NOTICE OF 2008 ANNUAL MEETING OF STOCKHOLDERS

 

To our Stockholders:

 

 

Our Annual Meeting will be held at the Rosemont Theater, 5400 N. River Road, Rosemont, Illinois 60018 on Monday, May 5, 2008 at 5:00 P.M., local time.

 

 

The purpose of the meeting is to:

 

 

 

 

Only Motorola stockholders of record at the close of business on March 14, 2008 (the “record date”) will be entitled to vote at the meeting. Please vote in one of the following ways:

 

 

 

YOUR VOTE IS IMPORTANT

 

 

Whether or not you plan to attend the Annual Meeting, your vote is important and we encourage you to vote promptly by one of the methods listed above. If you have any questions or need assistance in voting your shares of Motorola common stock, please call D.F. King & Co., Inc., which is assisting Motorola, toll-free at 1-800-549-6697.

 

 

 

By order of the Board of Directors,

A. Peter Lawson

Secretary

 

ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 5, 2008

 

 

April 8, 2008

 

 

Dear fellow stockholder:

 

You are cordially invited to attend Motorola’s 2008 Annual Stockholders Meeting. The meeting will be held on Monday, May 5, 2008 at 5:00 p.m., local time, at the Rosemont Theater, 5400 N. River Road, Rosemont, Illinois 60018.

 

I encourage each of you to vote your shares through one of the three convenient methods described in the enclosed Proxy Statement, and if your schedule permits, to attend the meeting. I would appreciate your support of the 14 nominated directors and the ratification of the appointment of KPMG LLP as our registered public accounting firm. Your vote is important, so please act at your first opportunity.

 

On behalf of your Board of Directors, thank you for your continued support of Motorola.

 

 

 

Gregory Q. Brown

President and CEO

Motorola, Inc.

 

TABLE OF CONTENTS

 

PROXY STATEMENT

 

1

PROXY STATEMENT

 

 

This proxy statement (the “Proxy Statement”) is being furnished to holders of common stock, $3 par value per share (the “Common Stock”), of Motorola, Inc. (“Motorola”, or the “Company”). Proxies are being solicited on behalf of the Board of Directors of the Company (the “Board”) to be used at the 2008 Annual Meeting of Stockholders (the “Annual Meeting”) to be held at the Rosemont Theater, 5400 N. River Road, Rosemont, Illinois 60018 on Monday, May 5, 2008 at 5:00 P.M., local time, for the purposes set forth in the Notice of 2008 Annual Meeting of Stockholders.

 

This Proxy Statement, the form of proxy and the Company’s 2007 Annual Report are being mailed to stockholders on or after April 11, 2008. You may view and Motorola’s print the Proxy Statement and the 2007 Annual Report at http://ww3.ics.adp.com/streetlink/MOT. The Proxy Statement and the 2007 Annual Report are also available on the Company’s website at www.motorola.com/investor.

 

On January 31, 2008, the Company received a notice from Icahn Partners LP, Icahn Partners Master Fund LP and High River Limited Partnership (collectively, the “Icahn Entities”) for the nomination of four nominees to the Company’s Board of Directors at the Annual Meeting.

 

On April 7, 2008, the Company, Carl C. Icahn, William R. Hambrecht, Keith A. Meister and the Icahn Entities entered into an agreement (the “Agreement”) pursuant to which the Company: (1) expanded the Board to fourteen members and appointed Mr. Meister as a director, and (2) nominated Mr. Meister and Mr. Hambrecht for election as directors at the Annual Meeting. In connection with, and subject to the terms of, the Agreement, the Icahn Entities have withdrawn their notice of nomination.

 

In addition, pursuant to the Agreement,

 

 

The Board of Directors support the nominees and urge you to elect the 14 nominees by voting on the enclosed proxy card.

 

The Company filed a complete copy of the Agreement with the Securities and Exchange Commission on April 8, 2008 as Exhibit 99.1 to its Current Report on Form 8-K. The foregoing description of the Agreement is qualified in its entirety by reference to the full text of the Agreement.

 

Who Is Entitled to Vote?

 

Only stockholders of record at the close of business on March 14, 2008 (the “record date”) will be entitled to notice of, and to vote at, the Annual Meeting or any adjournments or postponements thereof. On the record date, there were issued and outstanding 2,255,440,473 shares of Common Stock entitled to vote at the Annual Meeting. The Common Stock is the only class of voting securities of the Company.

 

A list of stockholders entitled to vote at the meeting will be available for examination at the Motorola Innovation Center, 1295 East Algonquin Road, Door 60, Schaumburg, Illinois 60196 for ten days before the Annual Meeting and at the Annual Meeting.

2

PROXY STATEMENT

 

How Can I Vote Without Attending the Annual Meeting?

 

There are three convenient methods for registered stockholders to direct their vote by proxy without attending the Annual Meeting:

 

 

If you are a beneficial owner, or you hold your shares in “street name,” please check your voting instruction card or contact your bank, broker or nominee to determine whether you will be able to vote by Internet or telephone.

 

How Can I Change My Vote?

 

Registered stockholders can revoke their proxy at any time before it is voted at the Annual Meeting by either:

 

 

If your shares are held in the name of a bank, broker or other nominee, you must obtain a proxy, executed in your favor, from the holder of record (that is, your bank, broker or nominee) to be able to vote at the Annual Meeting.

 

How Many Votes Must be Present to Conduct Business at the Annual Meeting?

 

In order for business to be conducted, a quorum must be represented at the Annual Meeting. A quorum is a majority of the shares entitled to vote at the Annual Meeting. Shares represented by a proxy marked “withhold” or “abstain” will be considered present at the Annual Meeting for purposes of determining a quorum.

 

How Many Votes Am I Entitled to Cast?

 

You are entitled to cast one vote for each share of Common Stock you own on the record date. Stockholders do not have the right to vote cumulatively in electing directors.

 

How Many Votes Are Required to Elect Directors?

 

In February 2006, Motorola’s Board of Directors amended the Company’s bylaws and Board Governance Guidelines to adopt a majority vote standard for non-contested director elections. Under the amended bylaws of the Company (the “Bylaws”), a plurality vote standard applies to contested director elections.

 

The determination of the applicability of the majority voting provisions of the Bylaws is made as at the end of the notice period for nominations. Because the number of nominees timely nominated for the Annual Meeting exceeded the number of directors to be elected at the Annual Meeting as at the close of the notice period for nominations, the plurality vote standard will apply to the 2008 election of directors, meaning the 14 nominees receiving the most votes will be elected. Only votes cast “For” a nominee will be counted. An instruction to “Withhold” authority to vote for one or more of the nominees will result in those nominees receiving fewer votes, but will not count as a vote against the nominees. Abstentions and broker non-votes will have no effect on the director election since only votes “For” a nominee will be counted.

 

How Many Votes Are Required to Ratify the Appointment of KPMG LLP as Motorola’s Independent Registered Public Accounting Firm?

 

The affirmative vote of the holders of a majority of the shares present in person or by proxy and entitled to vote at the Annual Meeting will be

3

PROXY STATEMENT

required to ratify the selection of KPMG LLP. Abstentions will have the same effect as a vote “Against” the proposal.

 

How Many Votes Are Required to Pass Any Shareholder Resolution?

 

In order to recommend that the Board consider adoption of any shareholder proposal, the affirmative vote of the holders of a majority of the shares present in person or by proxy and entitled to vote at the Annual Meeting is required. For any shareholder proposal, an abstention will have the same effect as a vote “Against” the proposal. Broker non-votes will not be voted “For” or “Against” a shareholder proposal and will have no effect on the proposal.

 

Will My Shares be Voted if I Do Not Provide Instructions to My Broker?

 

If you are the beneficial owner of shares held in “street name” by a broker, the broker, as the record holder of the shares, is required to vote those shares in accordance with your instructions. If you do not give instructions to the broker, the broker will be entitled to vote the shares with respect to “discretionary” items but will not be permitted to vote the shares with respect to “non-discretionary” items (those shares are treated as “broker non-votes”). As a result of the Agreement reached between the Company, Mr. Icahn and certain of his affiliates, the election of directors is no longer the subject of a counter-solicitation (i.e., a contested election). Accordingly, the election of directors will be a “discretionary” item. The ratification of the appointment of KPMG LLP is also a “discretionary” item. The three shareholder proposals are “non-discretionary” items.

 

Who Represents My Proxy at the Annual Meeting?

 

If you do not vote in person at the Annual Meeting, but have voted your shares over the Internet, by telephone or by signing and returning your proxy card, you have authorized certain members of Motorola’s senior management designated by the Board and named on your proxy card to represent you and to vote your shares as instructed.

 

What if I Return a Proxy Card But Do Not Provide Specific Voting Instructions For Some or All of the Items?

 

All shares that have been properly voted—whether by Internet, telephone or mail—and not revoked will be voted at the Annual Meeting in accordance with your instructions. If you sign your proxy card but do not give voting instructions, the shares represented by that proxy will be voted as recommended by the Board of Directors. The Board of Directors recommends a vote “For” the election of the 14 director nominees named in this Proxy Statement, “For” the ratification of the appointment of KPMG LLP as the Company’s independent public accounting firm for 2008, and “Against” each of the three shareholder proposals.

 

What if Other Matters Are Voted on at the Annual Meeting?

 

If any other matters are properly presented at the Annual Meeting for consideration and if you have voted your shares by Internet, telephone or mail, the persons named as proxies on the proxy card will have the discretion to vote on those matters for you. At the date we filed this Proxy Statement with the Securities and Exchange Commission, the Board of Directors did not know of any other matter to be raised at the Annual Meeting.

 

How Do I Vote if I Participate in the Company’s 401(k) Plan?

 

If you own shares of Common Stock through the Motorola 401(k) Plan (the “401(k) Plan”), you will receive a separate voting instruction form for the shares you hold in the 401(k) Plan. In that case, you must return voting instructions to the trustees for the 401(k) Plan by following the instructions provided on the voting instruction form sent to you by the trustees for the 401(k) Plan. If shares of Common Stock in the 401(k) Plan are not voted either via the Internet, by telephone or by returning the voting instruction form sent to you by the trustees for the 401(k) Plan, those shares will be voted by the trustees in the same proportion as the shares properly voted by other participants owning shares of Common Stock in the 401(k) Plan. If you also own shares of Common Stock outside of the 401(k) Plan, to vote those shares you must vote either via the Internet, by telephone, by returning a proxy card (or voting instruction form for shares held by a broker or bank) as directed on the proxy card (or voting instruction form) or by attending and voting in person at the Annual Meeting.

