UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
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Masco Corporation
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SEC 1913 (02-02)
[MASCO LETTERHEAD LOGO]
April 12, 2004
Dear Stockholders:
You are cordially invited to attend Masco Corporation's Annual Meeting of
Stockholders on Tuesday, May 11, 2004 at 10:00 A.M. at our corporate
headquarters in Taylor, Michigan. Information regarding the meeting schedule and
the matters proposed for your consideration at the meeting are contained in the
following pages.
As a stockholder, you are requested to vote on the matters presented in the
accompanying notice and proxy statement. At our meeting, we also expect to
provide a review of our Company's operations and respond to your questions.
On behalf of our entire Board of Directors, we thank you for your continued
support of Masco Corporation and look forward to seeing you on May 11.
Sincerely,
[/s/ Richard A. Manoogian]
Richard A. Manoogian
Chairman of the Board and
Chief Executive Officer
MASCO CORPORATION
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DATE: MAY 11, 2004
TIME: 10:00 A.M.
PLACE: MASCO CORPORATION
21001 VAN BORN ROAD
TAYLOR, MICHIGAN 48180
The purposes of the Annual Meeting are:
1. To elect three Class I Directors and to approve the appointments of
two Class II Directors;
2. To consider and act upon a proposal to approve the 2004 Restricted
Stock Award Program in order to qualify grants of restricted stock under
Section 162(m) of the Internal Revenue Code;
3. To ratify the selection of PricewaterhouseCoopers LLP as
independent auditors for the Company for the year 2004; and
4. To transact such other business as may properly come before the
meeting.
Stockholders of record at the close of business on March 15, 2004 are
entitled to vote at the meeting or any adjournment thereof.
Your attention is called to the accompanying Proxy Statement and Proxy.
Whether or not you plan to attend the meeting, you can be sure your shares are
represented at the meeting by promptly voting and submitting your Proxy by
telephone, by internet, or by completing, signing, dating and returning your
Proxy card in the enclosed postage prepaid envelope. Prior to being voted, the
Proxy may be withdrawn in the manner specified in the Proxy Statement.
By Order of the Board of Directors
[/s/ Eugene A. Gorgaro, Jr.]
EUGENE A. GARGARO, JR.
Secretary
April 12, 2004
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS OF
MASCO CORPORATION
May 11, 2004
GENERAL INFORMATION
The solicitation of the enclosed Proxy is made by the Board of Directors of
Masco Corporation (the "Company") for use at the Annual Meeting of Stockholders
of the Company to be held at its offices at 21001 Van Born Road, Taylor,
Michigan 48180, on Tuesday, May 11, 2004 at 10:00 A.M., and at any adjournment.
This Proxy Statement and the enclosed Proxy are being mailed or given to
stockholders on or about April 12, 2004.
The expense of this solicitation will be borne by the Company. Solicitation
will be by mail, and executive officers and other employees of the Company may
solicit Proxies, without additional compensation, personally and by telephone
and other means of communication. In addition, the Company has retained Morrow &
Co., Inc. to assist in the solicitation of Proxies for a fee of $9,000, plus
expenses. The Company will also reimburse brokers and other persons holding
Company Common Stock in their names or in the names of their nominees for their
reasonable expenses in forwarding Proxies and Proxy materials to beneficial
owners.
Stockholders of record at the close of business on March 15, 2004 are
entitled to vote at the meeting. On that date, there were 444,106,938 shares of
Company Common Stock, $1 par value, outstanding and entitled to vote and 16,666
shares of Series B Participating Preferred Stock outstanding and entitled to
vote. Holders of Company Common Stock and Series B Participating Preferred Stock
vote on the matters set forth in this Proxy Statement together as a single
class. Each share of outstanding Company Common Stock entitles the holder to one
vote and each share of the Series B Participating Preferred Stock entitles the
holder to 1,000 votes. The meeting will be held if a quorum, consisting of a
majority of the aggregate voting power of the outstanding shares of Company
Common Stock and the Series B Participating Preferred Stock, is represented in
person or by proxy. Broker non-votes and abstentions will be counted toward the
establishment of a quorum. A broker "non-vote" occurs when a nominee holding
shares for a beneficial owner does not vote on a proposal because the nominee
has not been instructed by the beneficial owner how to vote on the proposal and
does not have discretionary voting power to vote on the proposal.
Stockholders can ensure that their shares are voted at the meeting by
submitting proxy instructions by telephone, by internet, or by completing,
signing, dating and returning the enclosed Proxy card in the envelope provided.
Submitting instructions by any of these methods will not affect the right to
attend the meeting and vote. The telephone and internet voting procedures are
designed to authenticate stockholders' identities, to allow stockholders to give
their voting instructions and to confirm that stockholders' instructions have
been recorded properly. Specific instructions for stockholders of record who
wish to use the telephone or internet voting procedures are included with the
enclosed Proxy card. A stockholder who gives a Proxy may revoke it at any time
before it is exercised by voting in person at the meeting, by delivering a
subsequent Proxy, or by notifying the Company in writing of such revocation
(Attention: Eugene A. Gargaro, Jr., Secretary, at 21001 Van Born Road, Taylor,
Michigan 48180).
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes. The term of office of
the Class I Directors, consisting of Peter A. Dow, Anthony F. Earley, Jr. and
Wayne B. Lyon, expires at this meeting, and the Board proposes their
re-election. Although both Messrs. Dow and Lyon will reach the Board's normal
retirement age of 72 before completing their three-year term, they are being
nominated for re-election in order to maintain continuity on the Board. Mr. Lyon
will reach age 72 prior to the next Annual Meeting of Stockholders, and Mr. Dow
will reach age 72 prior to the 2006 Annual Meeting of Stockholders. Both Messrs.
Dow and Lyon intend to serve only until the first Annual Meeting following
attainment of age 72.
In October 2003, the Board appointed David L. Johnston and J. Michael Losh
to fill two vacancies in the Class II Directors, but their continuing service as
Directors is subject to stockholder approval at the Annual Meeting. The Board is
proposing the election of Professor Johnston and Mr. Losh as Class II Directors.
Except as described above for Messrs. Dow and Lyon, the Class I, Class II
and Class III Directors will serve for terms expiring at the Annual Meeting of
Stockholders in 2007, 2005 and 2006, respectively, or until their respective
successors are elected and qualified. The Board of Directors expects that the
persons named as proxies in the Proxy will vote the shares represented by each
Proxy for the election of the above nominees as Directors unless a contrary
direction is given. If prior to the meeting a nominee is unable or unwilling to
serve as a Director, which the Board of Directors does not expect, the persons
named as proxies will vote for such alternate nominee, if any, as may be
recommended by the Board of Directors. Directors are elected by a plurality of
the votes cast. Proxies cannot be voted for a greater number of persons than the
number of nominees named. Abstentions and broker non-votes, if any, will not be
treated as votes cast, and therefore will not affect the election.
INFORMATION CONCERNING THE NOMINEES IS SET FORTH BELOW.
NAME, PRINCIPAL OCCUPATION AGE, BUSINESS EXPERIENCE,
AND PERIOD OF SERVICE AS A DIRECTOR DIRECTORSHIPS AND OTHER INFORMATION
----------------------------------- -----------------------------------
CLASS I (NOMINEES FOR TERM TO EXPIRE AT THE ANNUAL MEETING IN 2007)
Peter A. Dow........................... Mr. Dow, 70, initially joined Campbell-Ewald Company in
Private investor; Retired Vice 1958 and returned in 1979 to serve as Executive Vice
Chairman, Chief Operating Officer and President and Director of General Accounts. In 1982 he
Chairman of the Executive Committee became President, Chief Operating Officer and Chairman of
of Campbell-Ewald, an advertising and the Executive Committee, and then served as Vice Chairman
marketing communications company. from 1993 until his retirement in 1995. He was named
Director since 2001. Director of Advertising for the Chrysler-Plymouth Division
of Chrysler Corporation in 1968. Subsequently, he became
responsible for advertising and merchandising for Chrysler
Corporation and all of its divisions, and in 1978 he was
named Director of Marketing for Chrysler Corporation. Mr.
Dow is currently a director of The Stroh Companies, Inc.
and Technobrands, Inc. (formerly Comtrad Industries, Inc.)
Anthony F. Earley, Jr. ................ Mr. Earley, 54, has served as Chairman of the Board and
Chairman of the Board, Chief Chief Executive Officer of DTE Energy Company and its
Executive Officer and President and subsidiary, The Detroit Edison Company, since 1998 and as
Chief Operating Officer, DTE Energy President and Chief Operating Officer of both companies
Company, a diversified energy since 1994. From 1989 to 1994, he served as President and
company. Director since 2001. Chief Operating Officer of Long Island Lighting Company,
an electric and gas utility in New York. Prior to 1989,
Mr. Earley held several other positions with Long Island
Lighting, including Executive Vice President and General
Counsel. He is a director of DTE Energy Company, Comerica
Incorporated, Mutual of America Capital Management Co. and
Plug Power, Inc.
2
NAME, PRINCIPAL OCCUPATION AGE, BUSINESS EXPERIENCE,
AND PERIOD OF SERVICE AS A DIRECTOR DIRECTORSHIPS AND OTHER INFORMATION
----------------------------------- -----------------------------------
Wayne B. Lyon.......................... Mr. Lyon, 71, served as Chairman of LifeStyle Furnishings
Former Chairman of LifeStyle International Ltd. from 1996 to 2002 and also served as
Furnishings International Ltd., a its President and Chief Executive Officer until early
manufacturer and marketer of 2000. Previously, he served Masco Corporation as a Group
residential furniture. Director since Vice President beginning in 1972, was named Executive Vice
1988. President and Chief Operating Officer in 1974, and served
as President and Chief Operating Officer from 1985 until
1996.
CLASS II (NOMINEES FOR TERM TO EXPIRE AT THE ANNUAL MEETING IN 2005)
David L. Johnston...................... Prof. Johnston, 62, has served as President and Vice
President and Vice Chancellor of the Chancellor of the University of Waterloo since July, 1999.
University of Waterloo. Director Previously, he was Principal and Vice Chancellor of McGill
since 2003. University from 1979 through 1994, at which time he
returned to teaching on McGill University's Faculty of
Law. Prof Johnston began his professional career in 1966
as an Assistant Professor in the Faculty of Law at Queen's
University, following which, in 1968, he moved to the Law
Faculty of the University of Toronto. In 1974, he was
named Dean of the Faculty of Law at the University of
Western Ontario. Prof. Johnston serves as a director of
Alcatel, Open Text Corporation and CGI Group Inc.
J. Michael Losh........................ Mr. Losh, 57, was the Chairman of Metaldyne Corporation, a
Private investor and retired Chairman global manufacturer of highly-engineered metal components
of Metaldyne Corporation and retired for the transportation industry, from 2000 through 2002.
Chief Financial Officer and Executive Prior to joining Metaldyne, he worked for General Motors
Vice President of General Motors Corporation for 36 years, most recently as Chief Financial
Corporation. Director since 2003. Officer and Executive Vice President. He is currently a
director of Cardinal Health, Inc., AON Corporation, AMB
Property Corporation, Metaldyne Corporation, H.B. Fuller
Company, and TRW Automotive Inc.
INFORMATION CONCERNING THE DIRECTORS WHO ARE NOT STANDING FOR RE-ELECTION AND WHOSE TERMS ARE
CONTINUING IS SET FORTH BELOW.
