Seattle, Washington
January 22, 2010

 

Dear Shareholders:

 

You are cordially invited to attend the Starbucks Corporation 2010 Annual Meeting of Shareholders on March 24, 2010 at 10 a.m. (Pacific Time). The meeting will be held at Marion Oliver McCaw Hall at the Seattle Center, located on Mercer Street, between Third and Fourth Avenues, in Seattle, Washington. Directions to McCaw Hall and transportation information appear on the back cover of the notice of annual meeting and proxy statement.

 

Under the Securities and Exchange Commission rules that allow companies to furnish proxy materials to shareholders over the Internet, Starbucks has elected to deliver our proxy materials to the majority of our shareholders over the Internet. This delivery process allows us to provide shareholders with the information they need, while at the same time conserving natural resources and lowering the cost of delivery. On January 26, 2010, we mailed to our shareholders a Notice of Internet Availability of Proxy Materials (the “Notice”) containing instructions on how to access our fiscal 2009 proxy statement and 2009 annual report to shareholders. The Notice also provides instructions on how to vote online or by telephone and includes instructions on how to receive a paper copy of the proxy materials by mail. The Notice will serve as an admission ticket for one shareholder to attend the 2010 Annual Meeting of Shareholders. On January 26, 2010, we also first mailed this proxy statement and the enclosed proxy card to certain shareholders. If you received a paper copy of the proxy materials in the mail, the proxy statement includes an admission ticket for one shareholder to attend the Annual Meeting of Shareholders. Each attendee must present the Notice, an admission ticket or other proper form of documentation (as described in the section “Annual Meeting Information” in the proxy statement) to be admitted.

 

The matters to be acted upon are described in the notice of annual meeting and proxy statement. At the Annual Meeting of Shareholders, we will also report on our operations and respond to questions from shareholders.

 

As always, we anticipate a large number of attendees at the Annual Meeting of Shareholders. Again this year, seating will be limited to McCaw Hall only, and we cannot guarantee seating for all shareholders. Shareholders may also log onto a live webcast of the meeting; please see details on our Investor Relations website at http://investor.starbucks.com. Doors will open at 8 a.m. (Pacific Time) the day of the event.

 

YOUR VOTE IS VERY IMPORTANT.  Whether or not you plan to attend the Annual Meeting of Shareholders, we urge you to vote and submit your proxy by the Internet, telephone or mail in order to ensure the presence of a quorum. If you attend the meeting you will, of course, have the right to revoke the proxy and vote your shares in person. If you hold your shares through an account with a brokerage firm, bank or other nominee, please follow the instructions you receive from them to vote your shares.

 

Very truly yours,

 

Howard Schultz

chairman, president and chief executive officer

 

STARBUCKS CORPORATION
2401 Utah Avenue South
Seattle, Washington 98134

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

The Annual Meeting of Shareholders of Starbucks Corporation will be held at Marion Oliver McCaw Hall at the Seattle Center, located on Mercer Street, between Third and Fourth Avenues, in Seattle, Washington, on March 24, 2010 at 10 a.m. (Pacific Time) for the following purposes:

 

 

Only shareholders of record at the close of business on January 14, 2010 will be entitled to notice of and to vote at the Annual Meeting of Shareholders and any adjournments thereof.

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be Held on March 24, 2010. Our proxy statement is attached. Financial and other information concerning Starbucks is contained in our annual report to shareholders for the fiscal year ended September 27, 2009. The proxy statement and our fiscal 2009 annual report to shareholders are available on our website at http://investor.starbucks.com. Additionally, and in accordance with Securities and Exchange Commission rules, you may access our proxy materials at www.proxyvote.com, which does not have “cookies” that identify visitors to the site.

 

YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the Annual Meeting of Shareholders, we urge you to vote and submit your proxy in order to ensure the presence of a quorum.

 

Registered holders may vote:

 

1. By Internet: go to www.proxyvote.com;

 

2. By toll-free telephone: call 1-800-690-6903; or

 

 

Any proxy may be revoked at any time prior to its exercise at the Annual Meeting of Shareholders.

 

Beneficial Shareholders.  If your shares are held in the name of a broker, bank or other holder of record, follow the voting instructions you receive from the holder of record to vote your shares.

 

By order of the board of directors,

 

Paula E. Boggs

secretary

 

Seattle, Washington

January 22, 2010

TABLE OF CONTENTS

 

STARBUCKS CORPORATION
2401 Utah Avenue South
Seattle, Washington 98134

 

 

We are making this proxy statement available to you on or about January 22, 2010 in connection with the solicitation of proxies by our board of directors for the Starbucks Corporation 2010 Annual Meeting of Shareholders. At Starbucks and in this proxy statement, we refer to our employees as partners. Also in this proxy statement we sometimes refer to Starbucks as the “Company,” “we” or “us,” and to the 2010 Annual Meeting of Shareholders as the “annual meeting.” When we refer to the Company’s fiscal year, we mean the annual period ending on the Sunday closest to September 30 of the stated year. This proxy statement is for fiscal 2009, which was from September 29, 2008 through September 27, 2009 (“fiscal 2009”).

 

Internet Availability of Annual Meeting Materials

 

Under Securities and Exchange Commission (“SEC”) rules, Starbucks has elected to make our proxy materials available to the majority of our shareholders over the Internet rather than mailing paper copies of those materials to each shareholder. On January 26, 2010, we mailed to the majority of our shareholders a Notice of Internet Availability of Proxy Materials (the “Notice”) directing shareholders to a website where they can access our fiscal 2009 proxy statement and fiscal 2009 annual report to shareholders and view instructions on how to vote via the Internet or by phone. If you received the Notice only and would like to receive a paper copy of the proxy materials, please follow the instructions printed on the Notice to request that a paper copy be mailed to you.

 

Annual Meeting Information

 

The annual meeting will be held at 10 a.m. (Pacific Time) on March 24, 2010, at Marion Oliver McCaw Hall at the Seattle Center, located on Mercer Street, between Third and Fourth Avenues, in Seattle, Washington. Directions to McCaw Hall and a map are provided on the back cover of this proxy statement. For those shareholders receiving a Notice, the Notice will serve as an admission ticket for one shareholder to attend the annual meeting. For those shareholders receiving a paper copy of proxy materials in the mail, an admission ticket for one shareholder to attend the annual meeting is enclosed in the proxy materials.

 

Majority Vote Standard in Uncontested Director Elections

 

We have adopted majority voting procedures for the election of directors in uncontested elections. In an uncontested election, nominees must receive more “for” than “against” votes to be elected. The term of any director who does not receive a majority of votes cast in an election held under the majority voting standard terminates on the earliest to occur of (i) 90 days after the date election results are certified; (ii) the date the director resigns; or (iii) the date the board of directors fills the position. As provided in our bylaws, a “contested election” is one in which:

 

 

Voting Information

 

Record Date.  The record date for the annual meeting is January 14, 2010. On the record date, there were 743,179,676 shares of our common stock outstanding and there were no outstanding shares of any other class of stock.

 

Voting Your Proxy.  Holders of shares of common stock are entitled to cast one vote per share on all matters. Proxies will be voted as instructed by the shareholder or shareholders granting the proxy. Unless contrary

instructions are specified, if the proxy is completed and submitted (and not revoked) prior to the annual meeting, the shares of Starbucks common stock represented by the proxy will be voted: (i) FOR the election of each of the eleven director candidates nominated by the board of directors; (ii) FOR the ratification of the selection of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending October 3, 2010 (“fiscal 2010”); (iii) AGAINST the shareholder proposal regarding recycling strategy for beverage containers; and (iv) in accordance with the best judgment of the named proxies on any other matters properly brought before the annual meeting.

 

Revoking Your Proxy.  A shareholder who delivers an executed proxy pursuant to this solicitation may revoke it at any time before it is exercised by (i) executing and delivering a later-dated proxy card to our corporate secretary prior to the annual meeting; (ii) delivering written notice of revocation of the proxy to our corporate secretary prior to the annual meeting; or (iii) attending and voting in person at the annual meeting. Attendance at the annual meeting, in and of itself, will not constitute a revocation of a proxy. If you voted by telephone or the Internet and wish to change your vote, you may call the toll-free number or go to the Internet site, as may be applicable in the case of your earlier vote, and follow the directions for changing your vote.

 

Vote Required.  The presence, in person or by proxy, of holders of a majority of the outstanding shares of Starbucks common stock is required to constitute a quorum for the transaction of business at the annual meeting. Abstentions and “broker non-votes” (shares held by a broker or nominee that does not have discretionary authority to vote on a particular matter and has not received voting instructions from its client) are counted for purposes of determining the presence or absence of a quorum for the transaction of business at the annual meeting. If a quorum is present, a nominee for election to a position on the board of directors will be elected as a director if the votes cast for the nominee exceed the votes cast against the nominee. If a quorum is present, ratification of our independent registered public accounting firm and approval of the shareholder proposal, and all other matters that properly come before the meeting, require that the votes cast in favor of such actions exceed the votes cast against such actions. The following will not be votes cast and will have no effect on the election of any director nominee or the other proposals: (i) broker non-votes; (ii) a share whose ballot is marked as abstain; (iii) a share otherwise present at the annual meeting but for which there is an abstention; and (iv) a share otherwise present at the annual meeting as to which a shareholder gives no authority or direction.

 

Please note that this year the rules that govern how brokers vote your shares have changed. Brokers may no longer use discretionary authority to vote shares on the election of directors if they have not received instructions from their clients. Please vote your proxy so your vote can be counted. Proxies and ballots will be received and tabulated by Broadridge Financial Services, our inspector of elections for the annual meeting.

 

Expenses of Solicitation.  We will bear the expense of preparing, printing and mailing this proxy statement and the proxies we solicit. Proxies will be solicited by mail, telephone, personal contact and electronic means and may also be solicited by directors, officers and Starbucks partners in person, by the Internet, by telephone or by facsimile transmission, without additional remuneration.

 

We will also request brokerage firms, banks, nominees, custodians and fiduciaries to forward proxy materials to the beneficial owners of shares of our stock as of the record date and will reimburse them for the cost of forwarding the proxy materials in accordance with customary practice. Your cooperation in promptly voting your shares and submitting your proxy by the Internet or telephone, or by completing and returning the enclosed proxy card (if you received your proxy materials in the mail), will help to avoid additional expense.

 

In accordance with our bylaws, our board of directors has set its size at eleven members; there are currently eleven members. Under our bylaws, the number of directors may be changed at any time by a resolution of the board of directors. The terms of each of the eleven current directors expire upon the election and qualification of the directors to be elected at the 2010 annual meeting. The board of directors has nominated each of the eleven current directors for re-election at the annual meeting, to serve until the 2011 Annual Meeting of Shareholders and until their respective successors have been elected and qualified.

Unless otherwise directed, the persons named in the proxy intend to vote all proxies FOR the election of the nominees, as listed below, each of whom has consented to serve as a director if elected. If, at the time of the annual meeting, any nominee is unable or declines to serve as a director, the discretionary authority provided in the enclosed proxy will be exercised to vote for a substitute candidate designated by the board of directors, unless the board chooses to reduce its own size. The board of directors has no reason to believe any of the nominees will be unable or will decline to serve if elected. Proxies cannot be voted for more than eleven persons since that is the total number of nominees.