4

PROXY STATEMENT

 

The number of directors of the Company to be elected at the 2008 Annual Meeting is 14. The directors elected at the 2008 Annual Meeting will serve until their respective successors are elected and qualified or until their earlier death or resignation.

 

Who Are the Nominees?

 

Each of the nominees named below is currently a director of the Company, except for Mr. Hambrecht. Each of the nominees was elected at the Annual Meeting of Stockholders held on May 7, 2007, except for Mr. Brown, Mr. Hambrecht, Mr. Meister and Mr. Vinciquerra who are standing for election for the first time. Mr. Zander is not standing for re-election. The ages shown are as of January 1, 2008.

 

5

PROXY STATEMENT

6

PROXY STATEMENT

7

PROXY STATEMENT

8

PROXY STATEMENT

 

RECOMMENDATION OF THE BOARD

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE FOURTEEN NOMINEES NAMED HEREIN AS DIRECTORS. UNLESS OTHERWISE INDICATED ON YOUR PROXY, YOUR SHARES WILL BE VOTED FOR THE ELECTION OF SUCH FOURTEEN NOMINEES AS DIRECTORS.

 

What if a Nominee is Unable to Serve as Director?

 

If any of the nominees named above is not available to serve as a director at the time of the 2008 Annual Meeting (an event which the Board does not now anticipate), the proxies will be voted for the election as director of such other person or persons as the Board may designate, unless the Board, in its discretion, reduces the number of directors.

 

 

What Are the Board’s Corporate Governance Principles?

 

The Board has long adhered to governance principles designed to assure the continued vitality of the Board and excellence in the execution of its duties. The Board has responsibility for management oversight and providing strategic guidance to the Company. In order to do that effectively, the Board believes it should be comprised of individuals with appropriate skills and experiences to contribute effectively to this dynamic process. The Board is currently highly diversified; it is comprised of active and former CEOs and CFOs of major corporations and individuals with experience in high-tech fields, investment banking and academia. The Board believes that it must continue to renew itself to ensure that its members understand the industries and the markets in which the Company operates. The Board also believes that it must remain well-informed about the positive and negative issues, problems and challenges facing Motorola and its industries and markets so that the members can exercise their fiduciary responsibilities to stockholders.

 

Which Directors Are Independent?

 

On February 21, 2008, the Board made the determination, based on the recommendation of the Governance and Nominating Committee and in accordance with the Motorola, Inc. Director Independence Guidelines, that Mr. Dorman, Mr. Fuller, Ms. Lewent, Mr. Negroponte, Ms. Nooyi, Mr. Scott, Mr. Sommer, Mr. Stengel, Mr. Vinciquerra, Mr. Warner, Dr. J. White and Mr. M. White were independent during the periods in 2007 and 2008 that they were members of the Board. Mssrs. Brown, Meredith and Zander do not qualify as independent directors since they are employees of the Company. However, the Board determined on February 21, 2008 that following the completion of Mr. Meredith’s interim employment on March 31, 2008 he would again be considered independent. See “What is Motorola’s Relationship with Entities Associated with Its Independent Directors?” for further details.

 

While the Board is not aware of any matters that would impair the independence of Mr. Hambrecht or Mr. Meister, the determination as to their independence will be made at the May 6, 2008 meeting of the Board.

 

How Was Independence Determined?

 

The Motorola, Inc. Director Independence Guidelines include both the NYSE independence standards and categorical standards the Board has adopted to determine if a relationship that a Board member has with the Company is material. The categorical standards adopted by the Board are as follows:

 

• Contributions or payments (including the provision of goods or services) from Motorola to a charitable organization (including a foundation), a university, or other not-for-profit organization, of which a director or an immediate family member of a director (defined to include a director’s spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law and anyone (other than domestic employees) who shares the director’s home) is an officer, director, trustee or employee, will not impair independence unless the contribution or payment (excluding Motorola matches of charitable contributions made by employees or directors under Motorola’s or the Motorola Foundation’s matching gift programs):

(i) is to an entity of which the director or the director’s spouse currently is an officer, director or trustee, and such person held such position at the time of the contribution,

(ii) was made within the previous three years, and

9

PROXY STATEMENT

(iii) was in an amount which, in the entity’s last fiscal year prior to the year of the contribution or payment, exceeded the greater of $300,000 or 5% of such entity’s consolidated gross revenues (or equivalent measure).

 

• Indebtedness of Motorola to a bank or similar entity of which a director or a director’s immediate family member is a director, officer, employee or 10% Owner (as defined below) will not impair independence unless the following are applicable:

(i) the director or the director’s spouse is an executive officer of such entity or an owner who directly or indirectly has a 10% or greater equity or voting interest in such entity (a “10% Owner”) and he or she held that position at any time during the previous twelve months, and

(ii) the total amount of Motorola’s indebtedness during the previous twelve months is more than 5% of the total consolidated assets of such entity in its last fiscal year.

 

• Other business relationships between a director or a director’s immediate family member, such as consulting, legal or financial advisory services provided to Motorola, will not impair independence unless the following are applicable:

(i) the director or the director’s spouse is a partner, officer or 10% Owner of the company or firm providing such services, and he or she held such position at any time during the previous twelve months, and

(ii) the services that were provided during the previous twelve months were in an amount which, in the company’s or firm’s last fiscal year, exceeded the greater of $1 million or 2% of such company’s or firm’s consolidated gross revenues.

 

This categorical standard does not include business relationships with Motorola’s independent registered public accounting firm because those relationships are covered by the NYSE independence standards.

 

• Motorola’s ownership of voting stock of a company of which the director or the director’s immediate family member is a director, officer, employee or 10% Owner will not impair independence unless the following are applicable:

(i) the director or the director’s spouse is an executive officer of that company, and

(ii) Motorola is currently a 10% Owner of that company.

 

The ownership of Motorola Common Stock by a director or a director’s immediate family member will not be considered to be a material relationship that would impair a director’s independence.

 

When applying the NYSE independence standards and the categorical standards set forth above, “Motorola” includes Motorola, Inc. and any of its subsidiaries, and the Motorola Foundation. A complete copy of the Motorola, Inc. Director Independence Guidelines is available on the Company’s website at www.motorola.com/investor.

 

With the election of Paul Liska as Executive Vice President and Chief Financial Officer, Thomas Meredith’s term as Acting Chief Financial Officer and Executive Vice President of Motorola ended on March 1, 2008 and, under the terms of his agreement, his employment ended on March 31, 2008. The Board has determined that after the end of his employment Mr. Meredith’s independence under the Motorola, Inc. Independence Guidelines and the NYSE independence requirements will not be impaired by his status as an employee of the Company from April 1, 2007 through March 31, 2008, because he was serving as an interim employee of the Company at the request of the Board while the Company conducted a search for a permanent chief financial officer.

 

As previously disclosed, Motorola and the Motorola Foundation have had various commercial and charitable relationships with the Massachusetts Institute of Technology (“MIT”) and the MIT Media Laboratory. Nicholas Negroponte is a tenured professor of MIT on leave, and formerly the Chairman of the MIT Media Laboratory, an academic and research laboratory at MIT. Judy Lewent is a life member of the MIT Corporation and, until June 30, 2007, served on its Executive Committee, which is responsible for general administration and superintendence of the MIT Corporation. Motorola and the Motorola Foundation made payments to MIT in each of the last three years significantly below the threshold described in the guidelines.

 

Neither Mr. Negroponte nor Ms. Lewent direct the relationship nor do they vote as a member of the Motorola Board of Directors to approve MIT relationships.

 

All independent directors, other than H. Laurance Fuller and Ron Sommer, had relationships with entities that were reviewed by the Board under the NYSE’s independence standard covering payments for properties or services exceeding the greater of $1 million or 2% of consolidated gross revenues and/or the Board’s categorical standard described above covering contributions or payments to charitable or similar not-for-profit organizations.

10

PROXY STATEMENT

In each case, the payments or contributions were significantly less than the NYSE independence standard or the categorical standard and were determined by the Board to be immaterial.

 

Are the Members of the Audit and Legal, Compensation and Leadership and Governance and Nominating Committees Independent?

 

Yes. The Board has determined that all of the members of the Audit and Legal Committee, the Compensation and Leadership Committee and the Governance and Nominating Committee are independent within the meaning of the Motorola, Inc. Director Independence Guidelines and the NYSE listing standards for independence.

 

Where Can I Receive More Information About Motorola’s Corporate Governance Practices?

 

 

Motorola maintains a corporate governance page on its website at www.motorola.com/investor that includes information about its corporate governance practices. The following documents are currently included on the website:

 

 

 

The Company intends to disclose amendments to the above documents or waivers applicable to its directors, chief executive officer, chief financial officer and corporate controller from certain provisions of its ethical policies and standards for directors and its employees, on the Motorola website. The Company will also provide you a printed copy of these documents if you contact Investor Relations, in writing at Motorola, Inc., 1303 E. Algonquin Road, Schaumburg, IL 60196; or by phone at 1-800-262-8509; or by email at investors@motorola.com.

 

How Often Did the Board Meet in 2007?

 

The Board of Directors held 12 meetings during 2007. Overall attendance at Board and committee meetings was 95%. Each incumbent director attended 89% or more of the combined total meetings of the Board and the committees on which he or she served during 2007.

 

How Many Directors will Comprise the Board?

 

The Board of Directors currently is comprised of 14 directors. Immediately following the Annual Meeting, the Board will consist of 14 directors. Mr. Zander is not standing for re-election. In the interim between Annual Meetings, the Board has the authority under the Company’s Bylaws to increase or decrease the size of the Board and to fill vacancies.

 

How Many Executive Sessions of the Board Were Held in 2007?

 

Independent directors of the Company meet regularly in executive session without management as required by the Motorola, Inc. Board Governance Guidelines. Generally, executive sessions are held in conjunction with regularly-scheduled meetings of the Board of Directors. In 2007, the non-employee members of the Board met in executive session 10 times.

 

Who Will Serve as Chairman of the Board After the 2008 Annual Meeting of Stockholders?