CLASS II (TERM TO EXPIRE AT THE ANNUAL MEETING IN 2005)
Verne G. Istock........................ Mr. Istock, 63, joined NBD Bank in 1963 and served as Vice
Retired Chairman/President of Bank Chairman and director of NBD Bank and its parent, NBD
One Corporation. Director since 1997. Bancorp, from 1985 until he was named Chairman and Chief
Executive Officer in 1994. Upon the merger of NBD and
First Chicago Corporation in December 1995, he was named
President and Chief Executive Officer of First Chicago NBD
Corporation and was elected Chairman in May 1996. Upon the
merger of First Chicago NBD Corporation and Banc One
Corporation in October 1998, he was named Chairman of the
Board of Bank One Corporation, where he served in various
executive positions until his retirement in September
2000. Mr. Istock is a director of Kelly Services, Inc. and
Rockwell Automation, Inc.
3
NAME, PRINCIPAL OCCUPATION AGE, BUSINESS EXPERIENCE,
AND PERIOD OF SERVICE AS A DIRECTOR DIRECTORSHIPS AND OTHER INFORMATION
----------------------------------- -----------------------------------
CLASS III (TERM TO EXPIRE AT THE ANNUAL MEETING IN 2006)
Thomas G. Denomme...................... Mr. Denomme, 64, served as Vice Chairman and Chief
Retired Vice Chairman and Chief Administrative Officer of Chrysler Corporation from 1994
Administrative Officer of Chrysler until he retired in December 1997 and had been a director
Corporation. Director since 1998. of Chrysler Corporation since 1993. He joined Chrysler
Corporation in 1980 and was elected Vice
President -- Corporate Strategic Planning in 1981,
Executive Vice President -- Corporate Staff Group in 1991,
and Executive Vice President and Chief Administrative
Officer in 1993. Previously, he held a number of positions
at Ford Motor Company, including Director, Marketing
Policy and Strategy Office and Director, Sales Operations
Planning.
Richard A. Manoogian................... Mr. Manoogian, 67, joined the Company in 1958, was elected
Chairman of the Board and Chief Vice President and a Director in 1964 and President in
Executive Officer of the Company. 1968 and has served as Chairman and Chief Executive
Director since 1964. Officer since 1985. He is a director of Bank One
Corporation, Ford Motor Company and Metaldyne Corporation.
Mary Ann Van Lokeren................... Ms. Van Lokeren, 56, joined Krey Distributing Company as
Chairman and Chief Executive Officer Secretary in 1978 and has served Krey Distributing Company
of Krey Distributing Company, a in her present positions since 1987. She also serves as a
beverage distribution firm. Director director of Commerce Bancshares, Inc., The Laclede Group,
since 1997. Inc. and D&K Healthcare Resources, Inc.
CORPORATE GOVERNANCE
Over the past several years, the Board of Directors has been engaged in an
ongoing review of the Company's corporate governance principles and procedures.
As a result, in addition to changes made in prior years, in 2003 the Board added
two new independent directors, implemented share ownership guidelines for
directors, adopted New York Stock Exchange ("NYSE") governance standards well
before the dates required, and approved the initiation of an internet-based
ethics and legal compliance training program for employees and the installation
of a toll-free employee hotline for reporting illegal or unethical conduct. The
Board is committed to maintaining high standards of corporate governance for the
Company.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board of Directors held six meetings during 2003. The Board has made an
affirmative determination that seven of the Company's nine Directors qualify
under the independence requirements of applicable law and the NYSE. The
independent directors are Messrs. Denomme, Dow, Earley, Istock and Losh,
Professor Johnston and Ms. Van Lokeren.
Standing committees of the Board of Directors include the Audit Committee,
the Organization and Compensation Committee and the Corporate Governance and
Nominating Committee. Each member of these three committees qualifies under the
independence requirements of applicable law and the NYSE. The full text of the
charters for these three committees, the Corporate Governance Guidelines and the
Code of Business Ethics are posted on the Company's website at www.masco.com.
The information on the Company's website is not a part of this proxy statement
or incorporated into any other filings the Company makes with the Securities and
Exchange Commission. During 2003, each Director attended at least 75% of the
Board meetings and applicable committee meetings that were held while such
person was a Director.
The non-management Directors meet in executive session without management
at each regularly scheduled meeting of the Board of Directors. The
non-management Directors have selected Mr. Verne Istock to serve as the
presiding Director for these executive sessions. Any interested party that
wishes to communicate directly with the presiding Director or the non-management
Directors as a group may send such
4
communications to the following address: Presiding Director, Masco Board of
Directors, Att: Eugene A. Gargaro, Jr., Corporate Secretary, Masco Corporation,
21001 Van Born Road, Taylor, MI 48180. Shareholders may send communications to
the Board of Directors at the following address: Masco Board of Directors, Att:
Eugene A. Gargaro, Jr., Corporate Secretary, Masco Corporation, 21001 Van Born
Road, Taylor, MI 48180. Directors generally attend the Annual Meeting, and all
Directors attended the 2003 Annual Meeting of Stockholders.
The AUDIT COMMITTEE of the Board of Directors, currently consisting of
Messrs. Denomme, Dow, Earley, Istock and Losh, held seven meetings during 2003.
The Audit Committee assists Board oversight of the integrity of the Company's
financial statements, the qualifications, independence and performance of the
Company's independent public accountants, the performance of the Company's
internal audit function, and compliance by the Company with legal and regulatory
requirements, including employee compliance with the Company's Code of Business
Ethics.
The Board of Directors approved in December, 2003 a revised charter for the
Audit Committee, attached to this Proxy Statement as Appendix A, that
incorporates certain minor amendments required by the final version of the NYSE
rules. The Board has determined that each member of the Audit Committee is
financially literate, and that at least three members of the Committee, Messrs.
Earley, Istock and Losh, qualify as "audit committee financial experts" as
defined in Item 401(h)(2) of Securities and Exchange Commission ("SEC")
Regulation S-K.
Interested parties may send complaints relating to accounting, internal
accounting controls or auditing matters to the Chairman of the Masco Audit
Committee, Att: Eugene A. Gargaro, Jr., Corporate Secretary, Masco Corporation,
21001 Van Born Road, Taylor, MI 48180.
The ORGANIZATION AND COMPENSATION COMMITTEE of the Board of Directors,
currently consisting of Messrs. Dow and Istock and Ms. Van Lokeren, held six
meetings during 2003. The Organization and Compensation Committee establishes
and monitors executive compensation, evaluates the Company's management,
administers and determines awards and options granted under the Company's stock
incentive plan, and reviews the Company's succession planning process.
The CORPORATE GOVERNANCE AND NOMINATING COMMITTEE of the Board of
Directors, currently consisting of Messrs. Earley and Istock and Professor
Johnston, held four meetings during 2003. The Corporate Governance and
Nominating Committee serves in an advisory capacity to the Board on the
governance structure and conduct of the Board and has the responsibility for
developing and recommending to the Board appropriate Corporate Governance
Guidelines. In addition, the Committee identifies qualified individuals for
nomination to the Board, recommends Directors for appointment to Board
committees and evaluates current Directors for re-nomination to the Board or
re-appointment to Board committees.
The Corporate Governance and Nominating Committee will consider candidates
submitted by stockholders as nominees for election as Directors of the Company.
Stockholders wishing to have the Committee consider a candidate should submit
the candidate's name and pertinent background information to Eugene A. Gargaro,
Jr., Corporate Secretary, Masco Corporation, 21001 Van Born Road, Taylor, MI
48180. The Company's charter sets forth the procedures a stockholder must follow
to nominate candidates for election as Directors. For a summary of these
procedures, see "2005 Annual Meeting of Stockholders."
The Corporate Governance and Nominating Committee believes that Directors
should possess exemplary personal and professional reputations, reflecting high
ethical standards and values. The expertise and experience of Directors should
provide a source of advice and guidance to the Company's management. A
Director's judgment should demonstrate an inquisitive and independent
perspective with acute intelligence and practical wisdom. Directors should be
free of any significant business relationships which would result in a potential
conflict in judgment between the interests of the Company and the interests of
those with whom the Company does business. Each Director should be committed to
serving on the Board for an extended period of time and to devote sufficient
time to carrying out the Director's duties and responsibilities in an effective
manner for the benefit of the Company's stockholders.
5
Professor Johnston was recommended for consideration as a nominee for
Director by a non-management Director. Mr. Losh was recommended for
consideration as a nominee for Director by the Company's Chief Executive
Officer.
COMPENSATION OF DIRECTORS
Under the 1997 Non-Employee Directors Stock Plan (the "Directors Stock
Plan"), one-half of the cash compensation formerly paid to non-employee
Directors was replaced with an annual vesting of shares of restricted stock.
Pursuant to the Directors Stock Plan, each non-employee Director receives an
award of Company Common Stock vesting over a five-year period in 20 percent
equal annual installments. The value of the stock awards is based on the market
price of Company Common Stock on the date of grant and equals five years of the
replaced cash compensation. Accordingly, each non-employee Director has received
an award initially valued at $25,000 per year for each of five years (with
proration for a partial first year of service), and as each five-year award
expires, each non-employee Director receives a new five-year award. For 2003,
non-employee Directors each received a cash fee of $25,000 and $1,000 for each
Board of Directors meeting attended (and committee meeting attended if not held
on a date on which the entire Board met). The Chairman of the Audit Committee
and the Chairman of the Organization and Compensation Committee each received an
additional $5,000 per year for chairing such committees. Directors are eligible
to participate in the Company's matching gifts program (which is available to
Company employees) pursuant to which the Company will match gifts made to
eligible educational and cultural institutions up to an aggregate of $10,000 per
year for each participant. In addition, Directors are eligible to participate in
the Company's employee purchase program, which enables employees to purchase
Company products for their personal use at special discount prices.
The Directors Stock Plan also provides for the grant to each non-employee
Director on the date of each Annual Meeting of Stockholders of a non-qualified
option to purchase 8,000 shares of Company Common Stock at the then current
market price. These options become exercisable in 20 percent installments on the
first five anniversaries of the grant date. Each option has a ten-year term from
the date of grant, except that options may generally be exercised for only a
limited period of time following termination of service as a non-employee
Director for any reason other than death or permanent and total disability. Upon
termination of a Director's term for any reason other than death, disability or
following a change in control, the Company may require the participant to pay
back to the Company the net gain realized upon the exercise of any installment
of an option that became exercisable within two years prior to termination.
The Directors Stock Plan provides that a participant is generally
restricted from engaging in certain competitive activities while serving as a
Director and for one year following termination of the participant's term as a
Director. In the event of a breach of this noncompete agreement, the Company may
require the participant to pay back to the Company the net gain realized upon
the exercise of any portion of an option that occurred on or after termination
or within two years prior to such termination.
The Board has established stock ownership guidelines for Directors. The
guidelines require non-employee Directors to retain at least 50% of the shares
of restricted Company Common Stock they receive as compensation from the Company
until the date of their termination or retirement from service as a Director.
6
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
Set forth below is information concerning beneficial ownership of Company
Common Stock as of March 31, 2004 by (i) each of the Directors, (ii) each of the
executive officers named in the "Summary Compensation Table," (iii) all
Directors and executive officers of the Company as a group, and (iv) all persons
known by the Company to be the beneficial owners of five percent or more of the
combined voting power of Company Common Stock and Series B Participating
Preferred Stock. No Director or executive officer owns any shares of Series B
Participating Preferred Stock. Except as indicated below, each person exercises
sole voting and investment power with respect to the shares listed.
