees paid as a member of the board of managers of Ford Global Technologies, LLC, a wholly-owned entity that manages the Company’s intellectual property. As a non-employee director of such board, Dr. Neal receives the customary fees paid to non-employee directors. Currently, the fees are: Annual Fee: $10,000, Attendance Fee: $1,000 per meeting. Dr. Neal attended both meetings of the board of managers of Ford Global Technologies, LLC, during 2010.

 

⁽ⁱⁱ⁾All amounts shown in this column reflect the cost of evaluation vehicles provided to Directors (see footnote (1) above) and the actual cost incurred for holiday gifts. We calculate the aggregate incremental costs of providing the evaluation vehicles by estimating the lease fee of a comparable vehicle under our Management Lease Program. The lease fee under that program takes into account the cost of using the vehicle, maintenance, license, title and registration fees, and insurance. For Mr. Thornton, the cost of evaluation vehicles was $27,320.

 

Since January 1993, Ford has had a consulting agreement with William Clay Ford. Under this agreement, Mr. Ford is available for consultation, representation, and other duties. For these services, Ford pays him $100,000 per year and provides facilities (including office space), an administrative assistant, and security arrangements. This agreement will continue until either party ends it with 30 days’ notice.

 

In February 2002, Ford entered into a Stadium Naming and License Agreement with The Detroit Lions, Inc., pursuant to which we acquired for $50 million, paid by us in 2002, the naming rights to a new domed stadium located in downtown Detroit at which the Lions began playing their home games during the 2002 National Football League season. We named the stadium “Ford Field.” The term of the naming rights agreement is 25 years, which commenced with the 2002 National Football League season. Benefits to Ford under the naming rights agreement include exclusive exterior entrance signage and predominant interior promotional signage. In June 2005, the naming rights agreement was amended to provide for expanded Ford exposure on and around the exterior of the stadium, including the rooftop, in exchange for approximately $6.65 million to be paid in varying installments over the next ten years, of which $564,933 was paid during 2010. Beginning in 2005, the Company also agreed to provide to the Lions, at no cost, eight new model year Ford, Lincoln or Mercury brand vehicles manufactured by Ford in North America for use by the management and staff of Ford Field and the Lions and to replace such vehicles in each second successive year, for the remainder of the naming rights agreement. No cost was incurred during 2010 since this expense was incurred in 2009 for providing the vehicles for the 2009-2011 period. William Clay Ford is the majority owner of the Lions. In addition, William Clay Ford, Jr., is one of five minority owners and is a director and officer of the Lions.

 

Paul Alandt, Lynn F. Alandt’s husband, owns a Ford-franchised dealership and a Lincoln-Mercury-franchised dealership. In 2010, the dealerships paid Ford about $105.1 million for products and services in the ordinary course of business. In turn, Ford paid the dealerships about $20.0 million for services in the ordinary course of business. Also in 2010, Ford Motor Credit Company LLC, a wholly-owned entity of Ford, provided about $148.5 million of financing to the dealerships and paid $653,574 to them in the ordinary course of business. The dealerships paid Ford Credit about $144.5 million in the ordinary course of business. Additionally, in 2010 Ford Credit purchased retail installment sales contracts and Red Carpet Leases from the dealerships in amounts of about $18.3 million and $48.4 million, respectively.

 

Mr. Alandt also owns a Volvo franchised dealership. Volvo Cars was a wholly-owned entity of Ford during 2010 prior to completion of the sale of Volvo in the third quarter of 2010. During the period in 2010 while Volvo was still a wholly-owned entity of Ford, the dealership paid Volvo Cars about $3.4 million for products and services in the ordinary course of business. In turn, Volvo Cars paid the dealership about $770,000 for services in the ordinary course of business. Also in 2010, Ford Credit provided about $12.4 million of financing to the dealership. The dealership paid Ford Credit about $11.2 million in the ordinary course of business.

 

In March 2001, Marketing Associates, LLC, an entity in which Edsel B. Ford II has a majority interest, acquired all of the assets of the Marketing Associates Division of Lason Systems, Inc. Before the acquisition, the Marketing Associates Division of Lason Systems, Inc. provided various marketing and related services to the Company and this continued following the acquisition. In 2010, the Company paid Marketing Associates, LLC approximately $23.6 million for marketing and related services provided in the ordinary course of business.

 

Pursuant to SEC filings, the Company was notified that as of December 31, 2010, State Street Corporation, and its affiliate State Street Bank and Trust Company, State Street Financial Center, One Lincoln Street, Boston, MA 02111, owned 11.1% of our common stock. During 2010, the Company paid State Street Corporation and its affiliates approximately $6.2 million in the ordinary course of business.

 

Pursuant to SEC filings, the Company was notified that as of December 31, 2010, Black Rock, Inc., 40 East 52nd Street, New York, New York 10022, through certain of its affiliates, owned 5.28% of our common stock. During 2010, the Company paid Black Rock approximately $27.3 million in the ordinary course of business.

 

Pursuant to SEC filings, the Company was notified that as of December 31, 2010, Evercore Trust Company, N.A., 55 East 52nd Street, 36th Floor, New York, NY 10055, owned approximately 7.97% of the Company’s common stock. During 2010, the Company paid Evercore Trust Company, N.A. approximately $1.6 million in the ordinary course of business.

 

In our 2010 CD&A, we shared with you the steps we took during 2009 to cut costs and conserve cash in our compensation programs. These included:

 

 

Additionally, we emphasized equity-based compensation in order to accelerate our transformation to a growth company, to incentivize stock price appreciation, and to further align our executives’ interests with yours. By the end of 2009, our financial results began to reflect the benefits of our ONE Ford Plan, with a full-year net income of $2.7 billion and reduction of our Automotive operating-related cash burn by $18.8 billion from 2008 to 2009. As a result of this progress, we disclosed in the 2010 CD&A that we would pay salary merit increases in 2010, institute Company matching of 401(k) plan employee contributions, and continue to emphasize equity-based compensation to further align our executives’ interests with yours.