 

Set forth below is certain information furnished to us by the director nominees. There are no family relationships among any of our directors or executive officers. None of the corporations or other organizations referenced in the biographical information below is a parent, subsidiary or other affiliate of Starbucks.

 

HOWARD SCHULTZ, 56, is the founder of Starbucks Corporation and serves as our chairman, president and chief executive officer. Mr. Schultz has served as chairman of the board of directors since our inception in 1985, and in January 2008, he reassumed the role of president and chief executive officer. From June 2000 to February 2005, Mr. Schultz also held the title of chief global strategist. From November 1985 to June 2000, he served as chairman of the board and chief executive officer. From November 1985 to June 1994, Mr. Schultz also served as president. From January 1986 to July 1987, Mr. Schultz was the chairman of the board, chief executive officer and president of Il Giornale Coffee Company, a predecessor to the Company. From September 1982 to December 1985, Mr. Schultz was the director of retail operations and marketing for Starbucks Coffee Company, a predecessor to the Company.

 

BARBARA BASS, 58, has been a Starbucks director since January 1996. Since 1993, Ms. Bass has been the president of the Gerson Bakar Foundation, a charitable organization. From 1989 to 1992, Ms. Bass was president and chief executive officer of the Emporium Weinstock Division of Carter Hawley Hale Stores, Inc. She also serves on the board of directors of DFS Group Limited and bebe stores, inc.

 

WILLIAM W. BRADLEY, 66, has been a Starbucks director since June 2003. Mr. Bradley is a managing director of Allen & Company LLC, an investment banking firm. From 2001 until 2004, he acted as chief outside advisor to McKinsey & Company’s non-profit practice. In 2000, Mr. Bradley was a candidate for the Democratic nomination for President of the United States. He served as a senior advisor and vice chairman of the International Council of JP Morgan & Co., Inc. from 1997 through 1999. During that time, Mr. Bradley also worked as an essayist for CBS Evening News, and as a visiting professor at Stanford University, Notre Dame University and the University of Maryland. Mr. Bradley served in the U.S. Senate from 1979 until 1997, representing the State of New Jersey. Prior to serving in the U.S. Senate, he was an Olympic gold medalist in 1964, and from 1967 through 1977 he played professional basketball for the New York Knicks, during which time they won two world championships. Mr. Bradley also serves on the boards of directors of Willis Group Holdings Limited and Seagate Technology.

 

MELLODY HOBSON, 40, has been a Starbucks director since February 2005. Ms. Hobson has served as the president and a director of Ariel Investments, LLC, a Chicago-based investment management firm, and as the chairman (since 2006) and a trustee (since 2000) of the mutual funds it manages. She previously served as senior vice president and director of marketing at Ariel Capital Management, Inc. from 1994 to 2000, and as vice president of marketing at Ariel Capital Management, Inc. from 1991 to 1994. Ms. Hobson works with a variety of civic and professional institutions, including serving as a director of the Chicago Public Library as well as its foundation and as a board member of the Field Museum and the Chicago Public Education Fund. In 2004, The Wall Street Journal named her as one of its “50 Women to Watch.” Ms. Hobson also serves on the boards of directors of DreamWorks Animation SKG, Inc. and The Estee Lauder Companies, Inc. Additionally, she is on the board of governors of the Investment Company Institute and is a member of the SEC Investment Advisory Committee.

 

KEVIN R. JOHNSON, 49, has been a Starbucks director since March 2009. Mr. Johnson has served as the Chief Executive Officer of Juniper Networks, Inc., a leading provider of high-performance networking products and services, since September 2008. Mr. Johnson also serves on the board of directors of Juniper Networks. Prior to joining Juniper Networks, Mr. Johnson served as President, Platforms and Services Division for Microsoft Corporation, a worldwide provider of software, services and solutions. Mr. Johnson was a member of Microsoft’s Senior Leadership Team and held a number of senior executive positions over the course of his

16 years at Microsoft. Prior to joining Microsoft in 1992, Mr. Johnson worked in IBM’s systems integration and consulting business.

 

OLDEN LEE, 68, has been a Starbucks director since June 2003. Mr. Lee has also served as our interim executive vice president, Partner Resources since April 2009. Mr. Lee undertook the role of interim head of Partner Resources while the Company searched for an executive vice president, Partner Resources. Mr. Lee will continue with the Company on an interim basis to assist the new head of Partner Resources and ensure a smooth transition. Prior to serving in his current role, Mr. Lee worked with PepsiCo, Inc. for 28 years in a variety of positions, including serving as senior vice president of human resources of its Taco Bell division and senior vice president and chief personnel officer of its KFC division. Mr. Lee currently serves as principal of Lee Management Consulting, a management consulting firm he founded. Mr. Lee also serves on the board of directors of TLC Vision Corporation.

 

SHERYL SANDBERG, 40, has been a Starbucks director since March 2009. Ms. Sandberg has served as the Chief Operating Officer of Facebook, Inc., an online social utility company, since March 2008. From 2001 to March 2008, Ms. Sandberg was the Vice President of Global Online Sales and Operations for Google Inc., an Internet search engine company. Ms. Sandberg also is a former Chief of Staff of the U.S. Treasury Department and previously served as a management consultant with McKinsey & Company and as an economist with The World Bank. Ms. Sandberg serves on a number of nonprofit boards including The Brookings Institution, The AdCouncil, Women for Women International, and V-Day. In 2008, Ms. Sandberg was named as one of the “50 Most Powerful Women in Business” by Fortune and one of the “50 Women to Watch” by The Wall Street Journal.

 

JAMES G. SHENNAN, JR., 68, has been a Starbucks director since March 1990. Mr. Shennan served as a general partner of Trinity Ventures, a venture capital organization, from September 1989 to July 2005, when he became general partner emeritus. Prior to joining Trinity Ventures, he served as the chief executive of Addison Consultants, Inc., an international marketing services firm, and two of its predecessor companies. Mr. Shennan also serves on the board of directors of P.F. Chang’s China Bistro, Inc.

 

JAVIER G. TERUEL, 59, has been a Starbucks director since September 2005. Mr. Teruel served as vice chairman of Colgate-Palmolive Company, a consumer products company, from July 2004 to April 2007, when he retired. Prior to being appointed vice chairman, Mr. Teruel served as Colgate-Palmolive’s executive vice president responsible for Asia, Central Europe, Africa and Hill’s Pet Nutrition. After joining Colgate in Mexico in 1971, Mr. Teruel served as vice president of Body Care in Global Business Development in New York, and president and general manager of Colgate-Mexico. He also served as president of Colgate-Europe, and as chief growth officer responsible for the company’s growth functions. Mr. Teruel currently serves as a partner of Spectron Desarrollo, SC, an investment management and consulting firm. He also serves on the boards of directors of The Pepsi Bottling Group, Inc. and J.C. Penney Company, Inc.

 

MYRON E. ULLMAN, III, 63, has been a Starbucks director since January 2003. Mr. Ullman has served as the chairman of the board of directors and chief executive officer of J.C. Penney Company, Inc., a chain of retail department stores, since December 2004. Mr. Ullman served as directeur general, group managing director of LVMH Möet Hennessy Louis Vuitton, a luxury goods manufacturer and retailer, from July 1999 to January 2002. From January 1995 to June 1999, he served as chairman and chief executive officer of DFS Group Limited, a retailer of luxury branded merchandise. From 1992 to 1995, Mr. Ullman served as chairman and chief executive officer of R.H. Macy & Co., Inc. He also serves on the board of directors of the Federal Reserve Bank of Dallas.

 

CRAIG E. WEATHERUP, 64, has been a Starbucks director since February 1999. Mr. Weatherup worked with PepsiCo, Inc. for 24 years and served as chief executive officer of its worldwide Pepsi-Cola business and President of PepsiCo, Inc. He also led the initial public offering of The Pepsi Bottling Group, Inc., where he served as chairman and chief executive officer from March 1999 to January 2003. Mr. Weatherup also serves on the board of directors of Macy’s, Inc.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION OF EACH OF THE NOMINEES TO THE BOARD OF DIRECTORS.

 

During fiscal 2009, our board of directors had three standing committees: the Audit and Compliance Committee (the “Audit Committee”), the Compensation and Management Development Committee (the “Compensation Committee”) and the Nominating and Corporate Governance Committee (the “Nominating Committee”). The board of directors makes committee and committee chair assignments annually at its meeting immediately following the annual meeting of shareholders, although further changes to committee assignments are made from time to time as deemed appropriate by the board. Reports from the Audit Committee and Compensation Committee appear below. The committees operate pursuant to written charters, which are available on our website at www.starbucks.com/aboutus/corporate_governance.asp.

 

The current composition of each board committee is:

 

		Compensation and		Nominating and Corporate
Audit and Compliance		Management Development		Governance
Javier G. Teruel (Chair)		Barbara Bass (Chair)		Craig E. Weatherup (Chair)
Mellody Hobson		Mellody Hobson		Barbara Bass
Kevin R. Johnson		Kevin R. Johnson		William W. Bradley
Craig E. Weatherup		James G. Shennan, Jr.		Sheryl Sandberg
		Javier G. Teruel		James G. Shennan, Jr.
		Myron E. Ullman, III

 

Our board of directors has determined that each of the following director nominees is an “independent director” as such term is defined under NASDAQ rules:

 

Barbara Bass		James G. Shennan, Jr.
William W. Bradley		Javier G. Teruel
Mellody Hobson		Myron E. Ullman, III
Kevin R. Johnson		Craig E. Weatherup
Sheryl Sandberg

 

In determining that Ms. Sandberg is independent, the board of directors considered her position as an officer of a private company from which Starbucks purchased certain advertising and marketing services in fiscal 2009. In determining that Mr. Teruel is independent, the board of directors considered his position on the board of directors of a large public company that has a business relationship with Starbucks. None of these relationships constitutes a “related-person transaction” under applicable SEC rules. Mr. Lee is currently serving as Starbucks interim executive vice president, Partner Resources. During his service as an interim executive officer, he is not considered independent under NASDAQ standards.

 

The board of directors also has determined that each member of its three committees meets applicable independence requirements as prescribed by NASDAQ, the SEC and the Internal Revenue Service (“IRS”).

 

With the assistance of Starbucks legal counsel, the Nominating Committee reviewed the applicable legal standards for board member and board committee independence and the criteria applied to determine “audit committee financial expert” status, as well as the answers to annual questionnaires completed by the independent directors. On the basis of this review, the Nominating Committee delivered its independence recommendations to the full board of directors. The board of directors made its independence and “audit committee financial expert” determinations based on the Nominating Committee’s recommendation and each member’s review of the information made available to the Nominating Committee.

 

As more fully described in its charter, the Audit Committee is responsible for overseeing our accounting and financial reporting processes, including the quarterly review and the annual audit of our consolidated financial statements by Deloitte & Touche LLP (“Deloitte”), our independent registered public accounting firm. Each of Ms. Hobson and Messrs. Johnson, Teruel and Weatherup (i) meets the independence criteria prescribed by applicable law and the rules of the SEC for audit committee membership and is an “independent director” as defined by NASDAQ rules; (ii) meets NASDAQ’s financial knowledge and sophistication requirements; and (iii) has been determined by the board of directors to be an “audit committee financial expert” under SEC rules. The “Audit and Compliance Committee Report” describes in more detail the Audit Committee’s responsibilities with regard to our financial statements and its interactions with Deloitte.