 

On March 31, 2008, the Board of Directors elected Mr. Dorman to serve as the next Chairman of the Board. Mr. Dorman will assume the position of Chairman at the time that Mr. Zander ceases to be Chairman for any reason, which is expected to occur immediately after the conclusion of the 2008 Annual Meeting of Stockholders.

 

Who Currently Serves as the Presiding Director?

 

The Board re-appointed Mr. Scott its lead director on May 8, 2007. As the lead director, Mr. Scott chairs meetings of the independent

11

PROXY STATEMENT

directors and serves as liaison with the Chairman of the Board with respect to matters considered by the independent directors. Mr. Scott has served as lead director since May 2005. When Mr. Dorman assumes his position as Chairman of the Board, Mr. Scott will cease his service as lead director and Mr. Dorman will act as the presiding director at meetings of the independent directors.

 

Will the Directors Attend the Annual Meeting?

 

Board members are expected to attend the Annual Meeting of stockholders as provided in the Motorola, Inc. Board Governance Guidelines. All of our directors who stood for election at the 2007 Annual Meeting attended that meeting.

 

To assist it in carrying out its duties, the Board has delegated certain authority to several committees. The Board currently has the following committees: (1) Audit and Legal, (2) Compensation and Leadership, (3) Governance and Nominating, (4) Executive, and (5) Finance. Committee membership as of December 31, 2007 and the number of meetings of each committee during 2007 are described below:

 

 

 

Where Can I Locate the Current Committee Charters?

 

Current versions of the Audit and Legal Committee charter, Compensation and Leadership Committee charter and Governance and Nominating Committee charter are available on our website at www.motorola.com/investor.

 

What Are the Functions of the Audit and Legal Committee?

 

 

 

12

PROXY STATEMENT

 

 

What Are the Functions of the Compensation and Leadership Committee?

 

 

 

What Are the Functions of the Governance and Nominating Committee?

 

 

 

What Are the Functions of the Executive Committee?

 

 

 

What Are the Functions of the Finance Committee?

 

Since mid-2006, the Finance Committee meets on an as needed and ad hoc basis. The Committee’s functions include:

 

 

 

 

 

What is the Decision-Making Process to Determine Executive Compensation?

 

The Compensation and Leadership Committee has been delegated by the Board the responsibility to oversee the programs under which compensation is paid or awarded to Motorola’s executives and to evaluate the performance of Motorola’s senior management. The specific functions of the Compensation and Leadership Committee are described in this Proxy Statement under “What Are the Functions of the Compensation and Leadership Committee?” and in the Compensation and Leadership Committee’s charter, which the Compensation and Leadership Committee and the Board periodically review and revise as necessary.

 

The Global Rewards department in Motorola’s Human Resources organization supports the Compensation and Leadership Committee in its work and, in some cases, acts pursuant to delegated authority from the Compensation and Leadership Committee to fulfill various functions in administering Motorola’s compensation programs.

 

In carrying out its duties, the Compensation and Leadership Committee has direct access to outside advisors, independent compensation consultants and others to assist them. During 2007 and 2008, the Compensation and Leadership Committee directly engaged an outside compensation consulting firm to assist them in their review of the compensation for Motorola’s executive officers.

 

For more information on the decisions made by the Compensation and Leadership Committee, see the “Compensation Discussion and Analysis”.

 

What is the Decision-Making Process to Determine Director Compensation?

 

The Governance and Nominating Committee has been delegated the responsibility by the Board

13

PROXY STATEMENT

to recommend to the Board the compensation for non-employee directors, which is to be consistent with market practices of other similarly situated companies and is to take into consideration the impact on non-employee directors’ independence and objectivity. The Board has asked the Compensation and Leadership Committee to assist the Governance and Nominating Committee in making such recommendation. Although the charter of the Governance and Nominating Committee authorizes the Committee to delegate director compensation matters to management based on its reasonable judgment, the Committee has chosen not to delegate matters related to director compensation. Management has no role in recommending the amount or form of director compensation.

 

What is the Role of Independent Compensation Consultants in Executive and Director Compensation Determinations?

 

In accordance with the Compensation and Leadership Committee’s charter, the Committee has the sole authority, to the extent deemed necessary and appropriate, to retain and terminate any compensation consultants, outside counsel or other advisors, including the sole authority to approve the firm’s or advisor’s fees and other retention terms.

 

In accordance with this authority, in 2007 and 2008, the Compensation and Leadership Committee retained Mercer (“Mercer”) as an external independent consultant to provide insight and advice on matters regarding trends in executive compensation, relative executive pay and benefits practices, relative assessment of pay of Motorola executives to performance, and other topics as the Compensation and Leadership Committee deemed appropriate. See “Independent Consultant Review of Executive Compensation” in “Compensation Discussion and Analysis” for further details on the compensation-related elements the Compensation and Leadership Committee requested be reviewed.

 

In its 2007 and 2008 independent reviews of Motorola’s senior leadership team’s compensation, Mercer found that Motorola’s current executive compensation programs are fundamentally competitive and sound. The Compensation and Leadership Committee intends to engage an external independent consultant to complete an exhaustive evaluation of the Company’s executive rewards program on a periodic basis, generally every two or three years. The Compensation and Leadership Committee intends to engage an external independent consultant to review the specific compensation of the CEO and all members of the senior leadership team annually. The Compensation and Leadership Committee agreed with the Mercer studies’ conclusions that no substantive revisions to the compensation programs are required.

 

In 2007, the Compensation and Leadership Committee engaged Mercer to assist the Committee in its review of the compensation for Motorola’s non-employee directors. In view of the market trends outlined by Mercer, the Compensation and Leadership Committee recommended the Governance and Nominating Committee consider: (1) increasing the Audit and Legal Committee Chair annual retainer, (2) introducing stock ownership guidelines equal to four times the annual director retainer fee, and (3) making pro rata equity grants effective upon the election of a new director to the Board if the election occurs at a time other than at the annual grant to directors.

 

The Governance and Nominating Committee, after reviewing and discussing these recommendations, submitted its recommendations to the Board, which adopted the compensation program currently in place for non-employee directors as described under “How Are the Directors Compensated?”.

 

What Role, if any, do Executive Officers Play in Determining or Recommending Executive and Director Compensation?

 

Motorola’s senior leadership team, comprised of the CEO and certain executives designated by the CEO, provides recommendations regarding the design of the Company’s compensation program to the Compensation and Leadership Committee. Upon Compensation and Leadership Committee approval, the senior leadership team is ultimately accountable for executing the objectives of the approved compensation program.

 

Each member of Motorola’s senior leadership team is ultimately responsible for approving all compensation actions for their respective organizations. When these compensation actions involve other Motorola executives, the involved senior leadership team member is accountable for ensuring the adherence to all established governance procedures.

 

The CEO is responsible for recommending all compensation actions involving any officer who reports directly to him or any officer who is subject to Section 16 of the Securities Exchange Act of 1934, as amended, to the Compensation and Leadership Committee for its approval. The CEO cannot unilaterally implement compensation changes for any of his senior leadership team or other direct reports. The CEO takes an active role in Compensation and Leadership Committee meetings at which compensation actions involving his senior leadership team and other direct reports are discussed.

14

PROXY STATEMENT

 

The Compensation and Leadership Committee directly engages an outside consulting firm, Mercer, to assist it in its review of the compensation for Motorola’s senior leadership team. Mercer also participates in certain Committee meetings.

 

The Global Rewards department in Motorola’s Human Resources organization, together with the Senior Vice President, Human Resources, prepares recommendations regarding CEO compensation and brings those recommendations to the Compensation and Leadership Committee. The CEO does not participate in the discussions regarding his compensation at Committee meetings. Mercer is also available at such meetings.

 

The Compensation and Leadership Committee is responsible for bringing recommended compensation actions involving the CEO to the Board for its concurrence. The Compensation and Leadership Committee cannot unilaterally approve compensation changes for the CEO.

 

As stated above, management does not recommend or determine director compensation.

 

What Are the Director Stock Ownership Guidelines?

 

Our Board Governance Guidelines provide that, within five years of joining the Board, directors are expected to own Motorola Common Stock with a value equivalent to at least four times the annual retainer fee for directors. For the purposes hereof, Motorola Common Stock includes stock units.

 

During 2007, the annual retainer fee paid to each non-employee director was $100,000. In addition: (1) the chairs of the Audit and Legal and Compensation and Leadership Committees each received an additional annual fee of $15,000; (2) the non-employee chairs of the other committees each received an additional annual fee of $10,000; and (3) the members of the Audit and Legal Committee, other than the chair, each received an additional annual fee of $5,000. Beginning in 2008, the annual additional fee to the chair of the Audit and Legal Committee has been increased to $20,000. The Company also reimburses its directors and, in certain circumstances, spouses who accompany directors, for travel, lodging and related expenses they incur in attending Board and committee meetings or other meetings as requested by Motorola.

 

A director may elect to receive a portion of their retainer and other fees in the form of deferred stock units. The election to receive deferred stock units must be made in 5% increments (e.g., 65% cash / 35% deferred stock units).

 

Directors receive an annual grant of deferred stock units in the second quarter of the fiscal year. On May 8, 2007, each non-employee director received a deferred stock unit award of 6,780 shares of Common Stock. The number of deferred stock units awarded was determined by dividing $120,000 by the fair market value of a share of Common Stock on the date of grant (rounded up to the next whole number) based on the closing price on the date of grant. The deferred stock units are paid to the director in shares of Common Stock upon termination of service from the Motorola Board of Directors. Dividend equivalents are reinvested in additional deferred stock units subject to the same terms.

 

As of January 1, 2006, non-employee directors are no longer eligible to participate in the Motorola Management Deferred Compensation Plan. Motorola does not currently have a non-equity incentive plan or pension plan for non-employee directors.

 

Non-employee directors do not receive any additional fees for attendance at meetings of the Board or its committees or for additional work done on behalf of the Board or a committee. Mssrs. Zander and Brown who are employees of Motorola, receive no additional compensation for serving on the Board or its committees. Further, Mr. Meredith did not receive any additional compensation for Board service while he was Acting Chief Financial Officer.

 

15

PROXY STATEMENT

 

The following table further summarizes compensation paid to the non-employee directors during 2007.