 

In 2010, we accelerated performance of our ONE Ford Plan and reported:

 

 

It is important to note that each of the above accomplishments is directly related to the metrics used in our incentive compensation plans. Likewise, each supports the elements of our ONE Ford Plan, which are:

 

1. Aggressively restructure our business to operate profitably at current demand and changing model mix.

 

2. Accelerate the development of new products our customers want and value.

 

3. Finance our plan and improve our balance sheet.

 

4. Work together effectively as one team.

 

Investors also recognized our accomplishments and progress, with our common stock price appreciating 67.9% in 2010, which ranks in the 96th percentile of S&P 500 companies. Because of our superior operational performance against plan metrics during 2010 (see below), the Compensation Committee approved payouts under our Incentive Bonus Plan and Final Awards for 2010 Performance Units grants. This is the first payout under the Incentive Bonus Plan in three years, even though performance-to-metrics would have generated payouts for both 2008 and 2009. We believe the performance metrics used in our incentive plans properly focused management’s behavior to accomplish

key objectives and, in accomplishing these objectives, we made significant progress on our ONE Ford goal of an exciting, viable Ford delivering profitable growth for all. Approval of payouts for 2010 performance under both the Incentive Bonus Plan and the 2010 Performance Units grants reinforces our performance oriented culture.

 

While we acknowledge our exceptional performance in 2009 and 2010, we also recognize that the economic recovery is fragile and that we must continue to conserve cash while maintaining a compensation program that is competitive. Consequently, we decided not to award annual salary merit increases for salaried employees in North America in 2011, including the Named Executives, because survey results show that our base salary levels are competitive. Additionally, the Compensation Committee eliminated tax gross-ups for executive perquisites beginning in 2011 (see “Compensation Programs for 2011” on p. 46). We believe these actions are consistent with our Guiding Principles discussed below. Furthermore, not awarding salary merit increases in 2011 reinforces our goal of competitive positioning of our compensation programs.

 

Named Executive Officers

 

The Named Executives are:

 

 

How We Determine Compensation

 

The following discussion of our compensation philosophy, strategy, and guiding principles provides you with the framework within which compensation programs are developed at Ford. Additionally, the discussion of the Company’s compensation objectives and business strategy identifies for you those areas that are important in executing our ONE Ford Plan.

 

 

Our Compensation Committee adopted the following Philosophy Statement with respect to all salaried employees:

 

“Compensation and benefits programs are an important part of the Company’s employment relationship, which also includes challenging and rewarding work, growth and career development opportunities, and being part of a leading company with a diverse workforce and great products. Ford is a global company with consistent compensation and benefits practices that are affordable to the business.

 

Pay for performance is fundamental to our compensation philosophy. We reward individuals for performance and contributions to business success. Our compensation and benefits package in total will be competitive with leading companies in each country.”

 

In addition, the Committee has approved the following Strategy Statement:

 

“Compensation will be used to attract, retain, and motivate employees and to reward the achievement of business results through the delivery of competitive pay and incentive programs. Benefits provide employees with income security and protection from catastrophic loss. The Company will develop benefit programs that meet these objectives while minimizing its long-term liabilities.”

The following Guiding Principles ensure our Philosophy and Strategy statements are applied consistently across the business for our salaried employees. They work together — no one principle is more important than any other and business judgment is used to balance them in changing business conditions.

 

 

The Philosophy and Strategy statements and Guiding Principles are reviewed by the Committee on a regular basis. There were no material changes to the Philosophy and Strategy statements and Guiding Principles in 2010.

 

In keeping with the above, our total direct compensation for Named Executives consisting of base salary, annual cash incentive, and long-term equity, is heavily weighted towards performance. Base salary represents less than 20% of each Named Executive’s target opportunity, and a majority is contingent on meeting incentive plan metrics.

 

 

As noted above, one of the primary objectives of our compensation program is to drive executive behavior to accomplish key strategic goals. Our President and Chief Executive Officer, Alan Mulally, further developed the

Company’s strategic priorities under the strategy of ONE Ford. ONE Ford provides a single definition of not only what we need to accomplish but how we need to deliver those accomplishments to achieve success globally. ONE Ford aligns our efforts toward a common definition of success, which includes One Team executing One Plan to deliver One Goal — an exciting, viable Ford delivering profitable growth for all.

 

Given these priorities, the Committee decided to emphasize global and business unit profitability, total Automotive operating-related cash flow, and cost performance metrics in our incentive plans for 2010. Additionally, the Committee emphasized quality and market share metrics in our incentive programs. As noted in the “Executive Summary” on p. 32, these metrics support the pillars of the ONE Ford Plan.

 

As discussed in greater detail below, performance in these critical areas drove the compensation decisions related to our Incentive Bonus Plan and Performance Units for Named Executives for 2010. For more detail on these metrics and how they were used in our incentive programs, refer to “Annual Compensation — B. Incentive Bonuses” on pp. 39-42 and “Equity-Based Compensation — A. Annual Performance Unit and Stock Option Grants” on pp. 43-45. This compensation structure is consistent with our compensation Philosophy, Strategy, and Guiding Principles of performance orientation, flexibility, competitive positioning, affordability, and reinforcing desired behaviors.

 

 

In December 2010, the Committee reviewed a report on Ford’s compensation programs for executives. The Company utilized the Towers Watson Executive Compensation Database as the data source for the Company’s analysis of executive compensation. The survey group compensation data was collected during the second quarter of 2010 and, therefore, reflected any bonuses paid in early 2010 for 2009 performance, as well as equity grants for 2010. The report discussed how our executive compensation program compared with those of peer companies on base salary, bonus, long-term incentives, and total direct compensation.