 

Review and Approval of Related-Person Transactions

 

Under the Audit Committee’s charter, and consistent with NASDAQ rules, any material potential or actual conflict of interest or transaction between Starbucks and any “related person” of Starbucks must be reviewed and approved or ratified by the Audit Committee. SEC rules define a “related person” of Starbucks as any Starbucks director (or nominee), executive officer, 5%-or-greater shareholder or immediate family member of any of these persons.

 

Our board of directors has adopted a Policy for the Review and Approval of Related-Person Transactions Required to Be Disclosed in Proxy Statements, which states that it is the policy of Starbucks not to participate in “related person” transactions. In select circumstances, if the transaction provides Starbucks with a demonstrable and significant strategic benefit that is in the best interests of Starbucks and its shareholders and has terms that are competitive with terms available from unaffiliated third parties, then the Audit Committee may approve the transaction. The policy also provides that any “related person” as defined above must notify the chair of the Audit Committee before becoming a party to, or engaging in, a potential related-person transaction that may require disclosure in our proxy statement under SEC rules, or if prior approval is not practicable, as soon as possible after engaging in the transaction. Based on current SEC rules, transactions covered by the policy include:

 

 

The Audit Committee chair has the discretion to determine whether a transaction is or may be covered by the policy. If the chair determines that the transaction is covered by the policy, then the full Audit Committee must review and approve it. The Audit Committee’s decision is final and binding. Additionally, the Audit Committee chair has discretion to approve, disapprove or seek full Audit Committee review of any immaterial transaction involving a related person (i.e., a transaction not otherwise required to be disclosed in the proxy statement).

 

In considering potential related-person transactions, the Audit Committee looks to SEC and NASDAQ rules, including the impact of a transaction on the independence of any director. Once the Audit Committee has determined that (i) the potential related-person transaction will provide Starbucks with a demonstrable and significant strategic benefit that is in the best interests of Starbucks and its shareholders and (ii) that the terms of the potential related-person transaction are competitive with terms available from unaffiliated third parties, the Audit Committee may consider other factors such as:

 

 

 

As part of fulfilling its responsibilities, the Audit Committee reviewed and discussed the audited consolidated financial statements for fiscal 2009 with management and Deloitte and discussed those matters required by Statement on Auditing Standards No. 61, “Communication with Audit Committees,” as amended, and SEC Regulation S-X, Rule 2-07, with Deloitte. The Audit Committee received the written disclosures and the letter from Deloitte required by applicable requirements of the Public Company Accounting Oversight Board regarding Deloitte’s communications with the Audit Committee concerning independence, and has discussed with Deloitte its independence.

 

Based on the Audit Committee’s review of the audited consolidated financial statements and its discussions with management, the internal audit function and Deloitte, the Audit Committee recommended to the board of directors that the audited consolidated financial statements for fiscal 2009 be included in the Starbucks Annual Report on Form 10-K filed with the SEC (“2009 10-K”).

 

Respectfully submitted,

 

Javier G. Teruel (Chair)

Mellody Hobson

Kevin R. Johnson

Craig E. Weatherup

 

As more fully described in its charter, the primary responsibilities of the Compensation Committee are to:

 

 

In addition, the Compensation Committee’s charter allows it to delegate its authority to subcommittees of the committee, as may be necessary or appropriate. At least annually, the Compensation Committee reviews and approves our executive compensation strategy and principles to ensure that they are aligned with our business strategy and objectives, shareholder interests, desired behaviors and corporate culture.

Summary of the Role of Management and Consultants in the Executive Compensation Process

 

In fiscal 2009, several members of senior management participated in the Compensation Committee’s executive compensation process. To assist in carrying out its responsibilities, the Compensation Committee also regularly received reports and recommendations from an outside independent compensation consultant, Frederic W. Cook & Co., Inc. (“Cook & Co.”). The Compensation Committee did not request, and management did not provide, specific compensation recommendations for fiscal 2009 compensation for Mr. Schultz. Towers Perrin, management’s consultant, provided market data and historical compensation information to the Compensation Committee and its consultant. Cook & Co. provided advice regarding best practices in executive compensation and compensation trends for chief executive officers to Barbara Bass, the committee’s chair. Ms. Bass, with input and review by Cook & Co., then developed specific compensation recommendations for Mr. Schultz for fiscal 2009. The Compensation Committee discussed those recommendations and reached consensus during an executive session of the independent directors without management present. All references to Towers Perrin and Cook & Co. in this proxy statement refer, respectively, to management’s compensation consultant and the Compensation Committee’s consultant.

 

Management’s Role in the Executive Compensation Process

 

Mr. Schultz, our chairman, president and chief executive officer, our executive vice president, Partner Resources (for a portion of fiscal 2009 our interim executive vice president, Partner Resources), and other key members of Partner Resources each played an important role in the Compensation Committee’s executive compensation process for fiscal 2009 and regularly attended committee meetings. “Partner Resources” refers to our human resources function. For fiscal 2009, Mr. Schultz provided his perspective to the Compensation Committee regarding executive compensation matters generally and the performance of the executives reporting to him. Members of the Partner Resources team presented recommendations to the Compensation Committee on the full range of annual executive compensation decisions, including (i) annual incentive bonus plan structure and participants; (ii) long-term incentive compensation strategy; (iii) target competitive positioning of executive compensation based on Company and individual performance; and (iv) target total direct compensation for each executive officer, including base salary adjustments, target incentive bonus and equity grants. At the Compensation Committee’s November 2008 meeting, the first meeting after the end of the fiscal year 2008, members of the Partner Resources team presented the committee with specific compensation recommendations for all executives other than Mr. Schultz for fiscal year 2009. These recommendations were developed in consultation with Mr. Schultz and were accompanied by market data provided by Towers Perrin, which was also reviewed by Cook & Co. During the November 2008 meeting, the Compensation Committee exercised its independent discretion whether to accept management’s recommendations and made final approvals about each executive officer’s compensation in an executive session of the independent directors without management present. Barbara Bass, the Compensation Committee’s chair, also met periodically with members of the Partner Resources team to confer on current and upcoming topics likely to be brought before the committee.

 

In accordance with NASDAQ rules, Mr. Schultz did not vote on executive compensation matters or attend executive sessions of the Compensation Committee nor was he present when his compensation was being discussed or approved. Mr. Lee resigned from the Compensation Committee effective April 2009 in order to serve as our interim executive vice president, Partner Resources. While a member of the Compensation Committee, Mr. Lee was not present when his consulting agreement was being discussed or approved. After his resignation from the Compensation Committee, he did not vote on executive compensation matters.

 

The Role of Consultants in the Executive Compensation Process

 

For fiscal 2009, the Compensation Committee had an outside independent compensation consultant. The Compensation Committee’s consultant regularly attends committee meetings and attends executive sessions as requested by Ms. Bass.

 

Cook & Co. has served as the Compensation Committee’s consultant since June 2007 and reported directly to the committee in fiscal 2009 to assist it, as requested, in fulfilling various aspects of the committee’s charter. Without the Compensation Committee’s prior approval, Cook & Co. will not perform any services for Starbucks

management, although it does work in cooperation with management as required to gather information necessary to carry out its obligations to the committee. While the Compensation Committee does not ask Cook & Co. for its own market data, the firm does validate the market data received from Towers Perrin, management’s consultant, supporting management’s recommendations.

 

During fiscal 2009, the Compensation Committee asked Cook & Co. to review, validate and provide input on the following tasks that Towers Perrin completed at management’s request:

 

 

For more information about the Compensation Committee’s activities, see “Compensation Discussion and Analysis” and “Compensation and Management Development Committee Report.”

 

Compensation Committee Interlocks and Insider Participation

 

No current member of the Compensation Committee, each of whom is listed under the “Compensation Committee Report” on page 39, nor Mr. Bradley, who served on the committee during a portion of fiscal 2009, was at any time during fiscal 2009 or at any other time an officer or employee of Starbucks, and no member had any relationship with Starbucks requiring disclosure as a related-person transaction in the section “Certain Relationships and Related Transactions” on page 51. Mr. Lee, our interim executive vice president, Partner Resources resigned from the Compensation Committee upon assuming the interim executive role. During fiscal 2009, none of our executive officers served on the compensation committee (or its equivalent) or board of directors of another entity whose executive officer served on our Compensation Committee.

 

As described more fully in its charter, the Nominating Committee is responsible for developing and implementing policies and procedures that are intended to constitute the board of directors and organize it appropriately to meet its fiduciary obligations to Starbucks and our shareholders on an ongoing basis. Among its specific duties, the Nominating Committee:

 

 

 

The Nominating Committee also annually assists the board of directors with its affirmative independence and expertise determinations. After consulting with the panel of independent directors, together with the chair of the Compensation Committee, the chair of the Nominating Committee annually reviews the performance of our chairman, president and chief executive officer and meets with him to share the findings of the review.

 

Biennially, at the first board of directors meeting following the annual meeting of shareholders, the independent directors select an independent director to preside at all of their executive sessions and act as a liaison between management and the independent directors. The independent directors meet in an executive session at each board meeting. Our presiding independent director also plays an active role in shaping agendas for board meetings and makes recommendations to the board regarding the structure of board and committee meetings. Mr. Ullman was selected after the 2008 Annual Meeting of Shareholders as the presiding independent director under the current guidelines and his current term expires at the board meeting immediately following the 2010 Annual Meeting of Shareholders in March 2010. The presiding independent director is limited to two consecutive two-year terms, so Mr. Ullman is eligible to be selected again in March 2010 to serve a second two-year term as presiding independent director.

 

Senior Management Succession Planning

 

In light of the critical importance of executive leadership to Starbucks success, we have an annual succession planning process that we refer to as Organization & Partner Planning (“OPP”). The OPP process is enterprise wide for managers up to and including our president and chief executive officer. Reflecting the significance the board attaches to succession planning, our Compensation Committee is named the Compensation and Management Development Committee.

 

Our board of directors’ involvement in the annual OPP process is outlined in our Corporate Governance Principles and Practices. The Principles provide that each year, the chair of the Compensation Committee, together with the chairman, president and chief executive officer, will review succession planning practices and procedures with the board, and provide the board with a recommendation as to succession in the event of each senior officer’s termination of employment with Starbucks for any reason (including death or disability).

 

Our Compensation Committee, pursuant to its charter, annually reviews the performance of the executive officers and the succession plans for each such officer’s position. As noted above, this information is then presented to the board of directors. The Compensation Committee also conducts an annual review of, and provides approval for, our management development and succession planning practices and strategies.

 

ceo Succession Planning

 

The chairman, president and chief executive officer provides an annual report to the board of directors assessing senior managers and their potential to succeed him or her. This report is developed in consultation with our executive vice president, Partner Resources and the chair of our Compensation Committee and includes contingency plans in the event of our chief executive officer’s termination of employment with Starbucks for any reason (including death or disability). The report to the board also contains the chief executive officer’s recommendation as to his or her successor. The full board has the primary responsibility to develop succession plans for the ceo position.