SHARES OF PERCENTAGE OF
COMMON STOCK VOTING POWER
BENEFICIALLY BENEFICIALLY
NAME OWNED(1) OWNED
---- ------------ -------------
Alan H. Barry............................................... 659,448 *
Thomas G. Denomme........................................... 83,080 *
Peter A. Dow................................................ 54,570 *
Anthony F. Earley, Jr.(2)................................... 35,170 *
Verne G. Istock............................................. 78,810 *
David L. Johnston........................................... 3,850 *
John R. Leekley............................................. 719,003 *
J. Michael Losh............................................. 6,850 *
Wayne B. Lyon(3)............................................ 183,103 *
Richard A. Manoogian(3)..................................... 13,492,706 2.9%
Robert B. Rosowski.......................................... 437,757 *
Mary Ann Van Lokeren........................................ 78,310 *
Timothy Wadhams............................................. 249,460 *
All 17 Directors and executive officers of the Company as a
group(2)(3)................................................. 18,029,521 3.9%
---------------
* Less than one percent
(1) Includes unvested restricted stock award shares held under the Company's
stock incentive plan (241,471 shares for Mr. Barry; 4,304 shares for Mr.
Denomme; 2,260 shares for each of Messrs. Dow and Earley; 2,826 shares for
Mr. Istock; 3,620 shares for each of Professor Johnston and Mr. Losh;
122,556 shares for Mr. Leekley; 6,214 shares for Mr. Lyon; 1,013,764 shares
for Mr. Manoogian; 55,487 shares for Mr. Rosowski; 2,826 shares for Ms. Van
Lokeren; 101,101 shares for Mr. Wadhams; and 1,808,387 shares for all
Directors and executive officers of the Company as a group) and shares which
may be acquired before May 31, 2004 upon exercise of stock options issued
under the Company's stock incentive plan (296,866 shares for Mr. Barry;
57,600 shares for Mr. Denomme; 28,800 shares for each of Messrs. Dow and
Earley; 65,600 shares for Mr. Istock; 457,646 shares for Mr. Leekley; 65,600
shares for Mr. Lyon; 4,453,111 shares for Mr. Manoogian; 245,000 shares for
Mr. Rosowski; 65,600 shares for Ms. Van Lokeren; 104,400 shares for Mr.
Wadhams; and 6,694,569 shares for all Directors and executive officers of
the Company as a group). Holders have sole voting but no investment power
over unvested restricted shares and exercise neither voting nor investment
power over unexercised option shares.
(2) Includes 1,000 shares held in a trust for the benefit of Mr. Earley for
which Mr. Earley's wife serves as trustee.
(3) Shares owned by Mr. Manoogian and by all Directors and executive officers of
the Company as a group include in each case an aggregate of 3,009,100 shares
owned by charitable foundations for which Mr. Manoogian serves as a director
and 3,000 shares held by trusts for which he serves as a trustee. Shares
owned by Mr. Lyon and by all Directors and executive officers of the Company
as a group include in each case 26,802 shares owned by a charitable
foundation for which Mr. Lyon serves as a Director. Shares owned by all
Directors and executive officers of the Company as a group include 628,595
shares
7
held by trusts for which an executive officer serves as a trustee. The
directors of the foundations and the trustees share voting and investment
power with respect to shares owned by the foundations and trusts, but
Messrs. Manoogian and Lyon and the executive officer who serves as a trustee
for certain trusts each disclaim beneficial ownership of such shares.
Mr. Manoogian may be deemed a controlling person of the Company by reason
of his significant ownership of Company Common Stock and his positions as a
Director and an executive officer of the Company.
8
AUDIT COMMITTEE REPORT
The Audit Committee assists the Board of Directors in fulfilling its
responsibility for oversight of the integrity of the Company's financial
statements, the qualifications, independence and performance of the Company's
independent accountants, the performance of the Company's internal audit
function, and compliance by the Company with legal and regulatory requirements,
including compliance with the Company's Code of Business Ethics. Management has
the primary responsibility for the financial statements and the reporting
process, including the Company's system of internal control. In discharging its
oversight responsibility as to the audit process, the Audit Committee reviewed
and discussed with management the audited financial statements of the Company as
of and for the year ended December 31, 2003, including a discussion of the
quality and the acceptability of the Company's financial reporting and controls,
as well as the selection, application and disclosure of critical accounting
policies.
The Audit Committee obtained from the Company's independent accountants,
PricewaterhouseCoopers LLP, the letter required by Independence Standards Board
Standard No. 1, "Independence Discussions with Audit Committees," and discussed
with the accountants any relationships that may impact their objectivity and
independence and satisfied itself as to the accountants' independence. The Audit
Committee considered and determined that such accountants' provision of
non-audit services to the Company is compatible with maintaining the
accountants' independence. The Committee reviewed various matters with the
accountants, who are responsible for expressing an opinion on the Company's
financial statements as of and for the year ended December 31, 2003 based on
their audit. The Committee met with the accountants, with and without management
present, and discussed the matters required to be discussed by Statement on
Auditing Standards No. 61 as amended, "Communication with Audit Committees",
including their judgment as to the quality and the acceptability of the
Company's financial reporting and such other matters as are required to be
discussed with the Committee under generally accepted auditing standards.
Based on the above-mentioned reviews and discussions with management and
the independent accountants, the Audit Committee recommended to the Board of
Directors that the Company's financial statements as of and for the year ended
December 31, 2003 be included in its Annual Report on Form 10-K for the year
ended December 31, 2003 for filing with the Securities and Exchange Commission.
The Audit Committee also reappointed, subject to stockholder approval,
PricewaterhouseCoopers LLP as the Company's independent accountants.
Thomas G. Denomme, Chairman
Peter A. Dow
Anthony F. Earley, Jr.
Verne G. Istock
J. Michael Losh
9
ORGANIZATION AND COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
INTRODUCTION
The Organization and Compensation Committee is responsible for overseeing
the Company's executive compensation programs in order to ensure the attraction,
retention and appropriate reward of talented senior corporate executives, to
motivate their performance in the achievement of the Company's business
objectives, and to align their interests with the long-term interests of the
Company's stockholders.
The Committee focuses on current market practices and trends in evaluating
and establishing compensation arrangements for the Company's executive officers.
The Committee uses a variety of resources, including publicly available data and
the services of expert independent compensation consultants, in order to
establish compensation levels in a highly competitive environment for executive
leadership. A critical objective is to assure that the compensation for the
Company's executive officers is competitive with the compensation offered by a
peer group of companies. Each major component of compensation is compared with
the peer group to assure overall competitiveness. The peer group reflects the
Company's revenue size and includes publicly traded companies that the Company
competes with for executive talent. The peer companies are generally comprised
of traditional competitors, industrial peers, key home improvement retailers and
major homebuilders. Although the Committee reviews peer group information for
guidance, it does not exclusively target executive compensation to specific
compensation levels at other companies. Also, compensation arrangements may vary
in individual cases based on subjective factors such as an individual's
responsibilities and contribution to the performance of the Company.
The Committee's strategy in recent years has been increasingly to link
compensation to Company performance. The Committee believes that this strategy
more closely aligns executive officers' interests with the long-term interests
of stockholders, while maintaining the Company's ability to attract, retain and
motivate the highest quality executive management team. In part, the Committee
has been implementing this strategy by increasing the portion of total
compensation that is variable and contingent on Company performance relative to
the portion of total compensation that consists of fixed base salary.
Compensation arrangements for executive officers generally consist of a
combination of base salary, annual cash bonus and long-term incentives utilizing
Company Common Stock, as well as various retirement and other benefit
arrangements. These components are discussed in more detail below.
CASH COMPENSATION
Annual cash compensation consists of salary and bonus. Base salaries for
all executive officers historically have been adjusted annually if warranted by
economic conditions and by Company and individual performance. Base salaries for
all executive officers for 2003 were generally frozen at the level of salaries
for 2002, except in the case of promotions or where salaries were below the
market competitive level. Executive salaries have been frozen as part of the
strategy of increasing variable performance-based compensation opportunities as
a percentage of total compensation, as described below. Executive officer
salaries will generally remain frozen in 2004.
The method for granting annual cash bonuses was revised beginning with
2002. Under the revised program, bonuses are directly tied to Company
performance by linking executive officers' annual cash bonuses to earnings per
share targets. The Committee believes that placing more bonus compensation at
risk further aligns compensation with stockholders' interests. Potential payouts
generally range from 0% to 100% of an executive officer's base salary (200% for
the Chief Executive Officer and 160% for the President), based on a graduated
schedule under which the bonus opportunity increases as a percentage of salary
as earnings per share increase. The Committee increased the cash bonus
opportunities for the Company's CEO and the President to make their compensation
levels more competitive with the opportunities for the most senior executives in
the Company's peer group. Based on the Company's relatively strong performance
in 2003, the executive officers, including Mr. Manoogian, received cash bonuses
approximating 80% of the maximum
10
bonus opportunity. Had the Company's performance not been as strong, executive
officers would have received lower bonuses, or no bonuses if performance fell
below the minimum earnings per share threshold.
STOCK-BASED COMPENSATION
Company Common Stock is a major part of annual and long-term compensation
for key employees because of its inherent alignment with the interests of
stockholders. Over 2,000 of the Company's employees participate in the Company's
restricted stock award and stock option programs. The Committee's long-term
philosophy is reflected in the fact that full realization of the value of stock
incentives is generally subject to long-term vesting schedules. The two
principal components of the Company's stock-based compensation are annual grants
of restricted stock and periodic grants of non-qualified stock options.
Restricted stock awards and stock options are granted under the Masco
Corporation 1991 Long Term Stock Incentive Plan (the "1991 Plan") and focus the
recipient on long-term enhancement in stockholder value with the objective of
retaining key employees. The Committee believes that the level of restricted
stock awards and stock option grants should be sufficient in size and potential
value to provide further alignment of the recipient's and stockholders'
interests, and to reinforce the individual's commitment to the Company.
Restricted stock awards granted under the 1991 Plan generally vest in ten
percent annual installments over a period of ten years from the date of grant.
In general, vesting is contingent on a continuing employment relationship with
the Company. The 1991 Plan provides, however, that shares continue to vest upon
retirement on or after normal retirement age, and that all shares vest
immediately upon death, permanent and total disability or the occurrence of
certain events constituting a change in control of the Company. It is the
Company's current practice to include a noncompetition agreement for a one-year
period following termination of employment in all restricted stock awards
granted under the 1991 Plan.
The Company has historically purchased shares of Company Common Stock in
the open market sufficient to provide for all restricted stock awards to avoid
any common share dilution resulting from these awards. The cost related to these
awards as they vest is fixed at the time of grant, and this expense is generally
amortized over the vesting period of the awards. Because the Company's tax
deduction is based on the fair market value of the stock at the time the
restrictions lapse, the after-tax cost of this program can be favorable to the
Company due to the increased tax deduction that may result from any future
appreciation of Company Common Stock at the time of each annual vesting. The
Company believes that the extended vesting of stock awards with the opportunity
for substantial stock price appreciation promotes retention, and also spreads
compensation expense over a longer term, which generally has resulted in a
significant reduction in the Company's after-tax cost of this stock-related
compensation.
In 2002 the Company revised its annual restricted stock award program for
key employees (including executive officers) to more closely link the size of
stock grants to Company performance and reflect the increased emphasis on
variable compensation. Under the revised program, stock awards for executive
officers are based on earnings per share and progress toward improvement in the
Company's return on invested capital. Each participant (including executive
officers) is assigned an individual standard stock award opportunity level,
which is a percentage of base salary. Historically, this opportunity level was
30% of base salary for all executive officers including the Chief Executive
Officer and the President. Base salaries for 2003 and 2004 have been frozen as
part of the strategy of increasing the portion of total compensation that is
variable and the Committee has introduced improvement in return on invested
capital as a factor in determining the size of annual grants. The Committee has
correspondingly increased the annual stock award opportunity level to up to
approximately 200% of base salary for executive officers. The Committee believes
that this increased opportunity is competitive with the opportunity for key
executives in the Company's peer group.