 

In consultation with the Committee’s independent consultant, the following criteria were established in 2009 and used in the selection of the recommended peer group companies:

 

 

The above criteria ensure that the chosen executive compensation peer group will be representative of Ford’s market for talent. Changes to the comparator group are typically minimized in order to support data stability and reliability.

 

The compensation of executives of General Motors and Chrysler has been regulated due to those companies’ participation in TARP. We continue to believe, however, it is appropriate to include them in our comparator survey group because they are our closest domestic competitors. Our non-U.S. based competitors, such as Nissan, Toyota, and Honda, do not participate in the Towers Watson survey process. In addition to General Motors and Chrysler, our peer group also included 21 leading companies in other industries:

 

*Procter & Gamble is typically included in our survey group; however, it did not participate in the Towers Watson survey this year.

 

While the Committee uses the survey as a reference point, it is not, and was not in 2010, the sole determining factor in executive compensation decisions. The survey group data is used primarily to ensure that our executive compensation program as a whole is competitive when the Company achieves targeted performance levels. We generally seek to provide total compensation opportunities, which include salary, annual bonus and long-term incentives, at or around the survey group’s median total compensation. We do not establish rigid targets for total compensation, or any individual element of compensation, relative to the survey group. Rather, consistent with our compensation Guiding Principles discussed above, we incorporate flexibility into our compensation programs and in the executive assessment process to respond to, and adjust for, changes in the business/economic environment and individual accomplishments, performance and circumstances.

 

Although we discuss how the total direct compensation of our Named Executives compares to that of the survey group, Messrs. Ford and Fleming did not have comparable positions within the survey group and, consequently, their compensation was excluded from our analysis. The 2010 survey results indicated that the actual total direct compensation for our other Named Executives as a group was below the median, except for Mr. Mulally whose compensation was above the median. In general, 2010 actual cash compensation for the Named Executives was below the median of the survey group, and equity-based compensation was significantly below the median on average, except for Mr. Mulally, whose equity-based compensation was significantly above the median (see “Equity-Based Compensation” on pp. 43-46 for a discussion of how equity compensation affected the compensation of the Named Executives).

 

An analysis of how each element of compensation listed below compared to the survey data for 2010, as well as how the factors described above, including the competitive survey data review, affected Named Executive compensation decisions during 2010, is included in the discussion of each element.

 

 

Each year, the Committee reviews the amount of all components of compensation, both recent historical and prospective, of our executive officers, including the Named Executives. This review includes data on salary, annual bonuses, and equity-based awards, as well as qualitative data on perquisites, and is prepared by the Company’s Human Resources department. The Committee also takes into account relative pay considerations within the officer group and data covering individual performance. The Committee uses this analysis to assist it in ensuring internal equity among the executive officer group. The Committee did not take any actions related to the Named Executives in 2010 as a result of this analysis.

 

The Committee also considers analyses of the potential value of outstanding equity grants and uses this information as one data-point in evaluating equity compensation grants. For instance, the Committee reviewed the value of equity-based awards at certain price levels of Ford stock. The analysis included the following:

 

 

The Committee uses this analysis to evaluate the accumulated wealth in equity of the Named Executives in light of the Company’s change in market value. In light of our performance in 2009 and 2010, the Committee believes our equity-based incentive programs are appropriate to attract, motivate and retain executives, as well as incentivize executives to accomplish our ONE Ford objectives.

 

The Committee considers recommendations from William Clay Ford, Jr., Mr. Mulally, and the Group Vice President — Human Resources and Corporate Services, in developing compensation plans and evaluating performance of other executive officers. The Committee’s consultant also provides advice and analyses on the structure and level of executive compensation (see Compensation Committee Operations on pp. 24-25). As noted in “How We Determine Compensation — B. ONE Ford” above, Mr. Mulally established the ONE Ford corporate priorities. Our senior leadership team developed the 2010 business plan metrics and targets to support our ONE Ford priorities. Our Human Resources and Finance departments developed the incentive plan performance weightings and metrics in support of the business plan and ONE Ford. Final decisions on the design of our incentive plans and any major element of compensation, however, as well as total compensation for each executive officer, were made by the Compensation Committee.

 

Elements of Compensation

 

The table below lists the on-going elements of our total compensation program and why we provide these elements:

 

 

Each compensation element is supported by the Philosophy, Strategy and Guiding Principles discussed in the “How We Determine Compensation” on pp. 33-34.

 

To achieve our objectives and to support our business strategy, compensation paid to our executives is structured to ensure that there is an appropriate balance among the various forms of compensation. The Committee attempts to strike appropriate balances by analyzing the competitive market for executive talent, our business results and forecasts, and our key strategic goals for the year. The charts below show the various balances we achieved among

our executive officer group (with and without the 2009 Incentive Grants) compared to the balances achieved by the survey group:

 

 

As the charts indicate, cash compensation makes up a higher percentage of our executives’ compensation than that of the comparator group’s median whether or not the 2009 Incentive Grants are included (see “Equity-Based Compensation — B. 2009 Incentive Grants” on p. 45).

 

We noted in our 2010 CD&A that based on our stock price in early 2009, we could not grant equity-based compensation at desired levels. This helps explain why our targeted cash compensation made up a larger percentage of our compensation package when compared to the survey group.

 

Annual Compensation

 

Annual compensation for our executives includes salary and cash incentive bonus, if earned, paid in cash.

 

 

When considering increases to base salaries, the Compensation Committee takes into account the following factors:

 

 

The Compensation Committee reviews salaries of the Named Executives annually and at the time of a promotion or other major change in responsibilities. As part of our objective to control costs, there were no increases to salaries (annual merit or otherwise) for any of the Named Executives in 2009. As stated in the “Executive Summary” on p. 32, in light of our significant progress in 2009 and projected continuing progress we reinstated salary merit

increases for 2010. The following Named Executives received merit increases effective April 1, 2010, (percentage increase in parentheses): L. W. K. Booth (4.2%); Mark Fields (3.8%); and John Fleming (4.7%). In granting the percentage increases, the Committee considered competitive salary data, which explains the relative increases for Messrs. Booth and Fleming. Messrs. Ford and Mulally voluntarily reduced their salaries by 30% for 2009 and 2010 and, therefore, did not receive salary merit increases.