 

 

 

 

16

PROXY STATEMENT

 

 

 

 

 

 

 

 

 

 

17

PROXY STATEMENT

 

Director Retirement Plan and Insurance Coverage

 

In 1996, the Board terminated its retirement plan. Non-employee directors elected to the Board after the termination date are not entitled to benefits under this plan, and non-employee directors already participating in the plan accrued no additional benefits for service after May 31, 1996. In 1998, some directors converted their accrued benefits in the retirement plan into shares of restricted Common Stock. They may not sell or transfer these shares and these shares are subject to repurchase by Motorola until they are no longer members of the Board because either: (1) they do not stand for re-election or are not re-elected, or (2) their disability or death. Mr. Fuller, Ms. Lewent, Mr. Negroponte, Mr. Scott and Dr. J. White converted their accrued benefits in the retirement plan in 1998 and, therefore, there are no current directors entitled to receive payment of such benefits in accordance with the applicable payment terms of the retirement plan.

 

Non-employee directors are covered by insurance that provides accidental death and dismemberment coverage of $500,000 per person. The spouse of each such director is also covered by such insurance when traveling with the director on business trips for the Company. The Company pays the premiums for such insurance. The total premiums for coverage of all such non-employee directors and their spouses during the year ended December 31, 2007 was $2,995.

 

The Company has established written policies and procedures (the “Related Person Transaction Policy” or the “Policy”) to assist it in reviewing transactions in excess of $120,000 (“Transactions”) involving Motorola and its subsidiaries (the “Company”) and Related Persons (as defined below). This Policy supplements the Company’s other conflict of interest policies set forth in the Principles of Conduct for Members of the Motorola, Inc. Board of Directors and the Motorola Code of Business Conduct for employees and its other internal procedures. A summary description of the Related Person Transaction Policy is set forth below.

 

For purposes of the Related Person Transaction Policy, a Related Person includes the Company’s directors, director nominees and executive officers since the beginning of the Company’s last fiscal year, beneficial owners of 5% or more of any class of the Company’s voting securities (“5% Holder”) and members of their respective Immediate Family (as defined in the Policy).

 

The Policy provides that any Transaction since the beginning of the last fiscal year is to be promptly reported to the Company’s General Counsel. The General Counsel will assist with gathering important information about the Transaction and present the information to the applicable Board committee responsible for reviewing the Transaction. The appropriate Board committee will determine if the Transaction is a Related Person Transaction and approve, ratify or reject the Related Person Transaction. In approving, ratifying or rejecting a Related Person Transaction, the applicable committee will consider such information as it deems important to conclude if the transaction is fair to the Company. The Governance and Nominating Committee will make all determinations regarding transactions involving a director or director nominee. The Audit and Legal Committee will make all determinations involving an executive officer or 5% Holder.

 

The Company had no Related Person Transactions in 2007.

 

What is the Process for Identifying and Evaluating Director Candidates?

 

As stated in the Motorola, Inc. Board Governance Guidelines, when selecting directors, the Board and the Governance and Nominating Committee review and consider many factors, including: experience in the context of the Board’s needs; leadership qualities; diversity; ability to exercise sound judgment; existing time commitments; years to retirement age and independence. It also considers ethical standards and integrity.

 

The Governance and Nominating Committee will consider nominees recommended by Motorola stockholders provided that the recommendation contains sufficient information for the Governance and Nominating Committee to assess the suitability of the candidate, including the candidate’s qualifications. Candidates recommended by stockholders that comply with these procedures will receive the same consideration that candidates recommended by the Committee and management receive.

 

The Committee considers recommendations from many sources, including members of the Board, management and search firms. From time-to-time, Motorola hires global search firms to help identify and facilitate the screening and interview process of director nominees. The search firm screens candidates based on the Board’s criteria, performs reference checks, prepares a biography for each candidate for the Committee’s review and helps set up interviews. The Committee and the Chairman of the Board conduct interviews with

18

PROXY STATEMENT

candidates who meet the Board’s criteria. During late 2006 and early 2007, the Governance and Nominating Committee conducted a search and identified Mr. Anthony J. Vinciquerra as a director candidate. The Committee has full discretion in considering its nominations to the Board.

 

RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Audit and Legal Committee of the Board has appointed KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2008. Services provided to the Company and its subsidiaries by KPMG LLP in fiscal year 2007 are described under “Audit and Legal Committee Matters—Independent Registered Public Accounting Firm Fees”.

 

We are asking our stockholders to ratify the selection of KPMG LLP as our independent registered public accounting firm. Although ratification is not required by our Bylaws or otherwise, the Board is submitting the selection of KPMG LLP to our stockholders for ratification as a matter of good corporate practice.

 

Representatives of KPMG LLP will be present at the Annual Meeting to respond to appropriate questions and to make such statements as they may desire.

 

The affirmative vote of the holders of a majority of the shares present in person or by proxy and entitled to vote at the Annual Meeting will be required to ratify the selection of KPMG LLP. Abstentions will have the same effect as a vote “Against” the proposal.

 

RECOMMENDATION OF THE BOARD

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS THE COMPANY’S INDEPENDENT PUBLIC ACCOUNTING FIRM FOR 2008.

 

In the event stockholders do not ratify the appointment, the appointment will be reconsidered by the Audit and Legal Committee and the Board. Even if the selection is ratified, the Audit and Legal Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our stockholders.

 

SHAREHOLDER PROPOSAL RE: SAY-ON-PAY

 

The Company has been advised that the AFL-CIO Reserve Fund, the beneficial owner of 1,500 shares, intends to submit the following proposal for consideration at the 2008 Annual Meeting.

 

RESOLVED, that the shareholders of Motorola, Inc. (the “Company”) urge the Board of Directors to adopt a policy that Company shareholders be given the opportunity at each annual meeting of shareholders to vote on an advisory resolution, to be proposed by Company’s management, to ratify the compensation of the named executive officers (“NEOs”) set forth in the proxy statement’s Summary Compensation Table (the “SCT”) and the accompanying narrative disclosure of material factors provided to understand the SCT. The proposal submitted to shareholders should make clear that the vote is non-binding and would not affect any compensation paid or awarded to any NEO.

 

Supporting Statement

 

In our view, senior executive compensation at our Company has not always been structured in ways that best serve shareholders’ interests. For example, The Corporate Library, an authority on corporate governance, has given our Company a grade of “D,” citing “High Concern” for compensation practices.

 

We believe that existing U.S. corporate governance arrangements, including SEC rules and stock exchange listing standards, do not provide shareholders with enough mechanisms for providing input to boards on senior executive compensation. In contrast to U.S. practices, in the United Kingdom, public companies allow shareholders to cast an advisory vote on the “directors’ remuneration report,” which discloses executive compensation. Such a vote is not binding but gives shareholders a clear voice that could help shape senior executive compensation.

 

Currently, U.S. stock exchange listing standards require shareholder approval of equity-based compensation plans; those plans, however, set general parameters and accord the compensation committee substantial discretion in making awards and establishing performance thresholds for a particular year. Shareholders do not have any mechanism for providing ongoing feedback on the application of those general standards to individual pay packages. (See Lucian Bebchuk & Jessie Fried, Pay Without Performance, 2004.)

19

PROXY STATEMENT

 

Similarly, performance criteria submitted for shareholder approval to allow a company to deduct compensation in excess of $1 million are broad and do not constrain compensation committees in setting performance targets for particular senior executives. Withholding votes from compensation committee members who are standing for re-election is a blunt and insufficient instrument for registering dissatisfaction with the way in which the committee has administered compensation plans and policies in the previous year.

 

Accordingly, we urge our Company’s Board to allow shareholders to express their opinion about senior executive compensation at our Company by establishing an annual referendum process. The results of such a vote would, we think, provide our Company with useful information about whether shareholders view the Company’s senior executive compensation practices, as reported each year, to be in shareholders’ best interests.

 

RECOMMENDATION OF THE BOARD

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST ADOPTION OF THIS SHAREHOLDER PROPOSAL FOR THE REASONS SET FORTH BELOW. UNLESS OTHERWISE INDICATED ON YOUR PROXY, YOUR SHARES WILL BE VOTED AGAINST THE ADOPTION OF THIS PROPOSAL.

 

The Board of Directors recognizes general shareholder concern around executive compensation at public companies, but urges shareholders to vote against this shareholder-submitted proposal because: (1) legislation is under consideration to adopt a say-on-pay requirement and a multi-industry working group is reviewing the issue, making adoption of any specific say-on-pay formulation at this time premature and potentially harmful; (2) Motorola’s shareholders already have precise and efficient methods to communicate their specific concerns about executive compensation (and other matters) directly to the Board, and these methods are far superior to the non-specific advisory vote recommended by the Proponent; (3) the backward-looking advisory vote advocated by the Proponent would not provide the Board with any more meaningful insight into specific shareholder concerns regarding executive compensation than the existing communication methods; and (4) Motorola’s independent Compensation and Leadership Committee already oversees an executive compensation program that is thoughtful, performance-based, objective and transparent.

 

Legislation is Under Consideration for a Say-on-Pay Requirement and a Working Group is Reviewing the Issue, Making Adoption of Any Specific Say-on-Pay Formulation at this Time Premature and Potentially Harmful

 

The Company believes it would be premature to adopt a say-on-pay proposal at this time in light of possible federal legislation on this same matter. Furthermore, a working group of approximately a dozen large U.S. companies and several large pension funds was formed to review the proposal in February 2007 and has not yet released its recommendation. As the Company’s success is dependent on its ability to compete for executive talent, it may be competitively harmful to unilaterally adopt an advisory vote standard until it is uniformly required of our competitors. Therefore, the Company believes it is prudent to continue to carefully monitor the developments regarding the say-on-pay issue before taking any action.

 

Motorola’s Shareholders Already Have Precise and Efficient Methods to Communicate Their Specific Concerns Directly to the Board

 

Motorola’s shareholders currently have a number of appropriate tools to communicate specific concerns regarding executive compensation directly to the Board. These tools enable precise communication, rather than the ambiguous results of a general advisory vote. The most direct tool available to shareholders to communicate concerns about executive compensation is the ability to send a message directly to the independent Compensation and Leadership Committee of the Board of Directors. Such a message can be sent one of two ways, either:

 

An Advisory Vote Provides No Meaningful Insight Into Specific Shareholder Concerns Regarding Executive Compensation

 

The vote recommended in the proposal would not provide any useful information to Motorola or the members of the independent Compensation and Leadership Committee. For example, if shareholders voted “against” an advisory resolution, Motorola would not be able to determine the specific basis of the disapproval. This lack of clarity as to the meaning of the outcome of the advisory vote requested

20

PROXY STATEMENT

by the proposal largely eliminates any benefits it might offer.