 

During fiscal 2009, the board of directors held ten meetings, the Audit Committee held eleven meetings, the Compensation Committee held eleven meetings and the Nominating Committee held four meetings. The board and

each committee hold an executive session without management present at each of their respective meetings. During fiscal 2009, each director, other than Messrs. Bradley and Teruel, attended at least 75% of all meetings of the board and board committees on which he or she served. For fiscal 2009, Mr. Bradley attended 60% (three out of five) of the Compensation Committee meetings held prior to his rotation off the Compensation Committee. Since his rotation off the Compensation Committee was mid-year, he did not attend 75% of the committee meetings at the time of his rotation. Mr. Bradley attended at least 75% of the aggregate number of board and committee meetings. For fiscal 2009, Mr. Teruel attended 70% (seven out of ten) of the board meetings as two of the meetings were called with relatively short advance notice after Mr. Teruel’s time had been committed elsewhere and Mr. Teruel was unable to attend one of the meetings for personal reasons. Mr. Teruel attended at least 75% of the aggregate number of board and committee meetings.

 

Our Corporate Governance Principles and Practices require each board member to attend our annual meeting of shareholders except for absences due to causes beyond the reasonable control of the director. All directors attended the 2009 Annual Meeting of Shareholders except Ms. Bass, who had a prior commitment out of the country.

 

Our Policy on Director Nominations is available at www.starbucks.com/aboutus/corporate_governance.asp. The purpose of the nominations policy is to describe the process by which candidates for possible inclusion in our recommended slate of director nominees (the “candidates”) are selected. The nominations policy was approved by the full board of directors and is administered by the Nominating Committee.

 

Minimum Criteria for Board Members

 

Each candidate must possess at least the following specific minimum qualifications:

 

 

Desirable Qualities and Skills

 

In addition, the Nominating Committee also considers it desirable that candidates possess the following qualities or skills:

 

 

 

Internal Process for Identifying Candidates

 

The Nominating Committee has two primary methods for identifying candidates (other than those proposed by shareholders, as discussed below). First, on a periodic basis, the Nominating Committee solicits ideas for possible candidates from a number of sources: members of the board; senior-level Starbucks executives; individuals personally known to the members of the board; and research, including database and Internet searches.

 

Second, the Nominating Committee may from time to time use its authority under its charter to retain at our expense one or more search firms to identify candidates (and to approve such firms’ fees and other retention terms). If the Nominating Committee retains one or more search firms, they may be asked to identify possible candidates who meet the minimum and desired qualifications expressed in the nominations policy, to interview and screen such candidates (including conducting appropriate background and reference checks), to act as a liaison among the board of directors, the Nominating Committee and each candidate during the screening and evaluation process, and thereafter to be available for consultation as needed by the Nominating Committee.

 

The nominations policy divides the process for candidates proposed by shareholders into the general nomination right of all shareholders and proposals by “qualified shareholders” (as described below).

 

General Nomination Right of All Shareholders

 

Any Starbucks shareholder may nominate one or more persons for election as a director at an annual meeting of shareholders if the shareholder complies with the notice, information and consent provisions contained in our bylaws. We have an advance notice bylaw provision. For the fiscal 2011 Annual Meeting of Shareholders, in order for the director nomination to be timely, a shareholder’s notice to our executive vice president, general counsel and secretary must be delivered to our principal executive offices not less than 120 days nor more than 150 days before the anniversary of the date of the 2010 Annual Meeting of Shareholders.

 

The procedures described in the next paragraph are meant to establish an additional means by which certain shareholders can have access to our process for identifying and evaluating candidates and is not meant to replace or limit shareholders’ general nomination rights in any way.

 

Proposals by Qualified Shareholders

 

In addition to those candidates identified through its own internal processes, in accordance with the nominations policy, the Nominating Committee will evaluate a candidate proposed by any single shareholder or group of shareholders that has beneficially owned more than 5% of our common stock for at least one year (and will hold the required number of shares through the annual meeting of shareholders) and that satisfies the notice, information and consent provisions in the nominations policy (a “qualified shareholder”). All candidates (whether identified internally or by a qualified shareholder) who, after evaluation, are then recommended by the Nominating Committee and approved by the board of directors, will be included in our recommended slate of director nominees in our proxy statement.

 

In order to be considered by the Nominating Committee for an upcoming annual meeting of shareholders, notice from a qualified shareholder regarding a potential candidate must be received by the Nominating Committee not less than 120 calendar days before the anniversary of the date of our proxy statement released to shareholders in connection with the previous year’s annual meeting.

 

Any candidate proposed by a qualified shareholder must be independent of the qualified shareholder in all respects as determined by the Nominating Committee or by applicable law. Any candidate submitted by a qualified shareholder must also meet the definition of an “independent director” under NASDAQ rules.

Evaluation of Candidates

 

The Nominating Committee will consider all candidates identified through the processes described above, and will evaluate each of them, including incumbents, based on the same criteria.

 

If, based on the Nominating Committee’s initial evaluation, a candidate continues to be of interest to the Nominating Committee, the chair of the Nominating Committee will interview the candidate and communicate the chair’s evaluation to the other Nominating Committee members and the chairman, president and chief executive officer. Later reviews will be conducted by other members of the Nominating Committee and senior management. Ultimately, background and reference checks will be conducted and the Nominating Committee will meet to finalize its list of recommended candidates for the board of directors’ consideration.

 

Timing of the Identification and Evaluation Process

 

Our fiscal year ends each year on the Sunday closest to September 30. The Nominating Committee usually meets in September and November to consider, among other things, candidates to be recommended to the board of directors for inclusion in our recommended slate of director nominees for the next annual meeting of shareholders and our proxy statement. The board usually meets each November to vote on, among other things, the slate of director nominees to be submitted to and recommended for election by shareholders at the annual meeting, which is typically held in March of the following calendar year.

 

Future Revisions to the Nominations Policy

 

The nominations policy is intended to provide a flexible set of guidelines for the effective functioning of our director nominations process. The Nominating Committee intends to review the nominations policy at least annually and anticipates that modifications will be necessary from time to time as our needs and circumstances evolve, and as applicable legal or listing standards change. The Nominating Committee may amend the nominations policy at any time, in which case the most current version will be available on our website.

 

Our Corporate Governance Principles and Practices are intended to provide a set of flexible guidelines for the effective functioning of the board of directors and are reviewed regularly and revised as necessary or appropriate in response to changing regulatory requirements and evolving best practices. They are posted on the Corporate Governance section of our website at www.starbucks.com/aboutus/corporate_governance.asp.

 

In addition to our Corporate Governance Principles and Practices, other information relating to corporate governance at Starbucks is available on the Corporate Governance section of our website, including:

 

 

You may obtain copies of these materials, free of charge, by sending a written request to: executive vice president, general counsel and secretary, Starbucks Corporation, 2401 Utah Avenue South, Mail Stop S-LA1, Seattle, Washington 98134. Please specify which documents you would like to receive.

 

The Procedure for Communicating Complaints and Concerns describes the manner in which interested persons can send communications to our board of directors, the committees of the board and to individual directors and describes our process for determining which communications will be relayed to board members. This complaints and concerns procedure provides that interested persons may telephone their complaints and concerns by calling the Starbucks Auditline at 1-800-300-3205 or sending written communications to the board, committees of the board and individual directors by mailing those communications to our third-party service provider for receiving these communications at:

 

Starbucks Corporation

[Addressee*]

P.O. Box 34507

Seattle, Washington 98124

 

 

Compensation Program for Non-Employee Directors

 

For fiscal 2009, the annual compensation program for non-employee directors provided for a total of $240,000 per year in compensation, composed of (i) a retainer of $120,000, which may be in the form of cash, stock options or a combination of both at the director’s election, and (ii) $120,000 in equity compensation in the form of stock options. The compensation program was approved by our board of directors in May 2007, on the recommendation of the Nominating Committee following its biennial non-employee director compensation review required by its charter and our Corporate Governance Principles and Practices. We pay at least 50% of non-employee director compensation in the form of stock options in order to align the interests of non-employee directors with shareholders. We do not pay chair or meeting fees as part of our non-employee director compensation program.

 

New non-employee directors first become eligible to receive the regular annual compensation in the first full fiscal year after they join the board of directors. In addition to the annual compensation program, upon first joining the board, non-employee directors are granted an initial stock option to acquire 30,000 shares of our common stock under the 2005 Non-Employee Director Sub-Plan to our 2005 Long-Term Equity Incentive Plan. The initial stock option grant vests in equal annual installments over a three-year period. Mr. Johnson and Ms. Sandberg were granted initial stock options in fiscal 2009. They are first eligible for the annual compensation in fiscal 2010.

 

Stock options have an exercise price equal to the closing market price of our common stock on the grant date. Pursuant to the 2005 Non-Employee Director Sub-Plan to our 2005 Long-Term Equity Incentive Plan, the number of options covered by each annual grant is determined by dividing the equity compensation amount for each director by the closing market price of our common stock on the grant date, multiplied by three. For example, for $120,000 of equity compensation and a closing market price of $15 per share on the grant date, the director would receive 24,000 stock options, which is the result of $120,000 divided by $15, or 8,000, multiplied by 3. Annual stock option grants vest one year after the date of grant. Stock options granted to non-employee directors generally cease vesting as of the date he or she no longer serves on the board of directors. However, unvested stock options will vest in full upon a non-employee director’s death or “retirement” (generally defined as leaving the board after attaining age 55 and at least six years of board service) or upon a change in control of Starbucks (described beginning on page 49). Five of the board’s nine current independent directors meet the retirement criteria.

 

In June 2009, the non-employee director compensation program was amended by our board of directors, on the recommendation of the Nominating Committee following its biennial non-employee director compensation review required by its charter and our Corporate Governance Principles and Practices. At the time the non-employee director compensation program was reviewed, the board believed that, in light of the economic decline, the

downturn in the Company’s performance and the related impact on partner compensation, the non-employee director compensation program should be adjusted downward accordingly. As such, for fiscal 2010, the annual compensation program for non-employee directors was decreased to provide for a total of $220,000 per year in compensation, composed of (i) a retainer of $110,000, which may be in the form of cash, stock options or a combination of both at the director’s election, and (ii) $110,000 in equity compensation in the form of stock options. When the Nominating Committee considered and ultimately recommended the fiscal 2010 non-employee director compensation, the committee reviewed competitive market data prepared by Towers Perrin for the same comparator group used to benchmark executive compensation for fiscal 2009. The level of non-employee director total compensation approved by the Nominating Committee was between the 65th and 70th percentile among comparator group companies and the board believed that the level was appropriate to attract and retain top board candidates. The board also agreed to review non-employee director compensation again in fiscal 2010.

 

Mr. Schultz does not participate in the compensation program for non-employee directors, but rather is compensated as an executive officer, as described in the section “Executive Compensation” beginning on page 20.

 

On April 6, 2009, Mr. Lee was named as interim executive vice president, Partner Resources. For his services as interim executive vice president, Mr. Lee was compensated pursuant to a consulting agreement that provided for a consulting fee of $25,000 per month plus reimbursement of ordinary business expenses. Mr. Lee remained on our board of directors during this period and was thus also compensated pursuant to the non-employee director compensation program. Effective October 1, 2009, the consulting agreement was amended by the Compensation Committee to increase the monthly consulting fee from $25,000 to $50,000 and to provide a one-time lump sum payment of $150,000. In November 2009, Kalen Holmes joined Starbucks as executive vice president, Partner Resources. Mr. Lee will continue with the Company on an interim basis to assist Ms. Holmes and ensure a smooth transition.