 

Throughout 2010, the salaries for the Named Executives were above the median of the survey group, except for Mr. Mulally, whose salary was below the median due to his voluntary 30% salary reduction. We believe that paying base salaries at the high end of the competitive survey is appropriate to retain executives throughout the business cycle because cash compensation and/or total compensation may be much lower than competitive levels at certain times during the business cycle (see “How We Determine Compensation — C. Competitive Survey” on pp. 35-36). The relative salary level is also explained by the fact that Ford is generally larger and more complex than many of the companies in the survey group, with world-wide operations, a capital intensive business involving complex products with long product development timelines, and that certain of the Named Executives have been at the Executive Vice President level for a comparatively long time period. We noted in the “Executive Summary” on p. 33, that the Named Executives will not receive merit increases to salary in 2011 because of our desire to control costs and because our salaries are already competitive.

 

 

We explained in the “Executive Summary” on p. 32 that, because of economic conditions and our desire to conserve cash, payouts in 2009 and 2010 under the Incentive Bonus Plan were cancelled for the 2008 and 2009 performance years, even though performance-to-metrics would have provided for payouts for each of those years. The Committee decided that our exceptional 2009 performance and improved business conditions supported an Incentive Bonus Plan for 2010 performance. In the 2010 CD&A, we disclosed that the Committee desired to further emphasize the importance of generating and managing our cash. Consequently, for the Incentive Bonus Plan, and the annual Performance Unit Grants (see “Equity-Based Compensation — A. Annual Performance Unit and Stock Option Grants” on pp. 43-45), the Committee increased the historical weighting of the global Automotive operating-related cash flow metric ten percentage points and reduced the global profit-before-tax metric by ten percentage points.

 

In 2010, for Named Executives whose primary responsibilities involved a particular business unit, the Committee set a formula that was based on the following metrics (weighting of each metric in parenthesis):

 

 

The Committee determined that this structure best took into account Company as well as individual performance for those Named Executives responsible for specific business units.

Those Named Executives whose duties are of a global nature were placed in the “Corporate” business unit. For these executives, the performance metrics used for 2010 were the following (weighting of each metric in parenthesis):

 

 

^*We define total Automotive operating-related cash flow as automotive pre-tax profits (excluding special items as detailed in Ford’s Annual Report on Form 10-K for the year ended December 31, 2010) adjusted for the following:

 

 

The following are excluded in the calculation of total Automotive operating-related cash flow:

 

 

The Committee chose these metrics because they supported our ONE Ford Plan (see “Executive Summary” on p. 32). The Named Executives, their respective business unit, and Incentive Bonus targets are as follows:

 

Named Executive		Business Unit		Target as % of Salary
Alan Mulally		Corporate		175%*
L. W. K. Booth		Corporate		100%*
William Clay Ford, Jr.		Corporate		$1 million**
Mark Fields		The Americas		100%*
John Fleming		Corporate		100%*

 

 

The amount earned under the Incentive Bonus Plan was determined pursuant to a pre-established sliding scale, based on various levels of achievement for each metric. If minimum performance levels had not been met for all metrics, the payout would have been zero. The maximum extent to which a performance metric could be achieved was 200% of the target. The Committee believes that a scale which allows a maximum award of 200% of target incentivizes executive behavior to exceed business objectives.

For the business units in which Named Executives participated, the following table shows the performance metric, the target, and the performance results for 2010.

 

2010 Incentive Bonus Target and Performance Results

 

 

 

The table below shows the total performance results for each business unit in which a Named Executive participated. Based on the performance against each metric’s targets within the relevant business unit shown above, the Committee calculated the percent of the total target award earned for that business unit.

 

2010 Incentive Bonus Plan Performance Results
(% of Target Achieved)

 

 

The Committee decided to pay out the Incentive Bonus Plan awards to the Named Executives according to the formula percentages in the table above (see column (g) of the Summary Compensation Table and footnote 4 on pp. 51-53). The Committee considered our outstanding 2010 performance-to-metrics and our execution of our ONE Ford Plan as the primary reasons for paying out the awards to the full extent that they were earned.

 

 

Our results relative to the 2010 Incentive Bonus Plan metrics represent significant progress toward our primary ONE Ford objective of becoming an exciting viable Ford delivering profitable growth for all. This progress required extraordinary performance by the Named Executives. In February 2011, the Committee created an individual performance fund which allows the Committee to recognize and reward Named Executives with incremental bonuses beyond the Incentive Bonuses earned in a performance year (see column (d) of the Summary Compensation Table on p. 51).

 

The maximum incremental bonus a Named Executive may be paid is 150% of the person’s Incentive Bonus Award, less the amount of the Incentive Bonus Award. The incremental bonus payout depends on the annual performance ratings for a Named Executive, which depend upon the individual’s performance against his or her personal objectives for the relevant year and his or her demonstration of the ONE Ford behaviors of: functional and technical excellence; working together; role modeling Ford values; and delivering results.

 

Each of the Named Executives who received an incremental bonus played an integral role in the significant improvement in our balance sheet and our profitability during 2010. Mr. Mulally set the strategic direction and accelerated our ONE Ford Plan which significantly increased our Automotive operating-related cash flow and achieved our highest reported net income in more than 10 years. Under Mr. Mulally’s exceptional leadership, the Company also significantly reduced its debt and became net cash positive at year-end. Additionally, he continued to create an environment of teamwork among the Company’s senior leadership.