A graduated grant schedule is established based on earnings per share,
similar to the methodology used for annual cash bonuses. When the Committee
determines the value of the annual stock grants to be made to participants,
based on the year's performance, the Committee also evaluates improvement in
return on invested capital. Based on 2003 performance, each executive officer,
including Mr. Manoogian, received a grant of restricted stock valued at
approximately 80% of the officer's base salary. In addition to the annual
11
performance awards, occasionally grants may be made on account of individual
performance or other circumstances.
Stock options also reflect the Committee's focus on long-term, equity-based
compensation that is aligned with the interests of stockholders. Options are
granted at fair market value on the date of grant, and therefore option holders
only benefit from subsequent stock price appreciation. The difference between
the exercise price and fair market value of the Company Common Stock on the date
of exercise is deductible by the Company for federal income tax purposes and
thereby provides tax savings to the Company.
The annual number of options granted has averaged less than 1% of shares
outstanding over the past five years, which is significantly less than the
average number of options granted by companies in the peer group and the
Standard & Poor's 500 Index. Beginning with options granted in February 2000,
the Company changed the option terms to shorten the option vesting period so
that subsequent option grants become exercisable in 20 percent installments on
the first five anniversaries of the grant date. At the same time that the
Company made this change, which is favorable to participants, the Company
introduced into the option terms a noncompetition agreement for a one-year
period following termination of employment. Also under the new option terms,
upon termination of employment the recipient may be required to pay back to the
Company the net gain realized upon the exercise of any installment of the option
that became exercisable within two years prior to the termination, except in
certain circumstances (including normal retirement, death or disability). An
additional payback provision may also be triggered upon breach of the
noncompetition agreement.
The 1991 Plan permits the Committee to accept the surrender of an
exercisable stock option and to authorize payment by the Company of an amount
equal to the difference between the option exercise price of stock and its then
fair market value. In addition, recipients of stock options are eligible to
receive restoration options. A restoration option is granted when a participant
exercises a stock option and pays the exercise price by delivering shares of
Company Common Stock or attests to the ownership of such shares. The restoration
option is equal to the number of shares delivered or attested to by the
participant and does not increase the number of shares covered by the original
stock option. The exercise price is 100 percent of the fair market value of
Company Common Stock on the date the restoration option is granted so that the
participant benefits only from subsequent increases in the Company's stock
price. The 1991 Plan also provides that, upon the occurrence of certain events
constituting a change in control of the Company, all stock options previously
granted immediately become fully exercisable and all restricted stock awards
immediately vest. Generally, if a participant incurs an excise tax under Section
4999 of the Internal Revenue Code of 1986 in connection with a payment or
distribution following such a change in control, the 1991 Plan provides that the
participant will receive additional payments to make him or her whole for such
excise tax.
The Company elected to change its method of accounting for stock options
effective January 2003, on a prospective basis. The change in accounting for
stock options results in pre-tax compensation expense being recognized by the
Company related to stock options granted in 2003 and thereafter.
In 2003, the Committee approved stock option grant guidelines for executive
officers that the Committee believes are below the average level of option
grants in the Company's peer group. In accordance with these guidelines, in
October 2003 the Committee granted options to approximately 600 key employees
(including all executive officers and Mr. Manoogian) as part of the Committee's
strategy to utilize options as an important component of the Company's long-term
compensation for key employees.
OTHER COMPENSATION CONSIDERATIONS
The Company maintains qualified defined benefit and defined contribution
retirement plans for most salaried employees. The Company also maintains
companion non-qualified plans in order to restore for many of these employees
the benefits that are otherwise limited by the Internal Revenue Code. All of the
executive officers participate in these plans. In addition, in order to be
competitive, the Company has established a Supplemental Executive Retirement
Plan that provides supplemental retirement and certain other benefits to certain
officers and other key employees of the Company, including the executive
officers named in the "Summary Compensation Table."
12
In 2000, the Committee implemented an Executive Stock Purchase Program (the
"Program"). This voluntary Program was made available worldwide to key members
of the Company's management. Approximately 300 employees participated in the
Program and invested approximately $156 million in Company Common Stock. This
Program represented a major financial commitment on the part of its
participants, thus further aligning the interests of the Company's key
management with the interests of stockholders.
In order to formalize the Board's policy of encouraging stock ownership by
executive officers and to require executive officers to remain at risk by
maintaining a substantial interest in Company Common Stock, the Board has
established stock ownership guidelines for executive officers. The guidelines
require the Chief Executive Officer to own stock with a value of at least five
times base pay; the President to own stock with a value of at least four times
base pay; Senior Vice Presidents to own stock with a value of at least three
times base pay; and all other executive officers to own stock with a value of at
least two times base pay. Executive officers are required to achieve the share
ownership (including restricted stock awards) necessary to meet the guidelines
within three years of becoming subject to the guidelines.
Section 162(m) of the Internal Revenue Code limits deductibility of annual
compensation in excess of $1 million paid to the Company's chief executive
officer and to each of the other four highest paid executive officers unless
this compensation qualifies as "performance-based." In 1997, the Board approved
and the stockholders adopted amendments to the 1991 Plan so that stock options
granted under the 1991 Plan will continue to result in compensation fully
deductible by the Company under Section 162(m). In addition, the Committee
approved and the stockholders adopted the performance-based 2002 Annual
Incentive Compensation Plan to continue the Committee's practice of structuring
cash bonuses to make them performance-based and therefore tax deductible. In
order to enhance the tax deductibility of annual performance-based stock awards
to this group of executives, the Committee has adopted and is presenting for
stockholder approval the Masco Corporation 2004 Restricted Stock Award Program
discussed under "Proposal to Approve the 2004 Restricted Stock Award Program".
The Committee, however, continues to believe that it is in the Company's
interest to retain flexibility in its compensation programs, and consequently in
some circumstances has paid and may continue to pay compensation that exceeds
the limitation of Section 162(m).
Peter A. Dow, Chairman
Verne G. Istock
Mary Ann Van Lokeren
13
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table summarizes the annual and long-term compensation of the
Company's chief executive officer and the other four highest paid executive
officers (collectively, the "named executive officers") for 2003, 2002 and 2001.
LONG-TERM
COMPENSATION AWARDS
-----------------------
ANNUAL COMPENSATION(1) RESTRICTED SECURITIES
------------------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS(2) OPTIONS COMPENSATION(3)
--------------------------- ---- ---------- ---------- ---------- ---------- ---------------
Richard A. Manoogian...... 2003 $1,500,000 $2,400,000 $1,218,000 480,000 $105,000
Chairman of the 2002 1,350,000 1,680,000 718,000 742,858(4) 95,000
Board and Chief 2001 1,200,000 576,000 180,000 2,000,000 84,000
Executive Officer
Alan H. Barry(5).......... 2003 $ 815,000 $1,216,000 $4,248,000 530,000 $ 57,000
President and Chief
Operating Officer
John R. Leekley........... 2003 $ 710,000 $ 568,000 $ 582,000 85,000 $ 50,000
Senior Vice President 2002 688,000 568,000 340,000 182,846(4) 48,000
and General Counsel 2001 665,000 266,000 100,000 0 47,000
Timothy Wadhams........... 2003 $ 620,000 $ 496,000 $ 768,000 75,000 $ 43,000
Senior Vice President and 2002 577,000 496,000 297,000 72,000 40,000
Chief Financial Officer 2001(6) 132,000 71,000 1,726,000 150,000 9,000
Robert B. Rosowski........ 2003 $ 400,000 $ 320,000 $ 344,000 48,000 $ 28,000
Vice President and 2002 390,000 320,000 191,000 47,000 27,000
Treasurer 2001 380,000 152,000 57,000 0 27,000
---------------
(1) Salary information is disclosed in the table on a calendar year basis.
Annual salary increases, when granted, are normally effective in July.
Regular annual salary levels were frozen in 2003 and continue to be frozen,
but the changes from 2002 to 2003 reflected in the table are a result of
increases implemented in July 2002 that were effective for only part of 2002
but all of 2003. Officers may receive certain perquisites and personal
benefits, the dollar amounts of which are below current SEC thresholds for
reporting requirements. A new program implemented at the beginning of 2002
directly links cash bonuses to earnings per share targets. The performance
of the Company in 2002 and 2003 resulted in bonuses being awarded for those
years that were significantly larger than the bonuses awarded in 2001. See
the "Organization and Compensation Committee Report on Executive
Compensation" for information concerning the salary freeze for executive
officers and additional detail regarding cash bonuses.
(2) This column sets forth the dollar value, as of the date of grant, of
restricted stock awards. The Company has revised the presentation of award
data in the Summary Compensation Table. The year for which annual incentive
awards are reported now corresponds to the performance year that is used as
a basis for granting such awards. This is comparable to the presentation of
cash bonus data. In previous proxy statements, annual incentive awards were
reported by the year in which the awards were granted, which was typically
early in the year after the corresponding performance period (e.g., in the
proxy statement for the 2003 Annual Meeting of Stockholders, the awards
reported for 2002 were granted in early 2002 but were based on Company
performance in 2001). The Company believes this revised presentation will
aid in understanding the relationship among reported compensation, Company
performance and the "Organization and Compensation Committee Report on
Executive Compensation." As a result of this revised presentation, award
data shown for 2001 in the above table generally was reported as 2002 data
in the proxy statement for the 2003 Annual Meeting of Stockholders. Award
data shown for 2002 and 2003 in the above table generally has not been
previously reported. The following awards to the named executive officers
were granted as part of the Company's annual long-term incentive
compensation program based on Company performance in 2003, and are reflected
in 2003 data in the above table:
14
Mr. Manoogian -- 46,000 shares; Mr. Barry -- 29,000 shares; Mr.
Leekley -- 22,000 shares; Mr. Wadhams -- 19,000 shares; and Mr.
Rosowski -- 13,000 shares. Also reflected in the above table as 2003 data is
the award of 150,000 shares granted to Mr. Barry in 2003 in connection with
his promotion to President and Chief Operating Officer and the award of
10,000 shares granted to Mr. Wadhams in early 2004 in connection with his
promotion to Senior Vice President and Chief Financial Officer. The
following awards were granted based on the Company's 2002 performance, and
are reflected in 2002 data in the above table: Mr. Manoogian -- 40,000
shares; Mr. Leekley -- 18,930 shares; Mr. Wadhams -- 16,530 shares and Mr.
Rosowski -- 10,670 shares. The named executive officers only realize the
value of the restricted stock awards over an extended period of time because
the awards generally vest over ten years from the date of grant with ten
percent of each award vesting annually and with vesting generally contingent
on a continuing employment relationship with or normal retirement from the
Company. As of December 31, 2003, the aggregate numbers and market values of
unvested restricted shares of Company Common Stock held by each of the named
executive officers under all vesting arrangements were: Mr.
Manoogian -- 1,016,418 shares valued at $27,860,000; Mr. Barry -- 221,770
shares valued at $6,079,000; Mr. Leekley -- 115,892 shares valued at
$3,177,000; Mr. Wadhams -- 81,907 shares valued at $2,245,000; and Mr.
Rosowski -- 49,447 shares valued at $1,355,000. Recipients of restricted
stock awards receive dividends on unvested shares.
(3) This column sets forth Company contributions and allocations under the
Company's defined contribution retirement plans for the accounts of the
named executive officers.