 

Motorola’s Independent Compensation and Leadership Committee Already Oversees an Executive Compensation Program That Is Thoughtful, Performance-Based, Objective and Transparent

 

The Compensation and Leadership Committee (the “Committee”) oversees Motorola’s executive compensation program and evaluates the performance of Motorola’s senior executives. The Committee is comprised solely of independent directors and has established a compensation philosophy of providing compensation programs that attract, retain and motivate the best people, with a goal of producing outstanding business performance and shareholder value.

 

The Board does not believe the advisory vote requested by the Proponent will provide enough detail to enhance the Company’s compensation programs or improve communication between shareholders and the Board. For these reasons and the others stated above, the Board of Directors recommends that you vote AGAINST the adoption of this shareholder-submitted proposal.

 

SHAREHOLDER PROPOSAL RE: POLICY TO RECOUP UNEARNED MANAGEMENT BONUSES

 

The Company has been advised that Kenneth Steiner, the beneficial owner of 1,600 shares, intends to submit the following proposal for consideration at the 2008 Annual Meeting.

 

4—Recoup Unearned Management Bonuses

 

RESOLVED: Shareholders request our board to adopt a bylaw to enable our company to recoup all unearned incentive bonuses or other incentive payments to all senior executives to the extent that their corresponding performance targets were later reasonably determined to have not been achieved or resulted from error(s). This is to be adopted as a bylaw unless such a bylaw format is absolutely impossible. If such a bylaw were absolutely impossible, then adoption would be as a policy. The Securities and Exchange Commission said there is a substantive distinction between a bylaw and a policy. Restatements are one means to determine such unearned bonuses.

 

This proposal applies to all such senior executives who received unearned bonuses, not merely the executives who cooked the books. This would include that all applicable employment agreements and incentive plans adopt enabling or consistent text as soon as feasibly possible. This proposal is not intended to unnecessarily limit our Board’s judgment in crafting the requested change in accordance with applicable laws and existing contracts and pay plans. Our Compensation Committee is urged—for the good of our company—to promptly negotiate revised contracts that are consistent with this proposal even if this means that our executives be asked to voluntarily give up certain rights under their current contracts.

 

This proposal topic won our 62%-support at our 2007 annual meeting. “Boards should take actions recommended in shareowner proposals that receive a majority of votes cast for and against,” according to The Council of Institutional Investors.

 

I believe this topic is more relevant to our company now. The Corporate Library http://www.thecorporatelibrary.com, an independent investment research firm said that in August 2007 a securities class action suit was filed against Motorola for violation of the Securities Exchange Act of 1934. The complaint alleges that during the second half of 2006, Motorola tried to “artificially inflate” its depressed share price by making a series of “false and misleading” statements about the company’s business and prospects. The complaint states that investors received news of missed sales and revenue projections and fourth quarter results that were below expectations. The complaint estimates that the missed targets resulted in share price declines totaling 15%.

 

The key point for Motorola according to The Corporate Library is that compensation is at a level that represents high concern for shareholders. Total actual compensation for CEO, Edward Zander, was $11 million in 2006—more than 20% greater than compensation at other similarly sized firms. This suggests that Mr. Zander’s interests are not closely tied to the interests of shareholders. Of the $11 million in total actual compensation paid to Mr. Zander in 2006, about two thirds or $7.4M was generated by value realized from the vesting of stock. This does not look good in light of the complaint’s reference to “artificially” inflated share prices and “false and misleading” statements.

 

With this in mind please vote yes:

 

Recoup Unearned Management Bonuses

Yes on 4

 

21

PROXY STATEMENT

 

RECOMMENDATION OF THE BOARD

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST ADOPTION OF THIS SHAREHOLDER PROPOSAL FOR THE REASONS SET FORTH BELOW. UNLESS OTHERWISE INDICATED ON YOUR PROXY, YOUR SHARES WILL BE VOTED AGAINST THE ADOPTION OF THIS PROPOSAL.

 

The Board of Directors urges shareholders to vote against this shareholder-submitted proposal because the Company has already adopted a clawback policy. In recognition of shareholder concerns expressed at the 2007 Annual Meeting of Stockholders, the Board of Directors adopted a clawback policy on November 13, 2007, supplementing the recoupment provisions of the Sarbanes-Oxley Act. The adopted policy is the recommendation of the Compensation and Leadership Committee after careful deliberation. The policy for the recoupment of incentive payments upon financial restatement (the “Clawback Policy”), which became effective on January 1, 2008, states in its entirety:

 

“If, in the opinion of the independent directors of the Board (the “independent directors”) the Company’s financial results are restated due to intentional misconduct by one or more executive officers of the Company, then the independent directors shall use their best efforts to remedy the misconduct and prevent its recurrence. In determining what remedies to pursue against any individual executive officer the independent directors shall consider all relevant facts and circumstances.

 

To the extent practicable under applicable law, the independent directors may require one or more of the following remedies:

 

if and to the extent that

 

In addition the independent directors may take other disciplinary action, including, without limitation, (1) adjustment of future compensation of the executive officer, (2) termination of the executive officer’s employment, (3) pursuit of any and all remedies available in law and/or equity in any country, and (4) pursuit of such other action as may fit the circumstances of the particular case.

 

The independent directors may take into account penalties or punishments imposed by third parties, such as law enforcement agencies, regulators or other authorities. The independent directors’ power to determine the appropriate punishment for the wrongdoer[s] is in addition to, and not in replacement of, remedies imposed by such entities.

 

This Policy shall apply in addition to any right of recoupment against the Chief Executive Officer and the Chief Financial Officer under Section 304 of the Sarbanes-Oxley Act of 2002.”

 

The Board of Directors believes that the existing Clawback Policy is the most appropriate policy formulation for the Company. Further, the Company believes the adoption of the Clawback Policy has addressed the concerns previously expressed by its shareholders. For this reason, the Board of Directors recommends that you vote AGAINST the adoption of this shareholder-submitted proposal.

 

SHAREHOLDER PROPOSAL RE: A GLOBAL SET OF CORPORATE STANDARDS AT MOTOROLA

 

The Company has been advised that the New Covenant Growth Fund, the beneficial owner of 43,400 shares intends to submit the following proposal for consideration at the 2008 Annual Meeting. The following proposal has also been co-filed by the General Board of Pension and Health

22

PROXY STATEMENT

Benefits of the United Methodist Church, The Domestic and Foreign Missionary Society of the Episcopal Church, and the General Board of Global Ministries of the United Methodist Church.

 

Whereas, Motorola, as a global corporation, faces increasingly complex problems as the international social and cultural context within which Motorola operates changes.

 

Companies are faced with ethical and legal challenges arising from diverse cultures and political and economic contexts. Today, management must address issues that include human rights, workers’ right to organize and bargain collectively, non-discrimination in the workplace, protection of the environment and sustainable community development. Motorola itself does business in countries with human rights challenges including China, Malaysia, Russia, and Israel and the occupied Palestinian territories, for example.

 

We believe global companies must implement comprehensive codes of conduct, such as those found in “Principles for Global Corporate Responsibility: Bench Marks for Measuring Business Performance,” developed by an international group of religious investors. (April, 2003, www.bench-marks.org) Companies must formulate policies to reduce risk to reputation in the global marketplace.

 

In August 2003, the United Nations Sub-Commission on the Promotion and Protection of Human Rights took historic action by adopting “Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights.” (www1.umn.edu/humanrts/links/NormsApril2003.html)

 

We believe significant commercial advantages may accrue to our company by adopting a comprehensive human rights policy based on the UN Human Rights Norms serving to enhance corporate reputation, improve employee recruitment and retention, improve community and stakeholder relations and reduce risk of adverse publicity, consumer boycotts, divestment campaigns and lawsuits.

 

Motorola ought to be able to assure shareholders that employees are treated fairly and paid a sustainable living wage wherever they work in the global economy. One element of ensuring compliance is utilization of independent monitors made up of respected local human rights, religious and other non-governmental organizations that know local culture. Global companies, including Ford, GAP and Hewlett-Packard, are developing credible code enforcement mechanisms.

 

RESOLVED, the shareholders request the Board of Directors to review and amend, where applicable, Motorola’s policies related to human rights that guide its international and U.S. operations. We request a summary of this review by October 2008 and suggest it be posted on Motorola’s website.

 

Supporting Statement

 

Motorola’s current policies contain only three components from existing international human rights codes. These set forth a corporate policy of non-discrimination, no use of forced labor or child labor. We believe that our company’s policies should reflect a more comprehensive understanding of human rights.

 

Therefore, we recommend the review include policies designed to protect human rights—civil, political, social, environmental, cultural and economic—based on internationally recognized human rights standards. We particularly urge attention to harassment or discrimination against women and other forms of violence in the workplace as well as the rights of minorities. We believe the review should also take note of the Universal Declaration of Human Rights, the Fourth Geneva Convention, the International Covenant on Civil and Political Rights, the core labor standards of the International Labor Organization, the International Covenant on Economic, Cultural and Social Rights, and United Nations resolutions and reports of UN special rapporteurs on countries where Motorola does business.

 

RECOMMENDATION OF THE BOARD

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST ADOPTION OF THIS SHAREHOLDER PROPOSAL FOR THE REASONS SET FORTH BELOW. UNLESS OTHERWISE INDICATED ON YOUR PROXY, YOUR SHARES WILL BE VOTED AGAINST THE ADOPTION OF THIS PROPOSAL.

 

The Company agrees with the principles on which this proposal is based and already addresses the concerns it raises, making this proposal unnecessary. In fact, the Company already has in place a comprehensive set of policies and procedures that address human rights, which are designed to ensure that its operations worldwide are conducted using the highest standards of integrity and ethical business conduct applied uniformly and consistently.

 

The Company’s policies include: the Motorola Code of Business Conduct, the Motorola Human Rights Policy, the Motorola Business Conduct Expectations for Suppliers Policy, and the Motorola EHS Policy. These specific policies are based upon internationally recognized human rights standards,

23

PROXY STATEMENT

such as the Universal Declaration of Human Rights, the core labor standards of the International Labor Organization, the United Nation’s Global Compact, Social Accountability 8000 (SA 8000) standard, and the Organization for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises, to name a few.