 

Mr. Ford continued to provide leadership to ensure the Board of Directors sets Ford’s strategic direction. He worked closely with Mr. Mulally to accelerate the restructuring of the business to be profitable at lower volume and mix. Mr. Ford also continued to influence the Company’s on-going work in the development and manufacture of alternative fuel vehicles. He effectively communicated Ford’s priorities with important constituencies, such as the media, dealers, and governmental officials.

 

Mr. Booth provided leadership in strengthening our balance sheet and exceeding our financial goals in 2010. He led Company efforts to control costs and improve cash flow which resulted in a significant reduction of our debt and our becoming cash positive net of debt by year-end 2010. These actions led to positive rating agency upgrades during the year. Mr. Booth also provided strategic direction for our Corporate and Ford Credit capital improvement plans.

 

Mr. Fields led our Americas operations to exceptional results during 2010. He skillfully balanced operating and market factors to significantly exceed profit and cash flow objectives for the year. Market share improved in multiple

markets and this was the first time since 1993 that U.S. market share increased two consecutive years. Mr. Fields’s leadership in developing products our customers want and value was key in the Company’s 2010 performance.

 

The Committee recognized the above achievements of these Named Executives as supporting the four elements of our ONE Ford plan (see “Executive Summary” on p. 32). The Committee also recognized that the entire Ford team had an exceptional 2010 and deserved recognition for the Company’s accomplishments. In light of the achievements noted above, the Committee determined that the performance of Messrs. Mulally, Ford, Booth, and Fields warranted additional recognition in the form of incremental bonuses. Because the incremental bonuses were paid outside of the Incentive Bonus Plan, those payments are subject to the deduction limits of Code Section 162(m) (see “Tax Considerations — A. Internal Revenue Code §162(m)” on p. 49).

 

Equity-Based Compensation

 

Our equity-based incentive awards are tied to our performance and the future value of our common stock. These awards are intended to focus executive behavior on our longer-term interests, because today’s business decisions affect Ford over a number of years. For 2010, our equity-based compensation consisted of annual grants of Performance Units, stock options, and supplemental grants to certain Named Executives, as explained in more detail below.

 

In granting equity awards, the Committee determines a dollar value of equity awards to grant to each recipient. For officers, this dollar value is translated into a number of stock options based on a Black-Scholes analysis and Performance Units based on the fair market value of Ford common stock on the date of grant. As noted in our 2010 CD&A, because of the level of Ford’s stock price in late 2008 and early 2009, we were not able to grant participants the desired value of equity awards for 2009 annual and incentive stock grants. In light of the Company’s stock price performance during 2009 and in early 2010 (before the March 2010 grant date), the shares available under the 2008 Plan allowed the Committee to grant supplementary stock options and time-based Restricted Stock Units approximately equal in value to the deficiency resulting from the decreased 2009 annual and incentive grants. The Committee believed this was appropriate given our significant progress during 2009, the Committee’s decision not to make payouts under our Incentive Bonus Plan for 2008 and 2009 performance, and the positioning of our equity-based grants compared to the survey group. Messrs. Ford and Mulally did not receive supplementary grants because, as we disclosed in our 2010 CD&A, their 2009 annual equity-based grants were not decreased.

 

As discussed above, the competitive survey indicates that equity-based compensation for the Named Executives is significantly below the median of the comparator group on average even when including the 2009 Incentive Grants (see “Equity-Based Compensation — B. 2009 Incentive Grants” on p. 45). For Mr. Mulally, the survey showed that his total equity-based compensation was significantly above the median of the survey group. Our 2010 equity-based compensation awards reinforces our desire to, in general, pay at or near the median of equity compensation compared to the survey group as well as demonstrates flexibility in our compensation practices to reward superior performance and to respond to changing business and economic conditions. Mr. Mulally’s total equity-based compensation reflects his leadership responsibility for ONE Ford and the global Ford enterprise and the Committee’s desire to incentivize Mr. Mulally to increase shareholder value, thus aligning his interests with those of all shareholders.

 

 

Consistent with prior practice, the Committee continued the annual equity-based incentive program for the Named Executives by granting two types of equity-based compensation: stock options and Performance Units (see Grants of Plan-Based Awards in 2010 Table and related footnotes on pp. 55-56). The Committee awarded 50% of the value of each executive’s annual equity award in stock options and 50% in Performance Units.

The stock options vest over three years, have a ten-year term, and function as our longest-term incentive. The Committee believes this focuses executive behavior and decision making on our long-term interests and aligns the interests of our executives with those of our shareholders. The Performance Units are awarded based on a one-year performance period, but are paid out in service-based Restricted Stock Units, which vest over a two-year period. In granting the Performance Units, the Committee chose a one-year performance period in order to focus executive behavior on achieving key short-term business objectives and to incentivize real-time continuous improvement of our performance. The two-year restriction period, however, adds an intermediate element that serves to retain executives and focus their behavior beyond the initial one-year performance period. In addition, because executive decisions regarding such matters as product development, marketing, sales, and the like, can affect our performance over several years, the Committee believes it is important to structure equity-based awards so that executives will focus on the long-term consequences of their decisions. This also further aligns executive interests with your interests as shareholders.

 

In general, the total value of these grants in 2010 was determined based on the following considerations:

 

 

As stated above, we did not have enough shares available under our 2008 Plan to provide participants with the full value of the 2009 annual equity grants. Because of our improved performance in 2009, we had sufficient shares to grant the full value of our 2010 annual equity grants and make up the deficiency resulting from our decreased 2009 annual equity grants. Because of our improved outlook for 2010, our desire to incentivize and reward participants, and to start to address the competitiveness of our equity compensation program, the Committee decided in March 2010 to make supplemental grants to participants approximately equal in value to the reduction in grant value of the 2009 equity grants. For officers, the value of these supplementary grants were split 50% in stock options and 50% in time-based Restricted Stock Units. The number of time-based Restricted Stock Units awarded was determined based on the officer’s business unit’s 2009 Performance Unit payout percentage. Consequently, Messrs. Booth, Fields, and Fleming received additional stock options and time-based Restricted Stock Units in addition to 2010 annual equity grants (see Grants of Plan-Based Awards in 2010 Table and related footnotes on pp. 55-56).