(4) A majority of these options are restoration options granted upon the
exercise of previously held stock options. As described in more detail under
"Organization and Compensation Committee Report on Executive Compensation,"
a restoration option does not increase the number of shares covered by the
original option or extend the term of the original option.
(5) Mr. Barry became an executive officer in April, 2003. Consequently, the
information in the table does not set forth information for 2001 or 2002,
but information for 2003 includes compensation data for the entire year.
(6) Mr. Wadhams became employed as an executive officer of the Company in
October, 2001, and information for that year reflects the entire period of
his employment.
OPTION GRANT TABLE
The following table sets forth information concerning options granted to
the named executive officers in 2003. In accordance with Securities and Exchange
Commission regulations, the Black-Scholes option pricing model was used to
estimate the grant date present value of the options set forth in this table.
Actual gains, if any, on stock option exercises and Company Common Stock
holdings will depend on overall market conditions and the future performance of
the Company and its Common Stock. There can be no assurance that the amounts
reflected in this table will be realized.
INDIVIDUAL GRANTS(1)
-----------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO GRANT DATE
OPTIONS EMPLOYEES EXERCISE EXPIRATION PRESENT
NAME GRANTED IN 2003 PRICE DATE VALUE(2)
---- ---------- ---------- -------- ---------- ----------
Richard A. Manoogian............ 480,000 9.45% $27.50 10/29/13 $4,488,000
Alan H. Barry................... 230,000 4.53% 27.50 10/29/13 $1,817,000
300,000 5.90% 23.00 5/13/13 $2,370,000
John R. Leekley................. 85,000 1.67% 27.50 10/29/13 $ 665,000
Timothy Wadhams................. 75,000 1.47% 27.50 10/29/13 $ 701,000
Robert B. Rosowski.............. 48,000 .94% 27.50 10/29/13 $ 449,000
---------------
(1) For a description of additional terms of these options, see "Organization
and Compensation Committee Report on Executive Compensation."
(2) The following assumptions were made in calculating the grant date present
value of these options: volatility of 37%, dividend yield of 2.28%, risk
free rate of return of 3.34% based on a U.S. Treasury Strip with a maturity
date equal to the expected term of the options and an expected option life
of seven years.
15
OPTION EXERCISES AND YEAR-END OPTION VALUE TABLE
No options were exercised in 2003 by any named executive officer. The
following table sets forth information concerning the value at December 31, 2003
of unexercised options held by such individuals under the Company's stock option
plans. At December 31, 2003, when the closing price of Company Common Stock was
$27.41 per share, the value of unexercised options reflects an increase in
market value of Company Common Stock from the grant date (May 22, 1996 to
October 29, 2003, with grant date market prices ranging from $15 to $29.625).
The value actually realized upon future option exercises by the named executive
officers will depend on the value of Company Common Stock at the time of
exercise.
DECEMBER 31, 2003 OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 2003 DECEMBER 31, 2003
--------------------------- ---------------------------
NAME UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
---- ------------- ----------- ------------- -----------
Richard A. Manoogian................ 2,940,000 3,605,111 $16,911,000 $8,209,000
Alan H. Barry....................... 703,600 168,866 $ 2,813,000 $ 723,000
John R. Leekley..................... 375,000 346,846 $ 2,469,000 $2,185,000
Timothy Wadhams..................... 222,600 74,400 $ 1,055,000 $ 297,000
Robert B. Rosowski.................. 188,400 188,600 $ 1,207,000 $1,554,000
PENSION PLANS
The executive officers participate in pension plans maintained by the
Company for certain of its salaried employees. The following table shows
estimated annual retirement benefits payable for life at age 65 for various
levels of compensation and service under these plans.
PENSION PLAN TABLE
YEARS OF SERVICE(1)
--------------------------------------------------------------
REMUNERATION(2) 5 10 15 20 25 30
--------------- ------- -------- -------- -------- -------- --------
$ 200,000............. $11,290 $ 22,580 $ 33,870 $ 45,161 $ 56,451 $ 67,741
400,000............. 22,580 45,161 67,741 90,321 112,902 135,482
600,000............. 33,870 67,741 101,611 135,482 169,352 203,223
800,000............. 45,160 90,321 135,482 180,643 225,803 270,964
1,000,000............. 56,451 112,902 169,352 225,803 282,254 338,705
1,200,000............. 67,741 135,482 203,223 270,964 338,705 406,446
1,300,000............. 73,386 146,772 220,158 293,544 366,930 440,316
1,500,000............. 84,676 169,352 254,029 338,705 423,381 508,057
2,000,000............. 112,902 225,803 338,705 451,606 564,508 677,409
---------------
(1) The plans provide for credit for employment with any of the Company, its
subsidiaries or certain prior Company affiliates and their subsidiaries.
Vesting occurs after five full years of employment. The benefit amounts set
forth in the table above are not subject to reduction for social security
benefits or for other offsets, except to the extent that pension or
equivalent benefits are payable under a prior affiliate's plan. The table
does not reflect Internal Revenue Code limitations on tax-qualified plans
because one of the Company's plans is a non-qualified plan established to
restore for certain salaried employees (including the named executive
officers) benefits that are otherwise limited by the Code. For each year of
credited service prior to July 1, 1971 there is an additional annual benefit
equal to 0.2 percent of final average earnings in excess of $9,000.
Approximate years of credited service for the named executive officers
participating in the plan are: Messrs. Manoogian and Rosowski -- 30 (the
maximum credited service); Mr. Barry -- 20; Mr. Leekley -- 28 and Mr.
Wadhams -- 27.
(2) For purposes of determining benefits payable, remuneration in general is
equal to the average of the highest five consecutive January 1 annual base
salary rates paid by the Company prior to retirement.
16
Under the Company's Supplemental Executive Retirement Plan, certain
officers and other key employees of the Company, including the executive
officers named in the "Summary Compensation Table," may receive retirement
benefits in addition to those provided under the Company's other retirement
plans. Each participant is to receive annually upon retirement on or after age
65, an amount which, when combined with benefits from the Company's other
retirement plans (and, for most participants, any retirement benefits payable by
reason of employment by prior employers) equals up to 60% of the average of the
participant's highest three years' cash compensation received from the Company
(base salary and regular year-end cash bonus, not in excess of 60% of that
year's bonus opportunity). A disability benefit is payable to a participant who
has been employed at least two years and becomes disabled. Generally,
participants who terminate from the Company with more than five years' service
before age 65 become entitled to receive a benefit adjusted by an
age-and-service vesting schedule that provides for no more than 50% vesting upon
attainment of age 50 and 100% vesting no earlier than age 60. Such vested
benefit is not payable until age 65 and is subject to offset for amounts earned
from prior or future employers. A surviving spouse will receive reduced benefits
upon the participant's death, including a death while in service. A participant
and his or her surviving spouse may also receive supplemental medical benefits.
The plan is unfunded, except that accelerated payment on a present value basis
is mandatory following a change in control of the Company. The named executive
officers participate in this plan, and each is eligible for a 60 percent benefit
at age 65.
17
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total stockholder
return on Company Common Stock with the cumulative total return of the Standard
& Poor's 500 Composite Stock Price Index ("S&P 500 Index") and the Standard &
Poor's Building Products Index ("S&P Building Products Index") (formerly known
as the Standard & Poor's Building Materials Index) for the period from January
1, 1999 through December 31, 2003, when the closing price of Company Common
Stock was $27.41 per share (on March 31, 2004 the closing price was $30.44 per
share). The graph assumes investments of $100 on December 31, 1998 in Company
Common Stock, the S&P 500 Index and the S&P Building Products Index and the
reinvestment of dividends.
[MASCO PERFORMANCE GRAPH]
The table below sets forth the value, as of December 31 of each of the
years indicated, of a $100 investment made on December 31, 1998 in each of
Company Common Stock, the S&P 500 Index and the S&P Building Products Index, and
the reinvestment of dividends.
----------------------------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
----------------------------------------------------------------------------------------------------------------
Masco Corporation $100.00 $ 89.83 $ 92.67 $90.28 $79.57 $105.81
S&P 500 Index $100.00 $120.89 $109.97 $96.94 $75.64 $ 97.09
S&P Building Products Index $100.00 $ 78.76 $ 72.91 $70.53 $64.93 $ 88.28
ORGANIZATION AND COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Organization and Compensation Committee of the Board of Directors
currently consists of Peter A. Dow, Verne G. Istock and Mary Ann Van Lokeren.
None of these individuals is or was a current or former officer or employee of
the Company or any of its subsidiaries. During 2003, no executive officer of the
Company served as a director or as a member of a compensation committee of any
company of which any of the members of the Company's Organization and
Compensation Committee are executive officers.
18
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
METALDYNE CORPORATION
In November 2000, the Company reduced its common equity ownership in
Metaldyne Corporation (formerly MascoTech, Inc.) ("Metaldyne") through a
recapitalization merger with an affiliate of Heartland Industrial Partners, L.P.
The Company currently holds approximately 6% of the common equity of Metaldyne.
The Company has also invested approximately $47 million in Heartland Industrial
Partners, L.P. and paid approximately $75,000 for management fees in 2003. The
Company, Richard Manoogian (who owns approximately 2% of Metaldyne common
stock), a charitable foundation for which Mr. Manoogian serves as a director and
officer (which owns approximately 1.6% of such stock), and certain other
shareholders (including Heartland Industrial Partners) who in the aggregate own
over 90% of Metaldyne common stock, are parties to a Shareholders Agreement
regarding their ownership of such stock. The Shareholders Agreement governs the
election of directors, the transferability of stock, access to information and
registration rights, among other things. Mr. Manoogian remains a director of
Metaldyne.
The Company also holds 361,001 shares of preferred stock of Metaldyne with
a liquidation value of $100 per share. During 2003 these preferred shares
accrued dividends at the rate of 15% per annum, totaling approximately $7.1
million.
Under a 1984 Assumption and Indemnification Agreement, Metaldyne assumed
and agreed to indemnify the Company against all of the liabilities and
obligations of the businesses then transferred to Metaldyne by the Company,
including claims resulting from circumstances that existed prior to the
transfer, but excluding specified liabilities. The Company agreed to indemnify a
subsidiary of Metaldyne against certain liabilities of businesses acquired by
that subsidiary from the Company in 1990. Since August 2000, the Company has
reimbursed Metaldyne for certain litigation and settlement costs of
approximately $2.3 million and advanced $1.275 million in connection with the
settlement of this matter while the Company sought recovery from insurance
proceeds. In early 2004, the Company settled the claims in this litigation and
received back an aggregate of approximately $2.75 million.
OTHER RELATED PARTY TRANSACTIONS
During the third quarter of 2000, approximately 300 of the Company's key
employees, including executive officers, purchased 8.4 million shares of Company
Common Stock from the Company for cash totaling $156 million under an Executive
Stock Purchase Program. The key employees were given the opportunity to purchase
a number of shares determined by a formula based upon each employee's salary
level and other factors. The stock was purchased at $18.50 per share, the
approximate market price of Company Common Stock at the time of purchase.