 

The Company’s policies reflect a comprehensive understanding of human rights and support the following important areas:

 

 

As part of the Company’s management practices, we periodically perform thorough reviews of the aforementioned policies and update them to keep them in alignment with internationally recognized human rights standards. Such a review is currently being conducted and we plan to post the revised documents to our website when our review is complete.

 

The Board believes that the Company’s policies effectively articulate our long-standing support for, and continued commitment to, human rights rendering the proposal duplicative and unnecessary. Therefore, the Board of Directors recommends that you vote AGAINST this proposal.

 

 

The following table summarizes the Company’s equity compensation plan information as of December 31, 2007. The table does not include information with respect to shares subject to outstanding options granted under equity compensation plans assumed by the Company in connection with mergers or acquisitions where the plans governing the options will not be used for future awards, as described below.

 

PROXY STATEMENT

units, performance shares and other stock awards. In addition, at the discretion of the Compensation and Leadership Committee, shares of Motorola Common Stock may be issued under the 2006 Plan in payment of awards under the Long Range Incentive Plans.

 

 

Compensation/Acquisition Plan of 2000

 

The Motorola Compensation/Acquisition Plan of 2000 (the “C/A Plan”) was initially adopted on November 7, 2000 by the Board of Directors. Upon the adoption of the 2006 Plan, no further grants may be made under the C/A Plan. The C/A Plan provided that awards could be granted to employees of the Company and its subsidiaries who were not executive officers or directors of the Company, in connection with its recruiting and retention efforts. Since its inception, the major purposes of the C/A Plan have been to grant awards: (1) to persons newly hired by the Company, and (2) in connection with the acquisition of businesses. The C/A Plan permitted the granting of stock options, stock appreciation rights, restricted stock and restricted stock units, performance stock, performance units and other stock awards.

 

Awards included options to acquire shares of Common Stock, shares of restricted Common Stock and restricted stock units. Each option granted has an exercise price of 100% of the market value of the Common Stock on the date of grant. Generally, options expire 10 years from the date of grant and vest and become exercisable at 25% increments over four years. Awards of restricted stock or restricted stock units consist of shares or rights to shares of Common Stock. The restrictions on individual grants vary, but are designed so that the awards are subject to substantial risk of forfeiture by the employee.

 

Upon the occurrence of a change in control, each stock option outstanding on the date on which the change in control occurs, will immediately become exercisable in full. In addition, the restrictions on all shares of restricted stock or restricted stock units outstanding on the date on which the change in control occurs will be automatically terminated.

25

PROXY STATEMENT

 

The following table sets forth information as of February 29, 2008 (except where otherwise noted), regarding the beneficial ownership of shares of Common Stock by each director and nominee for director of the Company, by the persons named in the Summary Compensation Table (the “Named Executive Officers”), and by all current directors, nominees and executive officers of the Company as a group. Each director, nominee and Named Executive Officer owns less than 1% of the Common Stock. All current directors, nominees and current executive officers as a group own less than 1%.

 

 

 

 

 

26

PROXY STATEMENT

 

 

 

 

 

 

 

No directors, nominees or current executive officers have pledged shares of Motorola Common Stock pursuant to any loan or arrangement where there is an expectation that the loan or arrangement may be repaid by foreclosure or other recourse to the shares of Motorola Common Stock.

27

PROXY STATEMENT

 

The following table sets forth information with respect to any person who is known to be the beneficial owner of more than 5% of the Company’s Common Stock.

 

 

 

 

 

28

PROXY STATEMENT

 

 

 

Our general compensation philosophy is to provide world-class reward strategies and programs that attract, retain and motivate the right people, in the right places at the right time. We strive to provide a total compensation package that is competitive with the prevailing practices for the industries and countries in which we operate, allowing for above average total compensation when justified by business results and individual performance.

 

 

Our general compensation philosophy is further guided by the following principles specific to our executives:

 

 

The compensation program for our Named Executive Officers consists of:

 

With each component of our compensation program, we strive to align the interests of our executives with the interests of our stockholders in different ways—by focusing on short-term and long-term performance goals, by promoting an ownership mentality towards one’s job, by linking individual performance to the Company’s performance, and by ensuring healthy employees.

 

 

Motorola’s senior leadership team, comprised of the Chief Executive Officer (the “CEO”) and certain executives designated by the CEO, provides recommendations regarding the design of Motorola’s compensation program to the Compensation and Leadership Committee (the “Committee”). Following Committee approval, Motorola’s senior leadership team is responsible for executing the objectives of our compensation program. Each member of Motorola’s senior leadership team approves all compensation actions for his or her respective part of the organization and is accountable for compliance with established governance procedures.

 

The CEO is responsible for recommending all compensation actions involving any officer who reports directly to him or any officer who is subject to Section 16 of the Securities Exchange Act of 1934, as amended, to the Committee for its approval, including any modifications to their compensation. The CEO takes an active role in Committee meetings at which compensation actions involving these officers are discussed. The Committee’s independent compensation consultant, Mercer, also participates in these Committee meetings.

 

The Global Rewards department in Motorola’s Human Resources organization, together with our Senior Vice President, Human Resources, prepares recommendations regarding CEO compensation for the Committee. The CEO does not participate in the discussions regarding his compensation at Committee meetings. The Committee is responsible for bringing recommended compensation actions involving the CEO to the Board for its concurrence. The Committee cannot unilaterally approve compensation or compensation changes for the CEO.

 

 

We measure the competitiveness of our total direct compensation (base salary + target short-term incentive opportunity + target long-term incentive opportunity) against high-tech market practices. Total direct compensation levels for each executive position are targeted between the 50th and the 65th percentile of similar positions in our comparator group, consisting of 17 large-cap, high-tech companies. We structure our compensation mix to be market competitive for each compensation

29

PROXY STATEMENT

element. Base salary is generally targeted at the 50th percentile of the comparator group, but the exact percentile may differ by individual. Incentive compensation (both annual incentives and long-term incentives) is generally targeted at the 65th percentile of the comparator group, but the exact percentile may differ by individual.

 

However, as described in more detail below, the Committee, on the recommendation of management, has the discretion to set total compensation above or below the targeted percentile of similar positions in our comparator group when the value of the individual’s experience, performance and specific skill set justifies variation. As a result, competitively superior pay is awarded to those executives who earn it, and the greatest retention value is invested in our strongest performers.

 

The cost of our compensation program impacts our financial performance. As a result, we continue to remain focused on ensuring that our compensation program is optimized to motivate employees to improve our results on a cost-effective basis.

 

We also recognize the need to balance the components of our compensation program appropriately depending on an individual’s position and ability to impact the Company’s results. Accordingly, our compensation program is structured so that more than two-thirds of our Named Executive Officer’s targeted total compensation is “at risk” (in the form of equity grants and awards under the LRIP and the MIP) and is dependent upon the Company’s results.

 

Annually, at the beginning of each year when the Committee reviews salary increases for that year, the Committee reviews an outline of each element of compensation granted and total overall compensation for each member of the senior leadership team. In early 2008, the Committee reviewed the total compensation outline provided by Mercer.

 

 

The elements, as well as the total direct compensation, of our rewards program for Named Executive Officers are benchmarked against our comparator group. We strive to award both competitive forms of compensation (base salary, short-term incentive compensation and long-term incentive compensation) and to ensure that the individual elements comprising our compensation are competitively positioned in the marketplace.

 

Our comparator group consists of 17 large-cap, high-tech companies that, in the aggregate, both we and the Committee believe best represent our portfolio of businesses and our competition for executive talent. We believe using our comparator group for our Named Executive Officers in the United States is an appropriate method to understand the executive talent market in which we must compete to attract and retain top-quality talent. The Committee reviews the composition of the comparator group annually to determine if any changes are necessary. Since 2000, we and the Committee have sought to more closely align our compensation program with that of our large-cap, high-tech peers.

 

In 2007, our comparator group consisted of the following companies: Alcatel-Lucent, Apple, Inc., Cisco Systems, Inc., Dell Inc., Electronic Data Systems Corp., EMC Corp., LM Ericsson Telephone Co., Hewlett-Packard Co., International Business Machines Corp., Intel Corp., Microsoft Corp., Nokia Corp., Nortel Networks Corp., Oracle Corp., QUALCOMM Inc., Sun Microsystems, Inc. and Texas Instruments Inc. Based upon the markets in which we compete for executive talent within our industries, the Committee approved our comparator group, and Mercer, the Committee’s independent consultant, confirmed that the companies comprising the comparator group were appropriate. In 2008, these same companies will again comprise our comparator group.

 

In addition to our comparator group data, we also gather and analyze supplemental compensation market data from multiple survey sources in order to obtain a more complete picture of the overall compensation environment. We utilize supplemental data gathered from the following survey sources:

 

 

 

Because these surveys contain competitive compensation market data on a number of companies spanning a number of different industries, our

30

PROXY STATEMENT

market analysis involves narrowing the available data to “cuts” that most accurately reflect our competitive labor market. We complete regression analyses using the appropriate “data cuts” to capture the most accurate market data possible.

 

In order of priority, the “data cuts” we employ include:

 

We strongly believe in engaging the best talent for critical functions, which may require negotiations with individual executives who have significant retention packages in place with other employers. In order to compensate these individuals for the compensation that they would forfeit by terminating their previous employment, the Committee, on the recommendation of management, may determine that it is in our best interest to offer compensation packages that deviate from our general compensation principles in order to recruit executive talent.

 

The Committee, on the recommendation of management, may determine it is appropriate to provide certain individuals with compensation outside of our normal cycles. The Committee makes such decisions based on:

 

Accordingly, for some Named Executive Officers, the individual compensation elements are above the target range of the 50th to the 65th percentiles. In determining actual compensation for a Named Executive Officer, the Committee considers such Named Executive Officer’s role, responsibilities, experience, performance, and skill set in making its judgment of the Named Executive Officer’s value to our Company and in the marketplace. These determinations are generally subjective, and the Committee does not rely on formulaic weighting of these factors in making its compensation decisions. Rather, the Committee uses these factors to provide an overall context for its decisions on specific elements of compensation.