 

Fiscal 2009 Compensation of Non-Employee Directors

 

The following table shows fiscal 2009 compensation for non-employee directors. The amounts shown under the “Options Awards” column below represent compensation recognized for financial statement reporting purposes for fiscal 2009 for all outstanding option awards (as described further in footnote 1 below). Because the amounts reflected in the Option Awards column also include amounts from awards granted in prior years, the amounts in the “Total” column below may exceed $240,000 annually.

 

Fiscal 2009 Director Compensation

 

		Fees Earned
		or Paid in				Option				All Other
		Cash				Awards				Compensation				Total
Name		($)				($)(1)				($)				($)
Barbara Bass			—				258,682				—				258,682
William W. Bradley			60,000				207,481				—				267,481
Mellody Hobson			—				263,115				—				263,115
Kevin R. Johnson			N/A	(2)			38,182				—				38,182
Olden Lee			—				263,115				205,114	(3)			468,229
Sheryl Sandberg			N/A	(2)			38,182				—				38,182
James G. Shennan, Jr.			120,000				111,271				—				231,271
Javier G. Teruel			—				263,115				—				263,115
Myron E. Ullman, III			—				263,115				—				263,115
Craig E. Weatherup			—				258,682				—				258,682

 

 

 

The full grant date fair value of the stock option awards granted in fiscal 2009 to each director other than Messrs. Bradley, Johnson and Shennan and Ms. Sandberg, computed in accordance with GAAP, was $258,682. Messrs. Bradley and Shennan elected to receive a portion of their retainer in cash. As such, the GAAP full grant date fair value of the stock option award granted in fiscal 2009 to Mr. Bradley was $194,013 and Mr. Shennan was $129,343. As Mr. Johnson and Ms. Sandberg were new to the board of directors, they each received only their new director grant. As such, the GAAP full grant date fair value of the stock option award granted in fiscal 2009 to each of Mr. Johnson and Ms. Sandberg was $156,237.

 

As of September 27, 2009, the aggregate number of shares underlying outstanding option awards for each non-employee director were: Ms. Bass — 599,371 shares; Mr. Bradley — 191,154 shares; Ms. Hobson — 210,867 shares; Mr. Johnson — 30,000 shares; Mr. Lee — 272,225 shares; Ms. Sandberg — 30,000 shares; Mr. Shennan — 424,491 shares; Mr. Teruel — 210,867 shares; Mr. Ullman — 272,225 shares; and Mr. Weatherup — 580,601 shares.

 

Former Deferred Compensation Plan

 

Non-employee directors formerly could defer all or a portion of their compensation in the form of unfunded deferred stock units under a directors’ deferred compensation plan. The board of directors terminated future deferrals under the plan during fiscal 2005, so no further compensation may be deferred. Amounts previously deferred are unaffected and deferred stock units credited to non-employee directors who had previously deferred compensation under the plan remain outstanding. We do not provide above-market or preferential earnings on these amounts. Deferred stock units are settled in an equal number of shares of Starbucks common stock when plan participants leave the board. Deferred stock units cannot be voted or transferred. The number of deferred stock units held by each director is shown in the footnotes to the beneficial ownership table on page 17.

 

Director Stock Ownership Guidelines

 

The board of directors adopted stock ownership guidelines for non-employee directors in fiscal 2003. The original guidelines required a $200,000 investment within four years. In May 2007, the board revised the guidelines to increase the required investment to $240,000 in tandem with the increase to non-employee director compensation. In June 2009, when non-employee director compensation was amended to $220,000 per year, the board agreed to maintain the stock ownership guidelines at $240,000. All non-employee directors will have four years from their election to the board to achieve the $240,000 investment. Directors at the time of the May 2007 amendment have two years from their original deadline to achieve the additional $40,000 investment. Stock options do not count toward meeting the requirement. Each director must continue to hold the shares purchased as a result of the director’s investment for as long as he or she serves on our board. All non-employee directors are in compliance with the guidelines. Mr. Johnson and Ms. Sandberg have not yet served on the board for four years and are working toward making the required investment.

 

The following table sets forth information concerning the “beneficial ownership” of our common stock by (i) those persons who we know to beneficially own more than 5% of our outstanding common stock; (ii) our current directors and nominees; (iii) the “named executive officers” listed in the Summary Compensation Table on page 40; and (iv) all of our current directors and executive officers as a group. “Beneficial ownership” is a concept which takes into account shares that may be acquired within 60 days (such as by exercising vested stock options) and shares as to which the named person has or shares voting and/or investment power. Information provided for Morgan Stanley and FMR LLC is based on the latest Schedule 13G reports that each such investor had filed with the SEC as of the date of this proxy statement. Information for all other persons is provided as of December 1, 2009. Except as otherwise noted, the beneficial owners listed have sole voting and investment power with respect to shares beneficially owned. An asterisk in the percent of class column indicates beneficial ownership of less than 1%.

 

		Amount and Nature of
Name of Beneficial Owner		Beneficial Ownership				Percent of Class(1)
Directors and Officers
Howard Schultz			31,349,258	(2)			4.2	%
Barbara Bass			633,937	(3)			*
William W. Bradley			205,965	(4)			*
Mellody Hobson			225,712	(5)			*
Kevin R. Johnson			14,000				*
Olden Lee			291,147	(6)			*
Sheryl Sandberg			855				*
James G. Shennan, Jr.			692,975	(7)			*
Javier G. Teruel			223,467	(8)			*
Myron E. Ullman, III			312,225	(9)			*
Craig E. Weatherup			570,601	(10)			*
Troy Alstead			550,695	(11)			*
Clifford Burrows			332,695	(12)			*
Martin Coles			842,529	(13)			*
Arthur Rubinfeld			165,221	(14)			*
Peter J. Bocian			6,390	(15)			*
All current directors and executive officers as a group (22 persons)			37,390,568				4.9	%
5% Shareholders
FMR LLC			77,835,082	(16)			10.5	%

 

 

 

The Compensation Committee determines our compensation objectives, philosophy and forms of compensation and benefits for all partners, including executives. The Compensation Committee submits several key compensation elements for our executive officers to the independent members of the full board of directors for their review and approval. Additionally, several members of senior management participate in the Compensation Committee’s executive compensation process (as noted in the “Compensation Committee” section beginning on page 7) and the Committee regularly receives reports and recommendations from Cook & Co., its outside independent compensation consultant. This Compensation Discussion and Analysis discusses and analyzes our executive compensation program and the amounts shown in the executive compensation tables that follow.

 

Fiscal 2009 — The Year In Review

 

When determining fiscal 2009 target compensation, the Company expected to continue to face a very challenging economic environment. As a result, the Compensation Committee did not approve base salary increases for the named executive officers (other than Mr. Alstead in connection with his promotion to chief financial officer) because it believed fiscal 2008 levels remained competitive and Company performance for the prior fiscal year did not warrant an increase. In addition, the Compensation Committee revised our long-term incentive program to include performance-based restricted stock units (“performance RSUs”) as well as stock options to help drive Company performance. The Compensation Committee determined that Mr. Schultz’s target fiscal 2009 compensation should be primarily tied to increasing our share price. Thus, his compensation package consisted of base salary and a long-term incentive award consisting only of stock options. In January 2009, the Compensation Committee, upon Mr. Schultz’s request, reduced his base salary for fiscal 2009 to $6,900 effective March 30, 2009.

 

Fiscal 2009 was a challenging year for Starbucks. We were confronted with extraordinary economic and operating challenges, in addition to facing an increasingly competitive landscape. Despite this difficult environment, Starbucks delivered strong financial results by applying a more disciplined focus on operations and introducing numerous initiatives to permanently improve the Company’s cost structure. For fiscal 2009, these measures resulted in a full-year cost savings of approximately $580 million (exceeding the most recent target by $30 million), an earnings per share increase of 21% from the prior year and an operating margin improvement of 80 basis points from the prior year. Because our executive compensation program emphasizes pay for performance, compensation awarded for fiscal 2009 reflected the positive results achieved in a particularly difficult environment.

 

As a result of the Company’s strong fiscal 2009 performance, our executive officers, including the named executive officers other than Mr. Schultz, received bonus payouts under our annual incentive bonus plan. In addition to these bonuses, we paid discretionary bonuses to reward the contributions of our executive officers in meeting our operational goals despite the challenging economic environment. Additional information regarding discretionary bonuses is provided on page 31.

 

Fiscal 2010 — The Year Ahead

 

Although the global economy has shown some signs of improvement, management recognizes the difficult economic situation that many consumers are still facing and does not expect a significant change in the global economic environment over the course of fiscal 2010. The Compensation Committee evaluated compensation for fiscal 2010 with an eye toward balancing retention of key executive officers with our pay for performance principles and anticipated costs to the Company. With this in mind, the Compensation Committee kept the same elements of compensation for fiscal 2010 as the elements in place for fiscal 2009. As such, fiscal 2010 target total direct compensation consists of base salary, annual incentive bonus and long-term incentive compensation in the form of stock options and performance RSUs. The Compensation Committee believes this combination of elements of compensation is the appropriate mix to motivate future performance, to drive Company results and retain executive officers. For fiscal 2010, Mr. Schultz will participate in the same elements of compensation as the other executive officers. In November 2009, the Compensation Committee approved a base salary increase for Mr. Schultz to $1.3 million effective December 1, 2009.

Executive Compensation Program Objectives and Design

 

Our executive compensation program is designed to achieve four key objectives:

 

 

To achieve these objectives, we structured our executive compensation program to:

 

 

In this proxy statement, the term “executive officers” means our most senior executives, who are all listed under the heading “Executive Officers” in our 2009 10-K (available on our website at http://investor.starbucks.com). The term “named executive officers” means the four current executive officers named in the compensation tables that follow plus Martin Coles, our former president, Starbucks Coffee International, who left the Company effective December 1, 2009 and Peter J. Bocian, our former executive vice president, chief financial officer and chief administrative officer, who left the Company effective November 25, 2008. “Compensation Committee” or “Committee” means the Compensation and Management Development Committee of the board of directors.

 

Starbucks Total Pay Philosophy

 

Our “Total Pay” compensation philosophy is designed to recognize and reward the contributions of all partners, including executives, in achieving our strategic goals and business objectives, while aligning our compensation program with shareholder interests and our mission statement and guiding principles. You can find a copy of our mission statement and guiding principles on our website in the “About Us” section. We regularly assess our total pay package, and we adjust it as appropriate to remain competitive and to enable us to attract and retain our partners. We also offer a comprehensive benefits package, including comprehensive health care to all eligible full-and part-time partners in the United States and internationally (except in countries where the government provides health care), and provide a broad-based equity program to all eligible global partners, and partner stock purchase programs in the United States and Canada. We believe our Total Pay practices motivate our executives to build long-term shareholder value and take care of the partners who take care of our customers.

Elements of Executive Compensation Program

 

The following table lists the elements of our fiscal 2009 executive compensation program and the primary purpose of each.