Participants in the Program financed their entire purchase with five-year, full
recourse personal loans at an interest rate of 9.2%, the market rate at that
time, from a bank syndicate. Each participant is fully responsible at all times
for repaying the bank loan when it becomes due and is personally responsible for
100 percent of any loss in the market value of the purchased stock, except that,
if the participant is in a loss position upon the event of death, the
participant's estate may transfer the purchased stock to the Company and require
the Company to assume responsibility for the loan. The Company has guaranteed
repayment of the loans only in the event of a default by the participant. As a
further inducement for continued employment beyond the end of this five-year
Program, each participant received, as part of the Program, a restricted stock
grant vesting over a ten-year period. Pursuant to the terms of the Program, all
participants are subject to a one-year post-employment noncompetition agreement
with the Company's businesses that employ them. In addition to other members of
the executive management team, the following is a list of the executive officers
who invested in the Program, together with the amounts of their investments and
the number of shares purchased: Alan Barry -- $3 million (162,162); Lillian
Bauder -- $2.7 million (145,945 shares); Daniel Foley -- $1.5 million (81,081
shares); Eugene Gargaro, Jr. -- $2.7 million (145,945 shares); John
Leekley -- $4.7 million (254,054 shares); Richard Manoogian -- $26 million
(1,405,405 shares); and Robert Rosowski -- $1.3 million (72,972 shares).
19
For 2003, Mr. Manoogian personally reimbursed the Company an aggregate of
$635,000 in cash for the value of various financial, accounting, tax and
property maintenance services and administrative assistance provided to him by
the Company. Two charitable foundations established by Mr. Manoogian and by his
father Mr. Alex Manoogian, who founded the Company, also separately reimburse
the Company for accounting and administrative services provided by the Company.
During 2003, this reimbursement aggregated $224,000. These foundations
coordinate their activities with those of the Masco Corporation Foundation to
assist the Company in responding to requests to the Company for donations. Mr.
Manoogian has continued to loan a significant number of his personal artworks to
the Company at its headquarters, but this arrangement is at no charge to the
Company and with no reimbursement to Mr. Manoogian for insurance, restoration
and the other costs he personally incurs with respect to the artworks on loan.
From time to time the Company has employed individuals who are related or
become related to other employees, officers or Directors. There are currently
four individuals employed by the Company or one of its divisions who are closely
related to current executive officers or to Mr. Lyon. No current employee is
related to any individual who serves as a Director of the Company other than the
one employee who is related to Mr. Lyon. Each of these four employees received
cash compensation for 2003 in excess of $60,000.
PROPOSAL TO APPROVE THE 2004 RESTRICTED STOCK AWARD PROGRAM
IN ORDER TO QUALIFY GRANTS OF RESTRICTED STOCK UNDER
SECTION 162(m) OF THE INTERNAL REVENUE CODE
As indicated in the Organization and Compensation Committee Report on
Executive Compensation, long-term, equity-based compensation is a key component
of the Company's compensation strategy. Historically, this component has been
implemented in part by making annual grants of restricted stock that are based
upon the Company's financial performance. In general, Section 162(m) of the
Internal Revenue Code disallows deductions for compensation paid to the named
executive officers to the extent such an officer's total compensation exceeds $1
million in a year, unless the compensation is performance-based and satisfies
certain other requirements, including a requirement for stockholder approval.
Although stockholders have approved the 1991 Long Term Incentive Plan under
which the awards previously have been made, the Company is seeking stockholder
approval in order to qualify these annual grants of restricted stock as
performance-based and therefore deductible under Section 162(m).
The Company's current practice is to grant annual stock awards which vest
in ten annual installments. Because each annual installment is generally treated
as compensation at the time of vesting, the tax impact on the Company extends
over a lengthy period. Also, to the extent the value of the stock increases over
time, the value of the potential deduction increases. Because of the increasing
amount of salary and other compensation that is or may in the future become
subject to Section 162(m), the potential for the amount of the deduction to
increase over time, and revisions to the annual restricted stock award program
over the last several years, the Company believes it is now appropriate to
qualify its restricted stock awards under Section 162(m) in order that the
Company may receive the corresponding tax benefit. Accordingly, the Organization
and Compensation Committee of the Board of Directors has adopted and is
presenting for stockholder approval the Masco Corporation 2004 Restricted Stock
Award Program (the "Stock Award Program"). The Stock Award Program has been
adopted under the Company's 1991 Long Term Incentive Plan. The following summary
is qualified in its entirety by reference to the full text of the Stock Award
Program, which is attached to this Proxy Statement as Appendix B.
The Company intends to continue its practice of making annual
performance-based grants of restricted stock to key employees under the 1991
Long Term Incentive Plan, but will use the Stock Award Program in order to
obtain the full tax deduction for grants to the named executive officers. Under
the Stock Award Program, the Organization and Compensation Committee intends to
continue its practice of establishing one or more annual performance criteria,
consisting of net income, earnings per common share, cash flow, revenues, return
on assets, return on invested capital or total stockholder return, and will also
establish the maximum value of grants that may be made upon attainment of the
criteria. As required by the Internal Revenue Code, after the Company's
financial results for the year have been determined, the Organization and
20
Compensation Committee will certify the attainment of the performance criteria
and will determine the value of the grants to be made. The Organization and
Compensation Committee may reduce or eliminate (but not increase) for any reason
the grant(s) that would otherwise be made to a participant. In addition to the
annual practice described above, the Company from time to time may make other
grants of restricted stock under the Stock Award Program. Although there is no
explicit limit on the number of grants a participant may receive, in no event
may a participant receive grants pursuant to the Stock Award Program in any year
having a value greater than $10 million. Because it is being implemented
pursuant to the 1991 Long Term Incentive Plan, grants cannot be made after the
current expiration of the 1991 Plan (May 17, 2010).
If approved by stockholders, the Stock Award Program will be effective
beginning January 1, 2004. For 2004, the Committee has established explicit
performance criteria based on the Company's earnings per common share, and the
Committee also will evaluate progress toward improvement in return on invested
capital in determining the value of grants ultimately made. Depending on the
level of the Company's earnings per common share for 2004 and improvement in
return on invested capital, executive officers generally may receive grants
valued at up to approximately 200% of base salary.
If the Stock Award Program is not approved by stockholders, it will not be
adopted. However, the Company intends to continue making grants under the 1991
Long Term Incentive Plan, and such grants would not qualify under the provisions
of Section 162(m).
The Stock Award Program is not exclusive, and the Company may adopt or
continue in effect any other or additional compensation arrangements for the
named executive officers.
The approval of the Stock Award Program requires the affirmative vote of a
majority of the votes cast by shares entitled to vote thereon. Abstentions and
broker non-votes are not counted as votes cast, and therefore do not affect the
approval of the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE 2004
RESTRICTED STOCK AWARD PROGRAM.
RATIFICATION OF SELECTION OF
INDEPENDENT AUDITORS
The Audit Committee has selected the independent public accounting firm of
PricewaterhouseCoopers LLP to audit the Company's financial statements for the
year 2004, and believes it appropriate to submit its selection for ratification
by stockholders.
PricewaterhouseCoopers LLP has acted as the Company's independent certified
public accounting firm for over 42 years. It has performed services of an
accounting and auditing nature and, from time to time, has provided other
consulting services for the Company. Representatives of PricewaterhouseCoopers
LLP are expected to be present at the meeting and will have the opportunity to
make a statement and are expected to be available to respond to appropriate
questions. If the selection is not ratified, the Audit Committee will consider
selecting another public accounting firm as the Company's independent auditors.
The affirmative vote of a majority of the votes cast by shares entitled to
vote thereon is required for the ratification of the selection of independent
auditors. Abstentions and broker non-votes are not counted as votes cast, and
therefore do not affect the ratification of the selection of auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT AUDITORS FOR THE COMPANY
FOR THE YEAR 2004.
21
PRICEWATERHOUSECOOPERS LLP FEES
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Aggregate fees for professional services rendered for the Company by
PricewaterhouseCoopers LLP as of or for the years ended December 31, 2003 and
2002, were (in millions):
2003 2002
----- ----
Audit....................................................... $ 9.5 $5.5
Audit Related............................................... 1.7 1.9
Tax......................................................... 1.4 1.5
All Other................................................... 0.1 *
----- ----
Total....................................................... $12.7 $8.9
---------------
* Aggregate amount was less than $50,000
The Audit fees for the years ended December 31, 2003 and 2002 were for
professional services rendered for the audits of the consolidated financial
statements of the Company, statutory audits, attestation of controls, issuance
of comfort letters, consents, income tax provision procedures, and assistance
with review of documents filed with the SEC.
The Audit Related fees for services rendered during the years ended
December 31, 2003 and 2002 were for professional services rendered for employee
benefit plan audits, due diligence related to acquisitions, audits in connection
with acquisitions and divestitures, and consultations concerning the assessment
of internal accounting controls.
Tax fees for services rendered during the years ended December 31, 2003 and
2002 were for services related to tax return preparation, tax planning, and tax
advice related to acquisitions.
All Other fees for services rendered during the years ended December 31,
2003 and 2002 were for miscellaneous services rendered.
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee established a policy effective May 5, 2003 requiring
its annual review and pre-approval of all audit services and permitted non-audit
services to be performed by our independent auditors PricewaterhouseCoopers LLP.
The Audit Committee will, as necessary, consider and, if appropriate, approve
the provision of additional audit and non-audit services by
PricewaterhouseCoopers LLP that are not encompassed by the Audit Committee's
annual pre-approval and not prohibited by law. The Audit Committee has delegated
to the Chairman of the Audit Committee the authority to pre-approve, on a
case-by-case basis, services outside or in excess of the Audit Committee's
pre-approval and not prohibited by law, provided that the Chairman shall report
any decisions to pre-approve such services to the Audit Committee at its next
regular meeting. All of the services referred to above in the table for 2003
were pre-approved by the Audit Committee and none of the services approved by
the Audit Committee during 2003 were under the de minimus exception to
pre-approval contained in the applicable rules of the SEC.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and Directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and the New York Stock Exchange. Officers, Directors and greater than ten
percent stockholders are required by regulations of the Securities and Exchange
Commission to furnish the Company copies of all Section 16(a) forms they file.
22
Based solely on the Company's review of copies of such forms received by
it, or written representations from certain reporting persons that no Forms 5
are required for those persons, the Company believes that its Directors,
officers and greater than ten percent beneficial owners met all applicable
filing requirements during the last fiscal year.
2005 ANNUAL MEETING OF STOCKHOLDERS
Stockholders who intend to present a proposal for inclusion in the
Company's proxy statement and proxy relating to the 2005 Annual Meeting of
Stockholders must provide written notice of such intent to the Secretary of the
Company at its address stated in the Notice of Annual Meeting of Stockholders by
December 13, 2004.
If a stockholder intends to bring a matter before next year's meeting,
other than by timely submitting a proposal to be included in the proxy
statement, timely notice must be given in accordance with the Company's bylaws.
Management proxies will have the right to exercise discretionary voting
authority on any matter raised in this manner by stockholders after December 13,
2004. The bylaws provide that, to be timely, notice must be received by the
Company's Corporate Secretary at 21001 Van Born Road, Taylor, Michigan 48180 no
earlier than January 12, 2005 and no later than February 11, 2005. For each
matter a stockholder intends to bring before the meeting, the notice must
include a brief description of the business to be brought before the meeting;
the text of the proposal or business (including the text of any resolutions
proposed for consideration); the reasons for conducting the business at the
meeting and any material interest the stockholder may have in such business; the
stockholder's name and address as it appears in the records of the Company; the
number of shares of Company Common Stock and Series B Participating Preferred
Stock owned by the stockholder; and a representation as to whether the
stockholder is a part of a group that intends to deliver a proxy statement or
form of proxy to holders of at least the percentage of the aggregate voting
power of the outstanding Company Common Stock and Series B Participating
Preferred Stock required to approve or adopt such proposal or if the stockholder
intends to otherwise solicit proxies from stockholders in support of the
proposal.