 

The target awards for 2010 Performance Unit grants for the Named Executives are shown in column (h) of the Grants of Plan-Based Awards in 2010 Table on p. 55. These amounts represent the maximum award opportunity. Similar to the Incentive Bonus Plan, the Performance Unit formula has a sliding scale based on various levels of achievement for each metric. If minimum performance levels had not been met for all metrics, the payout would have been zero. The Committee may decrease, but not increase, an award for Named Executives.

 

We disclosed in our 2010 CD&A that, in order to further implement our ONE Ford Plan objective of working together effectively as one team, the Committee assigned all officers to the Corporate business unit for purposes of the performance metrics under the 2010 annual Performance Unit grants. The Committee selected metrics, weightings, and targets identical to those under the 2010 Incentive Bonus Plan (see “Annual Compensation — B. Incentive Bonuses” on pp. 39-42), to emphasize the importance of our ONE Ford Plan objectives (see “How We Determine Compensation — B. ONE Ford” on pp. 34-35).

The table below shows the performance results for each metric for the Corporate business unit and the total performance results against the metrics for 2010. The Committee reviewed Ford’s performance for 2010 against the goals. Based on this performance, the Committee determined the percentage of each of the five performance goals achieved and the percentage of the target award earned for the Corporate business unit (see column (h) of Grants of Plan-Based Awards in 2010 Table and footnote 2 on p. 55).

 

2010 Performance Unit Performance Results
(% of Target Achieved)

 

 

*The Performance Results column for the Quality metric shows the combined percent achieved for the Things-Gone-Wrong target and Warranty Spending target, weighted equally as shown in the 2010 Incentive Bonus Target and Performance Results Table on p. 41. Although the performance results were less than 100%, our market share in the U.S. increased for the second consecutive year for the first time since 1993 and our quality improved year-over-year and, in general, indicates industry-leading quality levels.

 

The Committee decided to payout at the levels earned in recognition of the following: (i) the Named Executives made substantial progress in accelerating our ONE Ford Plan; (ii) Final Awards of Restricted Stock Units do not have an adverse impact on our cash flow in the current period; (iii) the two-year restriction period of the Restricted Stock Units serves as a retention tool; and (iv) the two-year restriction period focuses executive behavior on our longer-term interests.

 

 

As noted in our 2010 CD&A, the Committee granted incentive equity awards in March 2009 to certain executives, including Messrs. Mulally, Ford and Fleming. In structuring the grants, the Committee gave due consideration to the reduction of cash compensation with the cancellation of merit increases to salary and the Incentive Bonus Plan for 2009. Messrs. Booth and Fields did not participate in the 2009 Incentive Grants because of their participation in a separate executive retention program that concluded in 2009.

 

In 2009, Mr. Fleming received a time-based Restricted Stock Unit grant that had a two year restriction period. As noted above, the Committee decided to grant supplementary awards to compensate for the reduction in the 2009 incentive grants. Consequently, Mr. Fleming received additional time-based Restricted Stock Units in March 2010 (see column (j) of Grants of Plan-Based Awards in 2010 Table and footnote 3 on pp. 55-56).

 

In 2009, Messrs. Mulally and Ford received incentive grants of Performance Units that had a two year performance period. The performance metric was an acceleration of the ONE Ford Plan to restructure our business as measured by a reduction in global Ford brand platforms in 2009 and 2010 from 25 platforms to 23 platforms. At the conclusion of the two-year performance period, the Committee assessed performance against this metric and determined that the metric had been achieved. The Committee granted 100% of the target award in unrestricted common stock on March 3, 2011 (see column (j) of Outstanding Equity Awards at 2010 Fiscal Year-End Table and related footnote on pp. 57-60).

 

 

Annual grants of equity awards are typically determined at a February Compensation Committee meeting. At that time, data for previous performance periods are available to determine the amount of the Final Awards. The Committee also decides the effective date of the annual equity-based grants of options and Performance Units. Due to administrative complexity relating to valuation and notification, the Committee approved the annual 2011

equity-based Final Awards and grants on February 25, 2011, and the Board approved an effective date of March 3, 2011. A similar practice was also followed in previous years. The release of earnings information for the prior fiscal year is sufficiently in advance of the annual grant date for the public to be aware of the information.

 

The Committee does not time equity grant dates to affect the value of compensation either positively or negatively. Executive officers did not play a role in the selection of the grant dates. Special grants, whether approved by the Compensation Committee for officers or the Long-Term Incentive Compensation Award Committee for non-officers, are effective either on a specified future date (e.g., a date that coincides with a promotion or hiring date, or quarterly grant date), or the date of approval. In the case of an approval by written consent, the grant date cannot be earlier than the date when the Committee member approvals have been obtained. See Corporate Governance — Compensation Committee Operations at pp. 24-25 for more information on the Long-Term Incentive Compensation Award Committee. For exercise prices of the 2010 option grants, see column (l) of the Grants of Plan-Based Awards in 2010 Table on p. 55. Under the 2008 Long-Term Incentive Plan, the terms of which were approved by you at the 2008 Annual Meeting, the exercise price of options will be the closing price on the date of grant.

 

Stock Ownership Goals

 

In 1994, the Compensation Committee created stock ownership goals for executives at or above the Vice President level to further align the interests of the executives with those of shareholders. The following table shows the officer level and respective ownership goal.

 

		Ownership Goal
Officer Level		(% of salary)
Vice Presidents			100%
Group Vice Presidents			200%
Executive Vice Presidents			300%
Executive Chairman and President & CEO			500%

 

Executives have five years from taking their position to achieve their goal.