 

Element		Objectives and Basis		Form
Base Salary		Provide base compensation that is competitive for each role		Cash
Annual Incentive Bonus		Annual incentive to drive Company, business unit, where appropriate, and individual performance		Cash
Long-Term Incentive		Long-term incentive to drive Company performance and align executives’ interests with shareholders’ interests; retain executives through long-term vesting and potential wealth accumulation		Performance RSUs, stock options
Perquisites and Other Executive Benefits		Provide for the safety and wellness of our executives, and other purposes as discussed below		Various (see discussion below)
Discretionary Bonuses and Equity Awards		Reward extraordinary performance, attract top executive talent from other companies; retain executives through long-term vesting and potential wealth accumulation		Cash, stock options, time-based restricted stock units (“time-based RSUs”)
Deferred Compensation		Provide tax-deferred means to save for retirement		Eligibility to participate in 401(k) plan and non-qualified management deferred compensation plan
General Partner Benefits		Offer competitive benefits package that includes all benefits offered to partners generally		Eligibility to participate in partner health and welfare plans, stock purchase plan and other broad-based partner benefits

 

Determining Executive Compensation at Starbucks

 

Timing of Executive Compensation Decisions for Fiscal 2009 Compensation

 

Annual executive compensation decisions are made at the November Compensation Committee meeting, which is the Committee’s first regular meeting after fiscal year-end. During this meeting, the Compensation Committee approves target total direct compensation, which is comprised of:

 

 

For example, in its first meeting for fiscal 2009, which occurred in November 2008, the Compensation Committee approved base salaries and target annual incentive bonus amounts for fiscal 2009. At the same meeting, the Compensation Committee reviewed fiscal 2008 performance and determined a fiscal 2009 target total direct compensation level.

 

Tally Sheets

 

When making executive compensation decisions, the Compensation Committee reviews tally sheets showing, for each executive officer: (i) targeted value of base pay, annual incentive bonus and equity award grants for the current year and each of the past several years; (ii) actual realized value for each of the past several years (the sum of

cash received, gains realized from equity awards, and the value of perquisites and other benefits); (iii) the amount of unrealized value from prior equity award grants and accumulated deferred compensation; and (iv) the amount the executive could realize upon a change in control or any severance arrangement, which for Starbucks includes only amounts from the acceleration of equity award vesting. Although tally sheets do not drive individual executive compensation decisions, the Compensation Committee uses tally sheets for several purposes. First, it uses tally sheets as a reference to ensure Committee members understand the total compensation being delivered to executives each year and over a multi-year period. Tally sheets also enable the Compensation Committee to validate its strategy of paying a substantial majority of executive compensation in the form of equity, by showing amounts realized and unrealized by executives from prior equity grants. In some cases, the Compensation Committee’s review of tally sheets may lead to changes in the Company’s compensation benefits and perquisites. For fiscal 2009, there were no changes to the Company’s benefits and perquisites based on the Compensation Committee’s review of tally sheets.

 

Compensation Decision Process

 

The timing of executive compensation decisions at Starbucks is discussed above. When making compensation decisions, the Compensation Committee begins by reviewing competitive market data to see how our executive pay levels compare to other companies. However, the Compensation Committee does not use formulas or rigidly set the compensation of our executives based on this data, as the Compensation Committee also looks at other factors (as described below) when setting compensation. The Compensation Committee then considers recommendations and input from management, and input from Cook & Co. as described on page 8. As noted above, management did not provide specific compensation recommendations for Mr. Schultz. Recommendations and input are influenced by factors that may vary from year to year, but typically include prior-year Company and business unit financial performance and shareholder return, retention, internal pay equity (i.e., considering pay for similar jobs and jobs at different levels within Starbucks), compensation history, and whether individual performance was particularly strong or weak in the prior year. The Compensation Committee also considers how it can optimize our tax deductibility of executive compensation under Section 162(m) of the Internal Revenue Code by delivering compensation that is performance-based to the greatest extent possible while also delivering non-performance-based elements at competitive levels. The Compensation Committee applies the factors it deems most relevant for the particular fiscal year to the most recent market data available to set compensation at the desired competitive positioning.

 

When deciding fiscal 2009 target compensation, the primary considerations that drove the Compensation Committee’s decisions were:

 

 

Setting the Pay Mix

 

The Compensation Committee and the independent directors determine what portion of each executive’s compensation will be in the form of variable compensation, with the variable portion generally increasing as we give executives greater levels of responsibility. The percentage of each named executive officer’s fiscal 2009 target total direct compensation that was variable compensation as of the time it was initially approved (at the beginning of the fiscal year) is shown in the table below. Target total direct compensation is composed of base salary, target annual incentive bonus and target long-term incentive compensation. We define fiscal 2009 variable compensation to include target annual incentive bonuses under our annual incentive bonus plan, the Executive Management Bonus Plan, and economic value of stock options and performance RSUs (at target) awarded in fiscal 2009. We designed our total direct compensation mix to encourage our executives to take appropriate risks aimed at improving Company performance and building long-term shareholder value. As such, our pay for performance compensation is based on Company, business unit and individual performance on a short-term basis and Company performance on a long-term basis. In addition, to mitigate any incentive to take inappropriate risks, each of our executive officers is subject to stock ownership requirements as noted on page 37 as well as our Recovery of Incentive Compensation Policy as described on page 37.

 

The table below shows the percentage of variable compensation for each of the named executive officers. The percentage below is calculated by dividing (i) the variable compensation amount by (ii) the target total direct compensation, which includes the variable compensation plus fiscal 2009 base salary.

 

 

 

 

Comparator Group Companies and Benchmarking

 

The Compensation Committee refers to executive compensation surveys prepared by Towers Perrin when it reviews and approves executive compensation. The surveys reflect compensation levels and practices for executives holding comparable positions at targeted comparator group companies, which help the Compensation Committee set compensation at competitive levels. The Compensation Committee, with assistance from Cook & Co., annually reviews specific criteria and recommendations regarding companies to add or remove from the comparator group. The Compensation Committee’s primary selection criteria are revenue, market capitalization, industry and international operations; secondary selection criteria are growth in revenue, earnings per share, total shareholder return and brand recognition.

 

Based on the above criteria, the Compensation Committee selected a fiscal 2009 comparator group of 17 companies, as shown in the table below. Although changes to the comparator group are made when appropriate, the Compensation Committee prefers to keep the group substantially consistent from year to year to produce more consistent and useful compensation benchmarking. In May 2008, when the Compensation Committee conducted its annual review of the comparator group for fiscal 2009, it removed Wendy’s International from the comparator group because Wendy’s was acquired in 2008. Otherwise, the comparator group did not change from fiscal 2008 to fiscal 2009.

 

Starbucks Fiscal 2009 Executive Compensation Comparator Group Companies
Specialty Retail		Consumer Products		Restaurants		Supply Chain/Logistics
Bed Bath & Beyond		Avon Products		Brinker International		FedEx
Best Buy		Clorox		McDonald’s
Gap		Colgate-Palmolive		YUM! Brands
Limited Brands		General Mills
Polo Ralph Lauren		Hershey Foods
Staples		NIKE
Whole Foods Market

 

In June 2009, when the Compensation Committee conducted its annual review of the comparator group for the next fiscal year, it removed Brinker International from the group as Brinker International no longer met a majority of the primary criteria for a period longer than one year. The Compensation Committee added Darden Restaurants to the comparator group list for fiscal 2010 to replace both Wendy’s International and Brinker International in the restaurant industry. Coach was added to the comparator group for fiscal 2010 as it represents an additional specialty retail company with a well-recognized brand. The changes to the comparator group made in fiscal 2009 did not affect fiscal 2009 compensation decisions.

 

The Compensation Committee compares each executive officer’s base salary, target annual incentive bonus and long-term incentive compensation value, both separately and in the aggregate, to amounts paid for similar positions at comparator group companies. The Compensation Committee’s philosophy is to target total direct compensation to executives at approximately the median (or 50^th percentile) among comparator group companies (based on the Company’s performance at plan). The Compensation Committee considers the median range to generally be plus or minus 10% of our comparator group’s median. The Compensation Committee believes that setting target total direct compensation at the median range helps achieve the executive compensation program objectives and design (as described above). However, target total direct compensation may vary from the 50th percentile of comparator group companies depending on the factors the Compensation Committee considers most relevant each year, as discussed above under “Compensation Decision Process.” Target total direct compensation is set around the beginning of each fiscal year. See “Timing of Executive Compensation Decisions for Fiscal 2009 Compensation” on page 22. When determining each element of target total direct compensation, the Compensation Committee reviewed comparator group data on a one-year and three-year basis. Generally, for the annual compensation review, greater weight is given to the three-year-average data due to potential variability in data year-over-year, while one-year data is considered primarily for new hire or promotional compensation decisions, as was the case for Mr. Alstead.

As noted above, in specific cases, target total direct compensation may be higher or lower than median where appropriate. Fiscal 2009 target total direct compensation for Mr. Burrows was positioned near the median. For all other named executive officers, the target total direct compensation was above or below the median, as follows. Since Mr. Schultz’s variable compensation consisted entirely of a long-term incentive award in the form of stock options, his long-term equity award was above median. As a result of the above-median long-term incentive compensation award, Mr. Schultz’s target total direct compensation was also above median. Mr. Alstead’s target total direct compensation was below median because he was new in his role as executive vice president, chief financial officer and chief administrative officer. Mr. Coles’ target total direct compensation was slightly above median because his base salary was not adjusted from the chief operating officer level when Mr. Coles reassumed the role of president, Starbucks Coffee International in late fiscal 2008. Since Mr. Coles’ base salary was above median, his target bonus of 65% of his higher base salary resulted in an annual incentive compensation target above median. As a result, his target total direct compensation was above median. Mr. Rubinfeld’s target total direct compensation was above median as the most closely comparable position that Mr. Rubinfeld was benchmarked against does not encompass all of the job responsibilities of Mr. Rubinfeld’s position, which includes real estate development, store design and store initiatives. In addition, for fiscal 2009, the Compensation Committee wanted to provide additional incentive to Mr. Rubinfeld as there were several major store initiatives underway in fiscal 2009 that were key to meeting the Company’s targeted operating performance.

 

The table below compares fiscal 2009 target compensation versus fiscal 2009 actual compensation for each of the named executive officers. Each element of fiscal 2009 compensation is further analyzed below.

 

 

 

 

 

Analysis of Executive Compensation Elements

 

Base Salary.  We set executive base salaries at levels we believe are competitive based on each individual executive’s role and responsibilities. We review base salaries for executive officers on an annual basis, and at the time of hire, promotion or other change in responsibilities. Base salary changes also impact target annual incentive bonus amounts, and actual annual incentive bonus payouts, because they are based on a percentage of base salary. Consistent with the philosophy discussed above, our executive base salaries are generally set at approximately the median or 50th percentile of salaries paid by comparator group companies for comparable positions. However, when setting each executive’s base salary, we consider a number of factors along with input from our chairman, president and chief executive officer to determine whether base salaries should be higher or lower than median. These factors include the level of responsibility and complexity of the executive’s job, whether individual performance in the prior year was particularly strong or weak, how the executive’s salary compares to the salaries of other Starbucks executives, and the salaries paid by comparator group companies for the same or similar positions. Fiscal 2009 executive base salaries remained unchanged from fiscal 2008 levels, other than for Mr. Alstead, because we believed fiscal 2008 levels remained competitive and Company performance did not warrant an increase. Mr. Alstead received a base salary increase to recognize his promotion to executive vice president, chief financial officer and chief administrative officer. In January 2009, the Compensation Committee, upon Mr. Schultz’s request, reduced his base salary for fiscal 2009 from $1.19 million to $6,900 effective March 30, 2009. In November 2009, the Compensation Committee approved a base salary increase for Mr. Schultz to $1.3 million effective December 1, 2009.