Stockholders wishing to nominate a candidate or candidates as a Director at
the 2005 Annual Meeting of Stockholders must submit the following information no
later than February 26, 2005 to: Eugene A. Gargaro Jr., Corporate Secretary,
Masco Corporation, 21001 Van Born Road, Taylor, MI 48180: (a) the name and
address of the stockholder who intends to make the nomination or nominations and
of the person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of stock of the Company entitled to vote at
the Annual Meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understandings between such stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations is or are to be made by the stockholder; (d) such
other information regarding each nominee proposed by the stockholder as would
have been required to be included in a proxy statement filed pursuant to the
proxy rules of the SEC if the nominee had been nominated by the Board of
Directors; and (e) the written consent of each nominee to serve as a Director of
the Company if elected.
DELIVERY OF PROXY MATERIALS AND ANNUAL REPORTS
The SEC's proxy rules permit companies and intermediaries, such as brokers
and banks, to satisfy delivery requirements for proxy statements with respect to
two or more stockholders sharing an address by delivering a single proxy
statement to those stockholders. This procedure reduces the amount of duplicate
information that stockholders receive and lowers printing and mailing costs for
companies.
The Company has been notified that certain intermediaries will utilize this
procedure for the Company's 2003 Annual Report and proxy materials. Therefore,
only one Annual Report and Proxy Statement may have been delivered to multiple
stockholders sharing a single address. Stockholders who wish to opt out of this
procedure and receive separate copies of the Annual Report and Proxy Statement
in the future, or
23
stockholders who are receiving multiple copies and would like to receive only
one copy, should contact their bank, broker or other nominee or the Company at
the address and telephone number below.
The Company will promptly deliver a separate copy of the 2003 Annual Report
or Proxy Statement for the 2004 Annual Meeting upon oral request to the
Company's Investor Relations Department at (313) 274-7400, written request to
Investor Relations, Masco Corporation, 21001 Van Born Road, Taylor, Michigan
48180 or e-mail request to webmaster@mascohq.com
OTHER MATTERS
The Board of Directors knows of no other matters to be voted upon at the
meeting. If any other matters properly come before the meeting, it is the
intention of the proxies named in the enclosed Proxy to vote the shares
represented thereby with respect to such matters in accordance with their best
judgment.
By Order of the Board of Directors
[/s/ Eugene A. Gorgaro, Jr.]
EUGENE A. GARGARO, JR.
Secretary
Taylor, Michigan
April 12, 2004
24
APPENDIX A
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
MASCO CORPORATION
DECEMBER 9, 2003
I. MISSION
The Audit Committee (the "Committee") of the Board of Directors (the
"Board") of Masco Corporation (the "Company") shall assist the Board in
fulfilling its independent and objective oversight responsibilities. The
Committee will assist Board oversight of (1) the integrity of the Company's
financial statements, (2) the qualifications, independence and performance of
the Company's independent accountants, (3) the performance of the Company's
internal audit function, and (4) compliance by the Company with legal and
regulatory requirements, including the Company's Code of Business Ethics. The
Committee strives to maintain open communications and has an effective working
relationship with the Board of Directors, the independent accountants, the
internal auditors and the management of the Company.
II. MEMBERSHIP
The Committee shall consist of at least three Directors of the Company. The
membership of the Committee shall qualify under the independence and experience
requirements of applicable law and the New York Stock Exchange. The Corporate
Governance and Nominating Committee shall recommend nominees for appointment to
the Committee annually and as vacancies or newly created positions occur.
Committee members shall be appointed by the Board and may be removed by the
Board at any time, and the Board will appoint a Committee Chairperson.
The Committee will meet as often as required to discharge its
responsibilities, no less than four times a year. The Committee will meet from
time to time in executive sessions without management participation. A majority
of the members of the Committee shall constitute a quorum for the transaction of
business. The Committee may delegate its authority to subcommittees or the
Chairperson of the Committee when it deems it appropriate and in the best
interests of the Company.
III. RESPONSIBILITIES
FINANCIAL STATEMENTS; DISCLOSURE AND OTHER RISK MANAGEMENT MATTERS
The Committee shall review with management, the internal auditors and the
independent accountants, as required by the New York Stock Exchange or as the
Committee deems appropriate, in separate meetings if the Committee deems it
appropriate:
- the annual audited financial statements, including the Company's
disclosures under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and management's certifications with
respect to these financial statements, prior to the filing of the
Company's Form 10-K;
- the quarterly financial statements, including the Company's disclosures
under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and management's certifications with respect to
these financial statements, prior to the filing of the Company's Form
10-Q;
- any analyses or other written communications prepared by management, the
internal auditors or the independent accountants setting forth
significant financial reporting issues and judgments made in connection
with the preparation of the financial statements, including analyses of
the effects of alternative GAAP methods on the financial statements;
- the critical accounting policies and practices of the Company;
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- the effect of off-balance sheet transactions and structures on the
financial statements;
- any major issues regarding accounting principles and financial statement
presentations, including any significant changes in the Company's
selection or application of accounting principles; and
- the effect of regulatory and accounting initiatives on the financial
statements.
The Committee shall review, in conjunction with management, the Company's
policies with respect to the Company's earnings press releases, financial
information and earnings guidance provided to analysts and rating agencies,
including the types of information to be disclosed and the types of presentation
to be made, paying particular attention to the use of "pro forma" or "adjusted"
non-GAAP information.
The Committee shall discuss with the Chief Executive Officer and Chief
Financial Officer of the Company their review of the Company's internal controls
related to financial reporting and disclosure controls and procedures, including
whether there are any significant deficiencies in the design or operation of
such controls and procedures, material weaknesses in such controls and
procedures, any corrective actions taken with regard to such deficiencies and
weaknesses and any fraud involving management or other employees with a
significant role in such controls and procedures.
The Committee shall discuss with management and the independent accountants
any correspondence with regulators or governmental agencies and any published
reports which raise material issues regarding the Company's financial statements
or accounting policies.
The Committee shall review and discuss with the independent accountants any
audit problems or difficulties and management's response thereto, including
those matters required to be discussed with the Committee by the independent
accountants pursuant to applicable Statements on Auditing Standards:
- any restrictions on the scope of the independent accountants' activities
or access to requested information;
- any accounting adjustments that were noted or proposed by the independent
accountants but were not effected (as immaterial or otherwise);
- any communications involving matters of potential significance between
the independent accountants for the Company and the independent
accountants' national office regarding auditing or accounting issues
presented by the engagement;
- any management or internal control letter issued, or proposed to be
issued, by the independent accountants; and
- any significant disagreements between the Company's management and the
independent accountants.
The Committee shall have the sole authority over the resolution of any
disagreements between management and the independent accountants regarding the
Company's financial reporting.
The Committee shall review the Company's guidelines and policies with
respect to risk assessment and risk management, including discussing with
management the Company's major financial risk exposures and the steps that have
been taken to monitor and control such exposures.
INDEPENDENT ACCOUNTANTS
The Committee has the sole authority to appoint, compensate, retain,
oversee and terminate the independent accountants of the Company (subject to any
requested shareholder ratification), including sole authority to approve all
audit engagement fees and terms and all non-audit services to be provided by the
independent accountants. The Committee shall pre-approve each such non-audit
service to be provided by the Company's independent accountants. The independent
accountants must report directly to the Committee. The Committee may consult
with management in the decision-making process, but may not delegate this
authority to management. The Committee may, from time to time, delegate its
authority to pre-approve non-audit services on a preliminary basis to one or
more Committee members, provided that such designee(s) present any such
approvals to the full Committee at the next Committee meeting.
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The Committee shall review and approve the scope and staffing of the
independent accountants' annual audit plan.
The Committee shall evaluate the independent accountants' qualifications,
performance and independence, and shall present its conclusions with respect to
the independent accountants to the full Board on at least an annual basis. As
part of such evaluation, at least annually, the Committee shall:
- obtain and review a report or reports from the Company's independent
accountants describing:
- the independent accountants' internal quality-control procedures;
- any material issues raised by (i) the most recent internal
quality-control review or peer review of the independent accountants'
firm, or (ii) any inquiry or investigation by governmental or
professional authorities, within the preceding five years, regarding one
or more independent audits carried out by the independent accountants'
firm; and any steps taken to deal with any such issues;
- all relationships between the independent accountants and the Company;
and
- such other matters as to which the independent accountants are required
to report.
- review and evaluate the lead audit partner of the independent
accountants' team(s), and assure the regular rotation of the lead audit
partner as required by law;
- consider whether the independent accountants should be rotated, so as to
assure continuing auditor independence; and
- obtain the opinion of management and the internal auditors of the
independent accountants' performance.
The Committee shall establish policies for the Company's hiring of current
or former employees of the independent accountants.
INTERNAL AUDITORS
The head of the Company's internal audit department shall report to the
Audit Committee, in addition to all other reporting obligations such individual
may have within the Company.
At least annually, the Committee shall evaluate the performance,
responsibilities, budget and staffing of the Company's internal audit function
and review the internal audit plan. Such evaluation shall include a review of
the responsibilities, budget and staffing of the Company's internal audit
function with the independent accountants. The Committee shall review the
significant reports to management prepared by the internal audit department and
management's responses thereto. The Committee shall also review the department's
Charter (Statement of Responsibility and Activity of the Internal Audit
Department), the independence and authority of the department's reporting
obligations and its qualifications to perform its duties.
OTHER MATTERS
The Committee shall meet separately, periodically, with appropriate members
of management, with internal auditors or other personnel responsible for the
internal audit function and with the independent accountants. The Committee may
request any officer or employee of the Company or the Company's outside counsel
or independent accountants to meet with any members of, or advisors to, the
Committee. The Committee has the authority to retain and terminate, and shall
have sole authority over any independent legal, financial or other advisors as
it may consider necessary to carry out its responsibilities under this charter,
without conferring with or obtaining the approval of management or the full
Board.
The Committee shall have available appropriate funding from the Company as
determined by the Committee for payment of:
- compensation to any accounting firm engaged for the purpose of preparing
or issuing an audit report or performing other audit, review or attest
services for the Company;
A-3
- compensation to any advisors employed by the Committee; and
- ordinary administrative expenses of the Committee that are necessary or
appropriate in carrying out its duties.
CODE OF BUSINESS ETHICS
The Committee shall develop and recommend to the Board the Company's Code
of Business Ethics as it relates to employees and officers. The Committee shall
periodically review and reassess the adequacy of the Company's Code of Business
Ethics. The Committee shall periodically obtain updates from management and the
General Counsel of the Company regarding compliance by employees and officers
with legal, tax and other regulatory agency rules and the Company's Code of
Business Ethics. Any waiver of the Code of Business Ethics for executive
officers or senior financial officers may only be authorized by the Board or the
Audit Committee, and will be promptly disclosed to the Company's shareholders.
The Committee will also oversee the process by which employees may report
illegal or unethical behavior including cases alleging "insider trading", sexual
harassment and breach of non-discrimination laws.
The Committee shall establish procedures for:
- the receipt, retention and treatment of complaints received by the
Company regarding accounting, internal accounting controls or auditing
matters, and
- the confidential, anonymous submission by employees of the Company of
concerns regarding questionable accounting or auditing matters.
COMMITTEE CHARTER
The Committee shall annually review and assess the adequacy of the
Committee's Charter and recommend any proposed changes to the Board for
approval.
---------------------
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Company's financial statements are complete and accurate and
are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent accountants. Furthermore, while
the Committee is responsible for reviewing the Company's policies and practices
with respect to risk assessment and management, it is the responsibility of the
Chief Executive Officer and senior management to determine the appropriate level
of the Company's exposure to risk.