 

We review progress toward achievement of the ownership goals periodically. All forms of stock ownership — including directly and indirectly owned shares of common stock, Final Awards of Restricted Stock Units, and units that are based on common stock (excluding stock options) — count toward the goal. As of March 3, 2011, all of the Named Executives comply with the stock ownership goals.

 

Compensation Programs for 2011

 

We noted in the “Executive Summary” on p. 33, that there would be no annual merit increases to salary for salaried employees in the U.S. and Canada for 2011, including each of the Named Executives. We decided this was appropriate because survey results indicate that salaries are competitive with our survey group and our desire to conserve cash and control expenses due to the economy’s fragile recovery. Because Messrs. Ford and Mulally committed to a 30% salary reduction for 2009 and 2010, their salaries returned to $2 million per year effective January 1, 2011. They did not receive any increases to salary beyond the return to the 2008 levels.

 

As noted in the “Executive Summary” on p. 33, the Committee eliminated tax gross-ups for executive perquisites effective January 1, 2011. The Committee believed that this was the appropriate time to eliminate these tax gross-ups in light of competitive practices, improved business conditions, and shareholder interest in this topic. We will maintain tax gross-ups of relocation expenses for all salaried employees who are required to relocate due to job responsibilities. The Committee determined that it would be unduly burdensome for employees to pay the increased taxes associated with imputed income of relocation benefits received when relocating at Ford’s request. Relocation is integral to the development of our future leaders by providing them with experience in our global operations.

Retirement Plans

 

In general, we believe that the retirement plans described below serve several worthwhile business purposes, including retaining top leadership talent. In addition, they provide income security to long serving executives, and provide flexibility to us in transferring executives among our operations. We believe these programs to be reasonable and appropriate in light of competitive practices and our executives’ total compensation program. For additional information, see the Pension Benefits in 2010 Table on p. 61 and the Nonqualified Deferred Compensation in 2010 Table on p. 63.

 

 

Our General Retirement Plan (“GRP”) provides a tax-qualified benefit for each year of non-contributory participation by employees in the United States hired before January 1, 2004, and added benefits for those who make contributions. We also have two other non-qualified retirement plans for certain employees: the Supplemental Executive Retirement Plan (“SERP”) that provides a supplemental monthly benefit calculated on a percentage of final average pay and service, and the Benefit Equalization Plan (“GRP-BEP”). Under the GRP-BEP, eligible employees receive benefits substantially equal to those they could have received under the GRP but were not able to because of Internal Revenue Code limitations. Messrs. Booth, Ford, Fields, and Fleming are eligible for benefits under the GRP, SERP, and GRP-BEP.

 

Certain eligible executives who separate from employment after age 55 (age 52 if retiring under our Select Retirement Plan (“SRP”)) and prior to age 65 may be eligible for monthly benefits under our Executive Separation Allowance Plan (“ESAP”) that provides a percentage of salary, based on age and service, at time of separation until age 65. The SRP is a voluntary retirement program offered from time-to-time for select U.S. management employees. In 2006 the Committee requested that its consultant, Semler Brossy Consulting Group, LLC, and the Company jointly conduct a review of the SRP as a severance vehicle. The review compared present values of the SRP benefit with traditional severance packages, examined potential changes, and considered benefits to the Company and to executives. The Committee reviewed the report and concluded that the SRP should remain in its current form to facilitate the reduction in work force then being undertaken by the Company and to provide flexibility to accommodate any future reductions.

 

Benefits under SERP, SRP, ESAP, and GRP-BEP are not funded. In addition, in accordance with Code Section 409A, benefits that accrued or vested on or after January 1, 2005 under these plans may not be paid to certain key executives until at least six months following their separation from employment. Each of these plans had been amended in order to provide Mr. Ford with benefits using a notional base annual salary during the period he did not receive a cash salary (i.e., November 2001 through July 2010).

 

 

Consistent with our Strategy Statement (see “How We Determine Compensation — A. Compensation Philosophy, Strategy, and Guiding Principles” on pp. 33-34) to develop benefit programs that provide employees with income security and protection from catastrophic loss while minimizing our long-term liabilities, Ford adopted a tax qualified retirement plan, the Ford Retirement Plan (“FRP”), for salaried employees hired or rehired on or after January 1, 2004 in the U.S. The FRP was adopted in order to provide us with more predictable retirement benefit costs and reduced financial statement volatility. These goals are achieved through a stable contribution schedule and the transfer of financial and demographic risks from us to plan participants while still providing employees with the opportunity for adequate income in retirement. Employees who participate in this plan, including Mr. Mulally, are not eligible to participate in the GRP (with respect to future service), GRP-BEP, SERP, or ESAP.

Perquisites and Other Benefits

 

We provided certain perquisites and other benefits to senior management in 2010, the most significant of which are summarized below. The Committee periodically reviews our policies on perquisites and other benefits. The cost of these perquisites and other benefits, as applicable, are included in column (i) of the Summary Compensation Table on p. 51.

 

Personal Travel:  As part of our efforts to reduce costs and conserve cash, we decided to close our Air Transportation operation in 2008. Company policy does not allow Messrs. Mulally or Ford to fly commercially due to security concerns. Consequently, the Company pays the charter costs of their use of private aircraft for business and personal travel. The families of Messrs. Mulally and Ford are allowed to accompany them on trips when they travel on private aircraft. In addition, the Company will pay the cost of coach-class commercial aircraft flights for Mr. Mulally’s family when their travel is at his request.

 

Requiring Messrs. Mulally and Ford to use private aircraft for all travel provides several benefits to Ford. First, the policy is intended to ensure the personal safety of our President and CEO and our Executive Chairman, both of whom maintain significant public roles for Ford. Second, use of private aircraft ensures their availability and maximizes the time available for Ford business.