 

As discussed above, in specific cases we set base salaries higher or lower than the median where appropriate. Mr. Alstead’s base salary was below median because he was new in his role as executive vice president, chief financial officer and chief administrative officer. Messrs. Coles’ and Rubinfeld’s base salaries were above median. Mr. Coles’ base salary was above median because his base salary was not adjusted from the chief operating officer level when Mr. Coles reassumed the role of president, Starbucks Coffee International in late fiscal 2008. Mr. Rubinfeld’s base salary was above median because the most closely comparable position that Mr. Rubinfeld was benchmarked against does not encompass all of the job responsibilities of Mr. Rubinfeld’s position.

 

Annual Incentive Bonus.  We provide an annual incentive bonus opportunity for executive officers to drive Company, business unit where appropriate, and individual performance on a year-over-year basis. For fiscal 2009, all the executive officers with a title of executive vice president or above (other than Mr. Schultz) participated in the Executive Management Bonus Plan at target annual incentive bonus amounts expressed as a percentage of base salary. The target annual incentive bonus amounts were generally set at the median of comparator group companies.

 

However, as discussed above, in specific cases, we set target bonuses higher or lower than the median where appropriate based on factors such as the Company’s prior-year performance, individual performance and retention concerns. Since Mr. Alstead’s base salary was below median, his resulting target bonus, set as a percentage of his base salary (50%), was below median. For fiscal 2009, Messrs. Coles’ and Rubinfeld’s target bonuses were above median because each executive’s base salary was above median. Since target bonuses are set as a percentage of base salary, a base salary above median resulted in a target incentive bonus above median.

 

The total annual incentive bonus award actually delivered to an executive was determined based on the extent to which the objective performance goal and individual performance goals were achieved. Under the Executive Management Bonus Plan, Company or business unit performance above or below the primary objective target raises or reduces, respectively, the payouts related to both the primary objective performance goal and the individual performance goals. However, Company or business unit performance above or below the primary objective

performance goal does not affect the payouts related to the secondary objective performance goal. The Executive Management Bonus Plan does not permit a payout of more than $3.5 million to any executive officer for any single fiscal year based on achievement of objective performance goals. In addition, if participating executive officers achieve below 80% of their individual performance goals, then they do not receive any portion of the annual incentive bonus award under the Executive Management Bonus Plan.

 

For the named executive officers (other than Mr. Schultz), the annual incentive bonus opportunity was composed of objective performance goals (both primary and secondary) and individual performance goals. The primary objective performance goal for the named executive officers with responsibilities that cross business units (Messrs. Alstead and Rubinfeld) was “adjusted operating income”; for Mr. Burrows it was “adjusted U.S. business unit profit contribution” and for Mr. Coles it was “adjusted International business unit profit contribution” (each term as defined below). The secondary objective performance goal was adjusted earnings per share (as defined below). The weighting (as a percentage of each executive’s target annual incentive bonus amount) among the goals for each of the named executive officers for fiscal 2009 was as follows.

 

						Weighting
		Target Bonus (as a				Primary Objective				Secondary Objective				Individual
Named Executive Officer		% of Base Salary)				Goal (%)				Goal (%)				Goal (%)
Howard Schultz			N/A				N/A				N/A				N/A
Troy Alstead			50				50				30				20
Clifford Burrows			65				50				30				20
Martin Coles			65				50				30				20
Arthur Rubinfeld			65				50				30				20
Peter J. Bocian			N/A				N/A				N/A				N/A

 

Objective Performance Goals

 

For fiscal 2009, the primary objective performance goal for the executive officers was either adjusted business unit profit contribution (for executives responsible for a single business unit) or adjusted operating income (for executives with responsibilities that cross business units). For compensation purposes, we define operating income as consolidated business unit profit contribution less total unallocated corporate general and administrative expense. The primary objective measures are adjusted to exclude the impact of any (i) significant acquisitions or dispositions of businesses; (ii) one-time, non-operating charges; and (iii) accounting changes (including early adoption of any accounting change mandated by any governing body, organization or authority). The secondary objective performance goal was adjusted earnings per share. Earnings per share is adjusted to exclude the impact of any (i) significant acquisitions or dispositions of businesses; (ii) one-time, non-operating charges; and (iii) accounting changes (including early adoption of any accounting change mandated by any governing body, organization or authority). Adjusted earnings per share is also adjusted for any stock split, stock dividend or other recapitalization.

We chose these measures because they directly link to Company performance and they are easy to track and communicate. Since business unit profit contribution performance and operating income (primary objective measure) track core operating performance more closely than earnings per share, we based 50% of the total annual incentive bonus on the primary objective performance measure and 30% of the total annual incentive bonus on the secondary objective performance measure. Individual goals were set at 20% of total incentive bonus goal weighting in fiscal 2009 for participating executives.

 

 

As noted above, the fiscal 2009 primary objective performance measure was either adjusted business unit profit contribution or adjusted Company operating income. To provide increased incentives for better performance, the fiscal 2009 Executive Management Bonus Plan primary objective measure had a sliding scale that provided for annual incentive bonus payouts greater than the target bonus if adjusted operating income or the business unit profit contribution was greater than the target (up to a 200% payout) or less than the target bonus if adjusted operating income or the business unit profit contribution was lower than the target (subject to a threshold amount). Final calculations for primary objective measures were based on a scale with levels of primary objective measure performance that correspond to 1% increments. For fiscal 2009, the Company performance of the primary objective measure was:

 

 

The fiscal 2009 secondary objective performance measure was adjusted earnings per share. As shown in the table below, target adjusted earnings per share for fiscal 2009 was $0.75-0.78. To provide increased incentive for better performance, the fiscal 2009 Executive Management Bonus Plan secondary objective performance measure had a sliding scale that provided for bonus payouts greater than the target bonus if adjusted earnings per share was $0.79 or more (up to a 200% payout for $0.85 or greater) or less than the target bonus if adjusted earnings per share was $0.74 or lower (subject to a threshold adjusted earnings per share of $0.72).

 

 

Fiscal 2009 adjusted earnings per share was $0.80, providing for a 129% payout on the secondary objective performance measure. For fiscal 2009, GAAP earnings per share of $0.52 was adjusted to $0.80 as a result of $0.28 in charges related to restructuring costs.

 

We used adjusted operating income, adjusted business unit profit contribution and adjusted earnings per share rather than operating income, business unit profit contribution and earnings per share calculated in accordance with GAAP because we believe adjusted measures give executives a more certain target that is within their sphere of control and accountability. The same adjusted measures were used for the broader Company management incentive plan. This avoids potentially interfering with the incentive purpose of the awards by increasing or reducing actual bonus payouts based on accounting impacts of unusual events and changes in accounting rules. In setting the objective performance target, we consider target Company performance under the board-approved annual operating and long-term strategic plans, the potential payouts based on achievement at different levels on the sliding scale and whether the portion of incremental earnings paid as bonuses rather than returned to shareholders is appropriate. Objective performance goals are generally targeted where they (i) require year-over-year growth in our business and (ii) are not easily achieved. For example, in a challenging economic environment, 5.6%-9.9% growth in adjusted earnings per share from $0.71 in fiscal 2008 was required in order to achieve the target fiscal 2009 adjusted earnings per share of $0.75-$0.78. For every cent of adjusted earnings per share over the target, we believe it is appropriate to provide for increased bonus payouts due to the significant shareholder returns commonly generated by above-target earnings per share performance. The Compensation Committee and the independent directors have the discretion under the plan to reduce the awards paid under the Executive Management Bonus Plan, but do not have discretion to increase payouts that are based on achievement of the objective performance goals or make a payout based on the objective performance goals if the threshold targets are not achieved.

 

Individual Performance Goals

 

For fiscal 2009, all named executive officers participating in the annual incentive bonus plan had individual performance goals under the plan. We believe individual bonus goals are appropriate primarily to drive individual performance against strategic corporate initiatives. Individual annual incentive bonus goals vary depending on our strategic plan initiatives and each executive’s responsibilities. Individual goals were set at 20% of total incentive bonus goal weighting in fiscal 2009 for participating executives. We chose 20% because we wanted to drive individual development of executives while at the same time maximizing tax deductible performance-based compensation. Individual annual incentive bonus goals are set prior to the start of each fiscal year. Individual goals for fiscal 2009 under the Executive Management Bonus Plan for the participating named executive officers were based on the following categories:

 

 

 

Performance Under the Annual Incentive Bonus Plan

 

After the end of fiscal 2009, the Compensation Committee determined the extent to which the performance goals were achieved, and subsequently approved, certified and recommended to the independent directors (who also approved and certified) the amount of the award to be paid to each participant in the annual incentive bonus plan, the Executive Management Bonus Plan. Based on fiscal 2009 financial performance, for some of the named executive officers, the target primary and secondary objective performance goals were met. As a result, there were annual incentive bonus payouts under the Executive Management Bonus Plan for fiscal 2009. The table below shows the fiscal 2009 levels of achievement of the performance metrics and the fiscal 2009 annual incentive payouts, which are also disclosed in the “Non-Equity Incentive Compensation Plan” column of the Summary Compensation Table on page 40.

 

Fiscal 2009 Executive Management Bonus Plan Payout
		Achievement of				Achievement of				Achievement of								Target
		Primary Objective				Secondary Objective				Individual				Total				Bonus (as a				Total Payout
		Performance Goal				Performance Goal				Performance Goals				Payout				% of Base				(as a % of
Named Executive Officer		(%)				(%)				(%)				($)(1)				Salary)				Base Salary)
Howard Schultz			N/A				N/A				N/A				N/A				N/A				N/A
Troy Alstead			100				129				97				243,000				50				54
Clifford Burrows			107				129				97				436,865				65				73
Martin Coles			0				129				80				182,374				65				25
Arthur Rubinfeld			100				129				98				316,778				65				70
Peter J. Bocian			N/A				N/A				N/A				N/A				N/A				N/A

 

 

 

Discretionary Bonuses.  We paid discretionary bonuses to reward our executive officers for their contributions to the Company’s strong fiscal 2009 performance during extraordinarily challenging times that were not adequately reflected in the payout calculations under the Executive Management Bonus Plan. The Compensation Committee determined that certain items, in addition to the adjustments described above, impacted the calculations of the final primary objective performance results under the Executive Management Bonus Plan in a manner that would not yield bonus payout amounts that appropriately rewarded the achievement of the Company’s targeted operating performance. These items included adjustments related to (i) the effect of internal reorganizations during the period that changed the scope of responsibility of the business unit leader; (ii) the variance from annual operating assumptions for (a) foreign exchange and (b) mark-to-market adjustment of the non-qualified deferred compensation plan liability; and (iii) the effect of other significant, unusual and/or non-recurring events. These same adjustments were applied to the General Management Incentive Plan, the incentive plan that applies to eligible partners below the executive officer level. The Compensation Committee approved payment of a discretionary bonus to each named executive officer, other than Mr. Schultz, in the amount of the difference between the actual bonus payouts under the Executive Management Bonus Plan and the bonus payouts that would have been achieved had the adjustments to the primary objective performance measures been made to exclude the impact of the items described above. In addition, the Compensation Committee approved a discretionary bonus for Mr. Schultz as a result of the strong financial results for fiscal 2009 as well as Mr. Schultz’s leadership during a transformational year for the business, even though he did not participate in the Executive Management Bonus Plan for fiscal 2009. The discretionary bonus amounts were: Mr. Schultz —

$1 million; Mr. Alstead — $59,252; Mr. Burrows — $139,570; Mr. Coles — $310,837 and Mr. Rubinfeld — $77,360. These amounts are also disclosed in the “Bonus” column of Summary Compensation Table on page 40.