IV. REPORTING
The Committee will regularly report to the Board of Directors. This report
shall include a review of any issues that arise with respect to: the quality or
integrity of the Company's financial statements; the Company's compliance with
legal and regulatory requirements; the qualifications, independence and
performance of the Company's independent accountants; the performance of the
internal audit function; the administration of the Company's Code of Business
Ethics as it relates to employees and officers; and any other matters that the
Committee deems appropriate or is requested to be included by the Board. At
least annually, the Committee shall evaluate its own performance and report to
the Board on such evaluation. When presenting any recommendation or advice to
the Board, the Committee will provide such background and supporting information
as may be necessary for the Board to make an informed decision. In addition, the
Committee shall prepare the audit committee report that the Securities and
Exchange Commission rules require to be included in the Company's annual proxy
statement.
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APPENDIX B
MASCO CORPORATION
2004 RESTRICTED STOCK AWARD PROGRAM
(A PROGRAM ESTABLISHED UNDER THE
1991 LONG TERM STOCK INCENTIVE PLAN)
To Qualify Grants of Restricted Stock Under Section 162(m) of the Internal
Revenue Code
SECTION 1. PURPOSE
The Masco Corporation 2004 Restricted Stock Award Program (the "Stock Award
Program") continues the practice of Masco Corporation (the "Company") of
granting performance-based compensation to executive officers and other key
employees pursuant to the Masco Corporation 1991 Long Term Stock Incentive Plan
(the "1991 Plan"). Compensation paid hereunder to executive officers is intended
to satisfy the requirements for deductibility under Section 162(m) of the
Internal Revenue Code.
SECTION 2. ELIGIBILITY
The individuals eligible to participate in the Stock Award Program (the
"Participants") are the executive officers and such other key employees of the
Company as may be designated by the Organization and Compensation Committee of
the Board of Directors of the Company (the "Committee").
SECTION 3. PERFORMANCE PERIOD
Each Performance Period for purposes of the Stock Award Program shall have
a duration of one calendar year, commencing January 1 and ending December 31,
unless determined otherwise by the Committee.
SECTION 4. ADMINISTRATION
The Stock Award Program shall be subject to the terms and conditions of the
1991 Plan, and shall be administered by the Committee, which shall have the full
power and authority to administer and interpret the Plan and to establish rules
for its administration in accordance with the 1991 Plan. Compensation earned by
a Participant under the Stock Award Program in accordance with Section 6 shall
be paid in the form of one or more Restricted Stock Awards granted under, and
out of the shares available under, the 1991 Plan.
SECTION 5. PERFORMANCE GOALS
On or before the 90th day of each Performance Period, the Committee shall
establish in writing one or more performance criteria for the Performance Period
and the weighting of the performance criteria if more than one. The performance
criteria shall consist of one or more of the following: net income, earnings per
common share, cash flow, revenues, return on assets, return on invested capital
or total shareholder return. The following shall be excluded in determining
whether any performance criterion has been attained: losses resulting from
discontinued operations, extraordinary losses (in accordance with generally
accepted accounting principles, as currently in effect), the cumulative effect
of changes in accounting principles and other unusual, non-recurring items of
loss that are separately identified and quantified in the Company's audited
financial statements.
B-1
SECTION 6. AWARDS
On or before the 90th day of each Performance Period, the Committee shall
establish in writing target performance criteria and the corresponding
compensation amounts for Participants, as designated by the Committee. No
Participant may receive grants of restricted stock hereunder in any year having
an aggregate value greater than $10 million, which value shall be determined by
multiplying the number of shares granted by the fair market value of the shares
at the time of grant. The Committee shall have the power and authority to reduce
or eliminate for any reason the amount of the restricted stock awards that would
otherwise be granted to a Participant based on the performance criteria.
SECTION 7. CERTIFICATION AND PAYMENT
With respect to any compensation intended to constitute performance-based
compensation for deductibility under Section 162(m) of the Internal Revenue
Code, as soon as practicable after release of the Company's financial results
for the Performance Period, the Committee will certify the Company's attainment
of the criteria established for such Performance Period pursuant to Section 5,
and will calculate and certify the amount of the restricted stock award(s) to be
granted to each Participant for such Performance Period.
SECTION 8. OTHER PLANS AND PROGRAMS
Nothing contained in this Stock Award Program shall prevent the Company
from adopting or continuing in effect any other or additional compensation
arrangements or making other compensatory awards or grants to its employees,
including employees eligible under this Stock Award Program and including awards
relating to shares of the Company.
SECTION 9. AMENDMENT
The Committee shall have the right to suspend or terminate this Stock Award
Program at any time and may amend or modify the Stock Award Program at any time.
SECTION 10. ADOPTION AND DURATION
The Stock Award Program was approved by the Committee on March 30, 2004
subject to the approval of the stockholders of the Company at the 2004 Annual
Meeting of Stockholders. The effective date of the Stock Award Program shall be
January 1, 2004. No grants of restricted stock may be made pursuant hereto after
May 17, 2010.
B-2
MASCO CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
AT MASCO CORPORATE HEADQUARTERS
21001 VAN BORN ROAD
TAYLOR, MICHIGAN 48180
[MAP]
FROM DOWNTOWN DETROIT (EAST)
- Take I-94 west to the Pelham Road exit.
- Turn right onto Pelham Road and travel to Van Born Road.
- Turn left onto Van Born Road and proceed to the corporate headquarters.
FROM METRO AIRPORT (WEST)
- Take I-94 east to the Pelham Road exit.
- Turn left onto Pelham and travel to Van Born Road.
- Turn left onto Van Born Road and proceed to the corporate headquarters.
FROM SOUTHFIELD/BIRMINGHAM (NORTH)
- Take the Southfield Freeway to the Outer Drive/ Van Born Road exit.
- Stay on the service drive and proceed to Van Born Road.
- Bear right onto Van Born Road and travel to the corporate headquarters.
FROM TOLEDO (SOUTH)
- Take I-75 north to the Telegraph Road north exit.
- Proceed on Telegraph Road north to Van Born Road.
- Turn right on Van Born Road and proceed to the corporate headquarters.
MASCO CORPORATION VOTE BY TELEPHONE OR INTERNET 24 HOURS A DAY,
7 DAYS A WEEK UNTIL 5 P.M. ON MAY 10, 2004
-------------------------------------- ----------------------------------- --------------------------------------
TELEPHONE INTERNET
1-866-564-2331 OR HTTPS://WWW.PROXYVOTENOW.COM/MAS OR MAIL
-------------------------------------- ----------------------------------- --------------------------------------
o Use any touch-tone telephone. o Go to the website address o Mark, sign and date your proxy card.
o HAVE YOUR PROXY CARD READY. listed above. o Detach your proxy card.
o Follow the simple recorded o HAVE YOUR PROXY CARD READY. o Return your proxy card in the
instructions. o Follow the simple instructions postage-paid envelope provided.
that appear on your computer
screen.
--------------------------------------
Your telephone or Internet vote
authorizes the named proxies to
vote your shares in the same
manner as if you marked, signed
and returned the Proxy Card.
--------------------------------------
If you have submitted your Proxy
by telephone or the Internet
there is no need for you to mail
back your Proxy Card.
--------------------------------------
If you have chosen to view the
Proxy Statement and Annual
Report over the Internet instead
of receiving paper copies in the
mail, you can access the Proxy
Statement and 2003 Annual Report
electronically at the Company's
website, www.masco.com.
--------------------------------------
----------------------------------------
----------------------------------------
1-866-564-2331
CALL TOLL-FREE TO VOTE
[ ] \/ DETACH PROXY CARD HERE IF YOU ARE NOT VOTING BY TELEPHONE OR INTERNET \/
IF VOTING BY MAIL,
PLEASE SIGN, DATE
AND RETURN THIS
PROXY CARD PROMPTLY (X)
IN THE ENCLOSED VOTES MUST BE INDICATED
ENVELOPE. IN BLACK OR
BLUE INK.
(1) Election of Directors FOR AGAINST ABSTAIN
FOR all nominees [ ] WITHHOLD AUTHORITY [ ] *EXCEPTIONS [ ] (2) Proposal to approve the Masco [ ] [ ] [ ]
listed below to vote for all Corporation 2004 Restricted
nominees listed Stock Award Program.
below
Class I Directors to hold office until the Annual Meeting of (3) Ratification of the selection [ ] [ ] [ ]
Stockholders in 2007 or until their respective successors of PricewaterhouseCoopers LLP
are elected and qualified. as independent auditors for
the Company for the year 2004.
Nominees: 01 PETER A. DOW, 02 ANTHONY F. EARLEY, JR., 03 WAYNE B. LYON
Class II Directors to hold office until the Annual Meeting of (4) In the proxies' discretion upon
Stockholders in 2005 or until their respective successors such other business as may
are elected and qualified. properly come before the meeting.
Nominees: 01 DAVID L. JOHNSTON, 02 J. MICHAEL LOSH The shares represented by this Proxy will be voted in
accordance with the specifications above. IF SPECIFICATIONS
*INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL ARE NOT MADE, THE PROXY WILL BE VOTED FOR THE ELECTION OF
NOMINEE, MARK THE "EXCEPTIONS" BOX AND STRIKE A LINE THROUGH THAT ALL NOMINEES, FOR THE APPROVAL OF THE MASCO CORPORATION 2004
NOMINEE'S NAME. RESTRICTED STOCK AWARD PROGRAM, FOR RATIFICATION OF
INDEPENDENT AUDITORS AND IN THE PROXIES' DISCRETION ON ANY
OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING.
------------------------------------------------
S C A N L I N E
------------------------------------------------
Please sign exactly as name appears at left. Executors,
administrators, trustees, et al. should so indicate when
signing. If the signature is for a corporation, please sign
the full corporate name by an authorized officer. If the
signature is for a partnership or a limited liability
company, please sign the full partnership or limited
liability company name by an authorized person. If shares
are registered in more than one name, all holders must sign.
------- -------------------------- ---------------------------
Date Share Owner sign here Co-Owner sign here
4545
IF YOU HAVE CHOSEN TO VIEW THE PROXY STATEMENT AND ANNUAL REPORT OVER THE
INTERNET INSTEAD OF RECEIVING PAPER COPIES IN THE MAIL, YOU CAN ACCESS THE PROXY
STATEMENT AND 2003 ANNUAL REPORT ELECTRONICALLY AT THE COMPANY'S WEBSITE,
WWW.MASCO.COM.
--------------------------------------------------------------------------------
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 11, 2004
MASCO CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, hereby revoking any Proxy heretofore given, appoints
RICHARD A. MANOOGIAN and EUGENE A. GARGARO, JR. and each of them attorneys and
proxies for the undersigned, each with full power of substitution, to vote the
shares of Company Common Stock and Series B Participating Preferred Stock
registered in the name of the undersigned to the same extent the undersigned
would be entitled to vote if then personally present at the Annual Meeting of
Stockholders of Masco Corporation to be held at the offices of the Company at
21001 Van Born Road, Taylor, Michigan 48180, on Tuesday, May 11, 2004, at 10:00
a.m. and at any adjournment thereof.
The undersigned hereby acknowledges receipt of the accompanying Notice of
Annual Meeting of Stockholders and Proxy Statement.
(Continued and to be signed and
dated on the reverse side.)
MARK HERE IF YOU WISH TO ACCESS
THE ANNUAL REPORT AND PROXY
STATEMENT ELECTRONICALLY IN THE
FUTURE INSTEAD OF BY MAIL. [ ]
To change your address, MASCO CORPORATION
please mark this box. [ ] P.O. BOX 11261
NEW YORK, N.Y. 10203-0261
To include any comments,
please mark this box. [ ]