 

 

The Committee has the discretion, to the extent deemed necessary and appropriate, to retain and terminate compensation consultants, outside counsel or other advisors, including the sole authority to approve fees and other retention terms for any such consultant, counsel or advisor. The Committee’s practice is to engage an external independent consultant to complete an evaluation of our compensation program on a periodic basis, typically every two or three years, and to review the specific compensation of our CEO and our CEO’s direct reports annually.

 

The Committee’s current compensation consultant, Mercer, is independent from the Company and reports directly to the Chair of the Committee. The Committee believes that Mercer is presently the appropriate consultant to review and assist in the development of our compensation program. Mercer does not have any other significant business relationships with us other than the foreign engagements discussed below. When appropriate, the Committee has discussions with Mercer without management present to protect impartiality.

 

Due to our global reach and Mercer’s expertise, it may be in the Company’s best interest to retain Mercer for limited services that are unrelated to their role as advisor to the Committee. Accordingly, engagements of Mercer are sometimes made by local management of certain of Motorola’s non-U.S. subsidiaries. Management reports to the Committee regarding any fees for unrelated services and products purchased from Mercer. The most recent review took place in July 2007. At that time, the other work performed for the Company by Mercer involved: (1) pension consulting services in Ireland and the United Kingdom, and (2) the purchase of international compensation survey reports. Mercer has also performed the following international services: (1) medical insurance claims administration in Mexico, (2) group disability claims administration in Australia, and (3) consulting work in Ireland, Australia and New Zealand on benefits and/or reduction-in-force matters. The Committee reviews the services Mercer provides Motorola and other matters of judgment to ensure Mercer’s independence in advising the Committee.

 

 

In January 2007, the Committee engaged Mercer to complete an independent evaluation of our executive rewards program and the compensation of our senior leadership team, including the Named Executive Officers. Mercer’s study concluded that

31

PROXY STATEMENT

the compensation programs for 2007 were fundamentally competitive and sound. The Committee agreed with Mercer’s conclusions that no substantive revisions to our compensation program were required.

 

 

In January 2008, the Committee once again engaged Mercer to independently review our executive rewards program and the compensation of our senior leadership team, including the Named Executive Officers. Mercer’s 2008 executive compensation review studied: (1) the relationship between our actual 2006 senior executive compensation levels and the Company’s performance using available proxy data, (2) the competitiveness of our target executive pay program in light of our executive pay philosophy, and (3) the competitiveness of our “pay mix”, long-term incentive compensation (“LTI”) mix, equity grants and LTI performance metrics compared to the market.

 

Mercer reviewed the following compensation components in its competitive assessment:

 

Mercer relied on both published survey sources, including the surveys listed above under “Compensation Benchmarking,” and peer company proxy data, including data from our comparator group, to determine our competitive positioning relative to the market.

 

Each position reviewed was matched to the market based on position, responsibility and the scope of the business for which the position was responsible.

 

 

Mercer’s study found that our compensation structure is highly leveraged so that strong Company performance leads to above-market pay and weak Company performance results in below-market pay. Mercer found that, overall, Motorola’s business-based performance on select metrics was slightly above the 25th percentile of our peers for 2006 and approximately at median for the three-year period from 2004 to 2006. The metrics were:

 

 

Mercer also found that our 2006 cash compensation levels approximated Company performance at the 25th percentile and that our total compensation on a three-year basis (2006 base salary plus 2006 actual bonus and 3-year average LTI valued as of December 31, 2006) approximated Company performance at slightly above the 50th percentile of the peer group.

 

 

Mercer’s study found that:

 

The Committee agreed with the Mercer study’s conclusions and, as discussed below, relied on the study’s findings in setting the 2008 compensation levels for our senior leadership team.

 

 

Base salary levels for each Named Executive Officer are generally targeted at the 50th percentile of the comparator group, but the exact percentile may differ by individual. As such, the base salaries for our senior leadership team, including the Named Executive Officers, were established in

32

PROXY STATEMENT

accordance with an external market competitiveness analysis by Mercer. As previously described, the Committee, on the recommendation of management, has the discretion to deviate from the targeted percentile range when a Named Executive Officer’s experience, performance and specific skill set justifies variation.

 

 

Pursuant to the terms of the employment agreement the Company entered into with Mr. Zander on December 15, 2003, Mr. Zander’s annual base salary for 2007 was $1,500,000. Mr. Zander’s base salary has not changed since he joined the Company in 2004.

 

The employment agreement was approved by the Board, based in part on the recommendation of the Committee and a search committee formed in 2003 to facilitate the search for a Company Chairman and CEO. The search committee hired its own external CEO compensation advisors who worked with the external compensation advisors regularly used by the Committee and management to develop the compensation package that is reflected in Mr. Zander’s employment agreement. Comparator data from similarly-sized companies and companies in our industries was gathered and analyzed in determining Mr. Zander’s initial compensation package.

 

 

Effective July 2, 2007, the Committee decided to increase Mr. Brown’s base salary from $765,000 to $950,000, in recognition of Mr. Brown’s election as President and Chief Operating Officer. The Committee determined that the base salary adjustment appropriately rewarded Mr. Brown for his performance, recognized his increased responsibilities and was necessary to pay a competitive base salary to Mr. Brown in his new role.

 

Effective January 1, 2008, the Committee decided, with the independent Board members concurrence, to increase Mr. Brown’s base salary from $950,000 to $1,200,000, in recognition of Mr. Brown’s election as CEO. The Committee determined that the base salary adjustment was appropriate in light of Mr. Brown’s expanded responsibilities and was necessary to pay a competitive base salary to Mr. Brown in his new role as President and CEO.

 

 

Mr. Devonshire’s base salary has remained at $625,000 since March 2004. On September 18, 2007, the Company and Mr. Devonshire entered into a separation agreement with respect to Mr. Devonshire’s separation from the Company on December 31, 2007. This agreement is discussed under “Employment Contracts, Termination of Employment and Change in Control Arrangements”.

 

 

Mr. Meredith became Acting Chief Financial Officer of the Company on April 1, 2007. On March 27, 2007, in connection with becoming Acting Chief Financial Officer, Mr. Meredith entered into an employment agreement with a term of six months that provided him a base salary of $1 per year. On October 2, 2007, the Committee approved an amended and restated employment agreement with respect to Mr. Meredith’s continuing interim tenure with Motorola. Mr. Meredith’s interim tenure as Acting Chief Financial Officer and Executive Vice President was extended on a month-to-month basis through no later than April 1, 2008. Beginning October 1, 2007, Motorola began paying Mr. Meredith a gross monthly base salary of $75,000 with a pro rata payment if the employment period ended prior to the last business day of the month.

 

Mr. Meredith’s term as Acting Chief Financial Officer and Executive Vice President ended on March 1, 2008 and, under the terms of his agreement, his employment ended on March 31, 2008.

 

 

As part of the annual salary review process, Mr. Moloney’s base salary was increased from $550,000 to $600,000, effective July 2, 2007. The Committee determined that this base salary increase appropriately rewarded Mr. Moloney for his strong leadership performance, recognized his increased responsibilities as the head of the combined Home and Networks Mobility business, and was necessary to provide a competitive base salary to Mr. Moloney.

 

In January 2008, the Committee decided that Mr. Moloney’s base salary would not be increased at that time.

 

 

As part of the annual salary review process, Mr. Reed’s base salary was increased from $475,000 to $500,000, effective July 2, 2007. This salary adjustment was in recognition of Mr. Reed’s strong leadership of the supply chain organization. On July 16, 2007, Mr. Reed was appointed to lead the Mobile Devices business. In connection with this appointment and in light of his increased responsibilities, Mr. Reed’s base salary was increased from $500,000 to $600,000. The

33

PROXY STATEMENT

Committee determined that the base salary adjustment appropriately rewarded Mr. Reed and was necessary to provide a competitive base salary to Mr. Reed in his new role.

 

In January 2008, the Committee decided that Mr. Reed’s base salary would not be increased at that time.

 

On March 7, 2008, the Company and Mr. Reed entered into a separation agreement with respect to Mr. Reed’s separation from the Company on December 31, 2008. This agreement is discussed under “Employment Contracts, Termination of Employment and Change in Control Arrangements”.

 

 

Ms. Fattori’s base salary has remained at $490,000 since March 2006. On December 20, 2007, the Company and Ms. Fattori entered into a separation agreement with respect to Ms. Fattori’s separation from the Company on November 14, 2008. This agreement is discussed under “Employment Contracts, Termination of Employment and Change in Control Arrangements”.

 

 

The MIP is a cash-based, pay-for-performance annual incentive plan that was initiated in January 2002 and applies to all of our regular employees (excluding those employees participating in a sales incentive plan), including the Named Executive Officers. This discussion of the MIP relates to MIP awards granted in 2007 under the 2006 MIP Plan, as amended. In March 2008, the Committee also approved a 2008 MIP (the “2008 MIP”). For information regarding the impact of Section 162(m) of the Internal Revenue Code on awards granted under the MIP, see the discussion set forth under “The Impact of Favorable Accounting and Tax Treatment on Compensation Program Design”.

 

Similar to many of our competitors, we use our annual incentive plan, the MIP, to reward employees for their contributions to strong annual business performance. Through the MIP, we strive to promote teamwork, strengthen our financial performance and improve customer satisfaction and quality. Moreover, the MIP supports our goals of: attracting and retaining the talent we need to succeed; focusing employees’ attention on critical business goals; sharing the financial benefits of superior performance; and providing pay that is competitive with our comparator companies.

 

 

The payout value of awards under the MIP is based on the following incentive formula:

 

 

 

The MIP Individual Incentive Targets are based on market-competitive data and are established as a percentage of eligible earnings (generally, base salary). At the beginning of each year, the Committee designates individual target levels for each of our Named Executive Officers. Individual Incentive Targets for each Named Executive Officer are generally targeted between the 50th and 65th percentile of the comparator group, but the exact percentile may differ by individual.

 

For 2007, the Individual Incentive Targets for our Named Executive Officers ranged from 85% to 135% of base salary, depending on the responsibilities of each individual’s position, as set forth below:

 

 

* Pursuant to the terms of his employment agreement, Mr. Meredith did not participate in the MIP in 2007.

 

The Individual Incentive Targets for our Named Executive Officers were established by the Committee based on Mercer’s market competitiveness analysis.