 

For retention purposes, the Company continues to pay the costs, including first class commercial airfare, for personal travel for Mr. Fields to and from his home in Florida.

 

Evaluation Vehicle Program:  We maintain a program that provides our officers with the use of two Company vehicles free of charge. This program requires officers to provide written evaluations on a variety of our vehicles, providing important feedback on the design and quality of our products.

 

Other Services:  For certain executive officers, including the Named Executives, we provide a home security evaluation and security system. We also provide an allowance to senior managers for financial counseling services and estate planning. We pay for approximately 75% of the cost of this service up to $7,500. The safety and security (personal and financial) of our executives is critically important. We believe the benefits of providing these programs outweigh the relatively minor costs associated with them.

 

During 2010, the Committee requested an independent security firm to conduct an analysis of the security requirements of Mr. Ford. After receiving the firm’s analysis, the Committee determined that the level of security provided to Mr. Ford is appropriate.

 

Tax Reimbursement:  During 2010 there were only two perquisites for which tax gross-ups were available: (i) personal travel; and (ii) temporary living/relocation expenses. The total amount spent on tax gross-ups for 2010 for Named Executives was approximately $213,527. As noted in “Compensation Programs for 2011” on p. 46, during 2010 the Committee decided to eliminate tax gross-ups for executive perquisites related to personal travel.

 

Alan Mulally

 

Effective September 1, 2006, we entered into an agreement with Mr. Mulally relating to his hiring as President and Chief Executive Officer. That agreement contained a “change in control” provision that provides that if we terminate Mr. Mulally’s employment for reasons other than for cause during the first five years of his employment or if there is a change in control of the Company during the first five years of his employment and he terminates his employment for good reason, he will receive certain payments and benefits (see Potential Payments Upon Termination or Change in Control — Alan Mulally on pp. 64-67). If Mr. Mulally leaves us pursuant to these arrangements, he may not work for a competitor for five years after the date of his termination. Mr. Mulally will not be entitled to any severance payment if he is terminated for cause.

The Committee believes these termination provisions are reasonable. The sunset provision of five years is an appropriate length of time to compensate Mr. Mulally to leave his prior position at Boeing and assume a leadership role with a company in the midst of a turnaround. The non-compete clause also protects the Company from competitive harm should Mr. Mulally separate from Ford under these conditions. In addition, under a change in control scenario, Mr. Mulally’s employment either must be terminated or he must terminate his employment for “good reason” in order to receive the termination benefits.

 

In September 2008, the Committee decided to continue indefinitely the arrangement of providing housing in Dearborn, Michigan to Mr. Mulally. The Committee believes the arrangement is beneficial to Mr. Mulally and the Company by allowing him to continue to focus on our ONE Ford Plan. The cost of this benefit is included in column (i) of the Summary Compensation Table on p. 51; however, beginning in 2011 we no longer provide tax gross-up for this arrangement. He is eligible for relocation assistance pursuant to our relocation program if he chooses to relocate his household.

 

William Clay Ford, Jr.

 

In the 2010 CD&A we explained that since 2005 Mr. Ford had foregone all compensation (including salary, bonus or other awards) until such time as the Compensation Committee determined that the Company’s global Automotive sector achieved full-year profitability, excluding special items. On August 5, 2010, the Committee determined that the metric had been achieved. For an explanation of the compensation received by Mr. Ford, see the Summary Compensation Table and footnote 1 on pp. 51-52.

 

Tax Considerations

 

Internal Revenue Code § 162(m)

 

Code Section 162(m) generally disallows Federal tax deductions for compensation in excess of $1 million paid to the Chief Executive Officer and the next three highest paid officers (other than the Chief Financial Officer) whose compensation is required to be reported in the Summary Compensation Table of the proxy statement (“Covered Executives”). Certain performance-based compensation is not subject to this deduction limitation. In our case, this exemption applies to certain awards under the Incentive Bonus Plan, the 1998 Plan, and the 2008 Plan. Specifically, Incentive Bonus Plan payments made for 2010 performance, 2010 awards of stock options and Final Awards related to Performance Units were not subject to the deduction limit. However, the amount of the Final Award for Messrs. Ford and Mulally that exceeded the shareholder approved limit of 2.5 million Restricted Stock Units are subject to the deduction limit, as well as the incremental bonuses paid to the Named Executives (see column (j) of the Outstanding Equity Awards at 2010 Fiscal Year-End Table and related footnote on pp. 57-60 and column (d) of the Summary Compensation Table and related footnote on pp. 51-52). Additionally, we cannot deduct that portion of any Covered Executive’s salary that is in excess of $1 million (see Summary Compensation Table on p. 51), or the cost of any perquisites provided to a Covered Executive whose salary exceeds $1 million.

 

Generally, we strive to maximize the tax deductibility of our compensation arrangements. In the highly competitive market for talent, however, we believe the Committee needs flexibility in designing compensation that will attract and retain talented executives and provide special incentives to promote various corporate objectives. The Committee, therefore, retains discretion to award compensation that is not fully tax deductible.

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis (CD&A) with management. Based on this review and discussion, the Committee recommended to the Board of Directors that the CD&A be included in this Proxy Statement and incorporated by reference into our annual report on Form 10-K.

 

Compensation Committee

 

Richard A. Manoogian (Chair)
Anthony F. Earley, Jr.
Ellen R. Marram
John L. Thornton

 

The Compensation Committee is comprised of Anthony F. Earley, Jr., Richard A. Manoogian, Ellen R. Marram, and John L. Thornton, none of whom is an employee or a current or former officer of the Company.

 

The table below shows the before-tax compensation for Alan Mulally, who served as President and CEO during 2010, L. W. K. Booth, who served as Executive Vice President and Chief Financial Officer during 2010, and the three most highly compensated executive officers at the end of 2010.