 

 

At the beginning of each year, the Committee establishes Business Performance Factor targets for the Company as a whole and for specified business units. While most employees receive rewards based, in part, on the performance of their particular business unit (and such unit’s corresponding Business Performance Factor), 100% of the award for each of our Named Executive Officers is based on the overall Motorola Business Performance Factor.

 

The Committee has discretion under the MIP to make adjustments to the targets that comprise the Business Performance Factor during the year. In May 2007, the Committee revised the Business

34

PROXY STATEMENT

Performance Factor targets for one of our business units and the Company as a whole to more appropriately motivate employees through the end of the year based on our expected financial performance.

 

In 2007, the MIP Business Performance Factor measures and their relative weights were:

 

 

The following table sets forth the minimum, maximum and target levels for each of the 2007 MIP Business Performance measures, as well as the actual 2007 performance levels and the calculation of the total MIP Business Performance Factor for the Company as a whole.

 

 

The Company’s actual 2007 performance with relation to the Operating Earnings and Operating Cash Flow measures fell below the minimum performance thresholds and, accordingly, did not contribute to an incentive payout under the MIP.

 

The Company’s actual 2007 performance with relation to the Revenue Growth measure exceeded the minimum performance threshold, but was less than the target performance level. Accordingly, performance was sufficient to contribute to an incentive payout, with a 30% performance factor for the Revenue Growth measure. The resulting weighted contribution of this measure to the total Business Performance Factor was 3% (30% actual performance x 10% weight).

 

The Committee determined that the Company’s 2007 performance on the quality-specific measures discussed above exceeded the minimum threshold performance level, but was less than the target performance level. Accordingly, performance was sufficient to contribute to an incentive payout, with a 46% performance factor for the quality-specific measures. The resulting weighted contribution to the total Business Performance Factor of this measure was 9% (46% actual performance x 20% weight). The specific goals for each of the quality-specific measures are designed to incentivize improvements in product development, manufacturing efficiency and customer service and, as such, are aspirational in nature.

 

Based on our 2007 performance, the Company-wide MIP Business Performance Factor was 12% (0%+0%+3%+9%) of the established target award level.

 

 

The MIP Individual Performance Factor gives the Committee the ability to adjust the awards, which are formula-driven based on business results, according to an individual’s contribution to our success. We believe that the most effective performance management process establishes a tight and clear link between individual and organizational goals and performance. We strive to establish a clear line of sight between our performance management process and our business strategy. Individual performance is measured by both what an individual accomplishes (goal achievement) and how the individual accomplishes those goals (behaviors).

 

Since not all Named Executive Officers perform at the same level, nor contribute equally to the metrics used to determine the MIP Business

35

PROXY STATEMENT

Performance Factors, the Committee has the discretion to adjust awards to account for these differences in individual contribution and performance. We believe that this discretion results in a stronger pay-for-performance culture. Individual Performance adjustments are made by the Committee based on its determination of how much to differentiate among individual participants. The use of Individual Performance multipliers demonstrates our commitment to strongly differentiate rewards to the senior leadership team based on individual performance. Individual Performance multipliers for our Named Executive Officers range from 0% (no award paid) for poor performance to 130% (130% of the formula-driven award) for exceptional performance, demonstrating our commitment to strongly differentiate rewards for superior performers.

 

The Committee determined that because of poor overall Company performance in 2007, no individual Named Executive Officer should receive an incentive payout under the 2007 MIP that was greater than was generated by the Business Performance Factor formula. As a result, the 2007 Individual Performance multiplier for each Named Executive Officer was limited to 1.0.

 

Based on our 2007 Business Performance Factor (12%) and the 2007 Individual Performance multiplier (1.0), the 2007 MIP award for each of our Named Executive Officers was 12% of the established target award level. The following table sets forth the 2007 MIP awards for each of our Named Executive Officers:

 

 

* Pursuant to the terms of his employment agreement, Mr. Meredith is not eligible to participate in the 2007 MIP.

 

Mr. Brown’s 2008 MIP Individual Incentive Targets

 

In 2008, in light of his expanded role and responsibilities as CEO and acting head of the Mobile Devices business, the Committee took actions to strongly incentivize Mr. Brown in his efforts to rapidly improve the Company’s performance. In order to incentivize actions to improve performance on both a company-wide basis and specifically in the Mobile Devices business, the Committee structured Mr. Brown’s incentive pay for 2008 as two separate awards.

 

Mr. Brown’s Individual Incentive Target with respect to his 2008 MIP award based on company-wide performance was set at 220% of his eligible earnings. For 2008, the target for a separate cash-based pay-for-performance award was set at 130% of his eligible earnings (the “Special 2008 MIP Award”). The Special 2008 MIP Award is based on Mobile Devices performance as measured by gross margin earned from new product introductions in the Company’s Mobile Devices business and operating earnings of the Mobile Devices business. The Special 2008 MIP Award is subject to the terms and conditions of the 2008 MIP and may be paid separately or together with any other award that Mr. Brown earns under the 2008 MIP.

 

 

In April 2007, the Committee approved the payment of one-time discretionary cash bonuses to 122 Motorola employees (a “2007 Discretionary Bonus Award”). These 2007 Discretionary Bonus Awards were paid in recognition of these employees’ efforts and to promote the retention of these employees. Mr. Moloney received a 2007 Discretionary Bonus Award of $100,000. Mr. Reed received a 2007 Discretionary Bonus Award of $115,000. Ms. Fattori received a 2007 Discretionary Bonus Award of $110,000.

 

 

Our LTI programs are designed to encourage creation of long-term value for our stockholders, promote employee retention and encourage stock ownership. These programs include: (1) the LRIP, and (2) grants of stock options, restricted stock units or other equity.

 

Many of our employees participate in one or more of our LTI programs, which we believe promote a focus on long-term results and align employee and stockholder interests. In designing and refining our programs, we carefully consider the impact of equity expensing, actions taken by our comparator group to reduce the use of stock options, and our dilution and overhang levels. As a result, during 2007 we made certain changes to our equity programs in the interest of achieving the appropriate balance between cost competitiveness and maintaining employee incentives.

 

LTI levels for our Named Executive Officers are generally targeted at the 65th percentile of the comparator group, but the exact percentile may differ by individual. Our Named Executive Officers receive a large proportion of their overall targeted

36

PROXY STATEMENT

compensation (approximately two-thirds) in the form of LTI in order to align the interests of senior management and stockholders and to promote a focus on long-term results. The LRIP accounts for roughly one-third of the total targeted LTI value, and the balance comes in the form of equity grants.

 

Targeted LTI value for each of our Named Executive Officers was established based on a market competitiveness analysis by Mercer.

 

Long Range Incentive Plan

 

The LRIP is a pay-for-performance, multi-year incentive plan. The initial three-year cycle started on January 1, 2005 and concluded on December 31, 2007. A second three-year cycle started on January 1, 2006 and will conclude on December 31, 2008. A third three-year cycle started on January 1, 2007 and will conclude on December 31, 2009. A fourth three-year cycle started on January 1, 2008 and will conclude on December 31, 2010.

 

Participation in the LRIP is limited to our elected officers — including all Named Executive Officers and corporate, senior and executive vice presidents (approximately 110 participants in total).

 

The LRIP has a three-year performance cycle with different annual financial targets for each of the three years. Annual performance against the financial targets is averaged to determine performance for the complete performance cycle. In addition, Total Shareholder Return (“TSR”) during the three-year performance cycle must exceed certain values relative to our comparator group (and, for cycles beginning on or after January 1, 2006, as a stand-alone value) in order for the full LRIP award to be paid. Threshold levels of performance against the established targets (both the financial targets and TSR targets) must be satisfied in order for a LRIP award to be paid. If these threshold levels of performance are not met, no LRIP award is earned. Additionally, the Committee has the discretion to reduce a participant’s LRIP award based on individual performance. LRIP awards, if any, are measured in cash and paid in cash or shares of Common Stock. The form of payment is determined by the Committee, in its sole discretion, at the conclusion of a performance cycle.

 

LRIP Incentive Formula

 

The payout value of awards under the LRIP is based on the following incentive formula:

 

 

LRIP Individual Incentive Targets

 

The LRIP Individual Incentive Targets are based on market-competitive data and are established as a percentage of base salary at the start of a performance cycle. The Committee designates target levels for all LRIP participants. For the LRIP cycles beginning in 2005, 2006 and 2007, the Individual Incentive Targets for our Named Executive Officers ranged from 133% to 250% of base salary at the start of the performance cycle, depending on the responsibilities of each individual’s position, as set forth below:

 

 

* In connection with their departures from the Company, Mr. Zander, Mr. Devonshire, Ms. Fattori and Mr. Reed forfeited their rights to any payouts under the LRIP for cycles ending after December 31, 2007.

 

** Pursuant to the terms of his employment agreement, Mr. Meredith is not eligible to participate in the LRIP.

 

 

The LRIP Business Performance Factor is calculated in a three-step process.

 

 

LRIP awards are based on: (1) Annual Improvement in Economic Profit, and (2) Annual Growth in Sales. By combining these measures, LRIP awards emphasize the importance of balancing growth and profitability. While LRIP awards are not directly tied to the price of our Common Stock, the progress made against these two measures should equate to value created for stockholders.

 

 

 

Specific Economic Profit and Annual Growth in Sales targets are established and the LRIP

37

PROXY STATEMENT

Business Performance Matrix is developed at the beginning of each year within a performance cycle. The LRIP Business Performance Matrix outlines the Business Performance Factor to be used for specific levels of performance against the established targets for Improvement in Economic Profit and Annual Growth in Sales. The LRIP Business Performance Factors range from 0% (for performance below threshold) to 200% (for maximum performance). At the conclusion of each year, the Company’s performance against the LRIP business performance targets is measured and recorded. Based on the Company’s annual performance, the appropriate annual Business Performance Factor is determined by reference to that year’s Business Performance Matrix.

 

The LRIP performance targets for each year represent a substantial stretch in performance. In setting these “stretch” performance objectives, we realize that achievement of target performance is very difficult. We believe that the establishment of stretch performance objectives is appropriate because we target long-term incentive compensation levels at the 65th percentile of our comparator group.

 

The following table sets forth the yearly minimum, maximum and target levels for each of the 2005-2007 LRIP Business Performance measures, as well as the actual 2007 performance levels and the calculation of the Total LRIP Business Performance Factor.