 

Long-Term Incentive Compensation.  We design our long-term incentive compensation program to drive long-term Company performance, align the interests of executives with those of our shareholders and retain executives through long-term vesting and potential wealth accumulation. The Compensation Committee reviews long-term incentive compensation strategy and vehicles at least annually. Our long-term incentive compensation program is broad-based, with over 90,000 partners in 16 countries at all levels, including qualified part-time partners, receiving equity awards in the most recent annual grant in November 2009. The Compensation Committee continues to believe in the importance of equity compensation for all executive officers and the broad-based partner population, for purposes of partner incentive and retention, and alignment of interests with shareholders. Additionally, because we do not have a pension or a supplemental executive retirement plan, we believe our executives plan for their retirement substantially through potential wealth accumulation from equity gains.

 

In fiscal 2009, as in prior years, long-term performance-based compensation of executive officers included stock option awards as disclosed in the Fiscal 2009 Grants of Plan-Based Awards table on page 42. For fiscal 2009, the Compensation Committee introduced performance RSUs as part of the total target long-term incentive compensation award for executive officers, with 50% of the award granted to executive officers in the form of stock options and 50% in the form of performance RSUs. The Compensation Committee continues to believe that stock options are an appropriate equity vehicle for a portion of long-term incentive compensation for our executives because stock options align their interests with the interests of shareholders by having value only if our stock price increases over time. The Compensation Committee believes that performance RSUs are an appropriate equity vehicle for a portion of long-term incentive compensation for our executives because performance RSUs align executives’ interests with the interests of shareholders by having value only if performance goals are met. Additionally, once the performance RSUs are earned, they are subject to time-based vesting. Thus, the value of performance RSUs increases if our stock price increases. Performance RSUs also may serve in retaining executives as they have a more stable value as the executive will receive economic value (if performance goals are met) even if the stock price declines or stays flat (as value is realized upon vesting).

 

The amount of equity granted to executive officers is based on a target economic value, which was set at approximately the 50th percentile of comparator group companies for comparable positions. We also take into consideration share usage, dilution and shares available under the equity plan. We do not consider the realized or unrealized value of prior equity awards when determining the target economic value of new awards because each equity award is awarded as an incentive to drive future shareholder return.

 

As discussed above, in specific cases we may use discretion to set the target economic value of the equity award higher or lower than the median where appropriate, based on factors such as the Company’s prior-year performance, individual executive performance and retention concerns. Since Mr. Schultz’s variable compensation consisted entirely of a long-term incentive award in the form of stock options, his long-term equity award was above median. Mr. Alstead’s target economic value for his long-term incentive compensation award was below median as it was his first year as executive vice president, chief financial officer and chief administrative officer. Mr. Burrows’ target economic value for his equity award was above median because the Compensation Committee wanted to tie his compensation to driving Company performance as the U.S. business, which constitutes a significant majority of the Company’s total net revenues, was facing significant challenges at the time of fiscal 2009 compensation decisions. Mr. Rubinfeld’s target economic value for his equity award was also above median because the most closely comparable position that Mr. Rubinfeld was benchmarked against does not encompass all the job responsibilities of Mr. Rubinfeld’s position; plus the Compensation Committee wanted to provide additional incentive to Mr. Rubinfeld as there were several major store initiatives underway in fiscal 2009 that were key to meeting the Company’s targeted operating performance.

 

 

 

 

Based on the level of attainment, the target number of performance RSUs was multiplied by the applicable percentage of achievement. The number of performance RSUs resulting from the calculation constituted the maximum number of restricted stock units that may vest under the award. The earned performance RSUs will vest 50% on the second anniversary of the date of grant and 50% on the third anniversary of the date of grant. The Compensation Committee and the independent directors do not have discretion to increase or decrease the RSUs that are earned based on achievement of the performance goal. Fiscal 2009 adjusted earnings per share was $0.80, resulting in executive officers earning 129% of the target performance RSU award. For fiscal 2009, GAAP earnings per share of $0.52 was adjusted to $0.80 as a result of $0.28 in charges related to restructuring costs. The amounts shown in the table below represent the actual number of performance RSUs earned by each participating named executive officer for fiscal 2009.

 

Named Executive Officer		Fiscal 2009 Earned Performance RSUs
Howard Schultz			N/A
Troy Alstead			29,861
Clifford Burrows			59,722
Martin Coles			52,257
Arthur Rubinfeld			59,722
Peter J. Bocian			N/A

 

Perquisites and Other Executive Benefits.  Our executive compensation program includes limited executive perquisites and other benefits. The aggregate incremental cost of providing perquisites and other benefits to the named executive officers is included in the amount shown in the “All Other Compensation” column of the Summary Compensation Table on page 40 and detailed in the Fiscal 2009 All Other Compensation Table on page 41. We

believe the perquisites and other executive benefits we provide are representative of benefits offered by the companies with whom we compete for executive talent, and therefore offering these benefits serves the objective of attracting and retaining top executive talent. In the Compensation Committee’s view, some of the perquisites and other benefits, particularly home and personal security services, are provided for the Company’s benefit notwithstanding the incidental personal benefit to the executive. A discussion and analysis of perquisites follows.

 

 

Discretionary Bonuses and Equity Awards.  We pay sign-on, first-year guaranteed and other discretionary bonuses and grant new-hire equity awards where necessary or appropriate, including to attract top executive talent from other companies. Executives we recruit often have a significant amount of unrealized value in the form of unvested equity and other forgone compensation opportunities. Sign-on and first-year guaranteed bonuses and special equity awards are an effective means of offsetting the compensation opportunities executives lose when they leave a former employer to join Starbucks. We typically require newly recruited executives to return a pro rata portion of their sign-on bonus if they voluntarily leave Starbucks within a certain period of time (usually one year) after joining us. Other than the discretionary bonuses discussed on page 31, we did not award a discretionary cash bonus to any named executive officer in fiscal 2009.

 

We grant discretionary equity awards from time to time where appropriate to retain key executives or recognize expanded roles and responsibilities. Discretionary equity awards take the form of stock options or time-based RSUs. We grant time-based RSUs to better serve retention purposes by ensuring that the awards will have value upon vesting since the ultimate value of time-based RSUs, unlike stock options, does not depend solely on our stock price increasing over time. In fiscal 2009, we did not award discretionary equity awards to any of the named executive officers.

 

Deferred Compensation.  Some executive officers participate in the Management Deferred Compensation Plan, which defers cash compensation. Mr. Schultz also participates in a deferred stock plan.

 

 

General Partner Benefits.  Executives are eligible to participate in all benefit plans we offer to partners generally. This helps us attract and retain top executive talent.

 

 

Other Policies and Considerations

 

Internal Pay Equity

 

Compensation of Other Named Executive Officers in Relation to One Another and to the Chairman, President and Chief Executive Officer

 

As noted above, the Compensation Committee considers internal pay equity, among other factors, when making compensation decisions. However, the Compensation Committee does not use a fixed ratio or formula when comparing compensation among executive officers. In addition, the Compensation Committee reviews executive compensation on the same basis for each of the named executive officers, including our chairman, president and chief executive officer.

 

Our chairman, president and chief executive officer is compensated at a higher level than other executive officers due to his significantly greater level of experience, accountability and responsibility. For fiscal 2009, Mr. Schultz’s base salary was set at $1.19 million, the same amount he had been paid since fiscal 2004. As noted above, in January 2009, the Compensation Committee, upon Mr. Schultz’s request, reduced his base salary to $6,900 for fiscal 2009 effective March 30, 2009. Mr. Schultz did not participate in the Executive Management Bonus Plan for fiscal 2009 and his entire fiscal 2009 long-term incentive grant was in the form of stock options. Mr. Schultz receives more of his pay in the form of long-term incentive compensation, rather than annual cash compensation, as compared to the compensation of the other named executive officers. Given Mr. Schultz’s responsibility for overall Company performance, the Compensation Committee believes greater compensation in the form of long-term incentive compensation will align his compensation with the long-term performance of the Company. The Compensation Committee believes this is consistent with market practices whereby companies compensate chief executive officers at a higher level than the other executive officers and weight the chief executive officer’s total compensation more heavily toward long-term incentive compensation.

 

We believe the fiscal 2009 target total direct compensation we paid to Messrs. Alstead, Burrows, Coles and Rubinfeld in relation to the compensation targeted for Mr. Schultz and to one another is reasonable and appropriate given each executive’s responsibilities and fiscal 2008 performance.

 

 

Change-in-Control and Termination Arrangements

 

We do not provide special change-in-control benefits to executives. Our only change-in-control arrangement, which applies to all partners with equity compensation awards, is accelerated vesting of equity. Such vesting is “double trigger,” meaning that unvested stock options and unvested restricted stock units vest immediately only if (i) there is a change in control and (ii) if stock options and restricted stock units are assumed or substituted with

stock options or restricted stock units of the surviving company, the partner is terminated or resigns for good reason within one year after the change in control. If stock options or restricted stock units are not assumed or substituted with stock options or restricted stock units of the surviving company, they vest immediately upon a change in control.

 

We occasionally offer a severance benefit arrangement for new executive officers to provide for one year’s base salary if we terminate his or her employment for any reason other than “cause” (which generally requires misconduct) within one year of the executive’s hire date. We may also offer a severance benefit arrangement for terminated or separated executives as part of a negotiated termination of employment in exchange for a release of claims against the Company and other covenants in the best interests of the Company. Other than as described below, none of our named executive officers for fiscal 2009 has any such severance benefit arrangement.

 

On November 30, 2009, in connection with Mr. Coles’ separation, the Company entered into a Separation Agreement and Release with Mr. Coles. Pursuant to the agreement, we agreed to pay Mr. Coles a lump sum payment equal to 12 months of his base salary. The Compensation Committee believes that the separation amount was appropriate and in the best interests of the Company in exchange for certain covenants and the release provided by Mr. Coles. A detailed description of the agreement can be found on page 49.

 

Executive Stock Ownership Guidelines

 

We have adopted stock ownership guidelines for senior executives in September 2007 to ensure that our executives have a long-term equity stake in Starbucks. The guidelines apply to all executive vice presidents and above. The guidelines require covered executives to have achieved a minimum investment in Starbucks stock within five years. Minimum investment levels for each job title are:

 

Job Title		Minimum Investment
chairman, president and chief executive officer		$	5,000,000
president(1)		$	2,000,000
executive vice president(2)		$	750,000

 

 

 

The unrealized value of vested, in-the-money stock options counts for up to 25% of the required minimum investment. Unrealized value is measured as the difference between aggregate exercise price and aggregate market value of underlying shares. Shares held prior to the effective date of the guidelines and shares purchased and held under our employee stock purchase plan also count toward satisfying the investment requirement. The Compensation Committee monitors each executive’s progress toward the minimum investment on an annual basis. We disfavor hedging transactions that limit or eliminate the economic risk to our executives and partners of owning our stock and, to our knowledge, no such arrangements are currently outstanding. Our insider trading policy requires general counsel pre-approval of any such hedging transactions.

 

Recovery of Incentive Compensation Policy

 

During its November 2009 meeting, the board of directors, upon the recommendation of the Compensation Committee, approved a Recovery of Incentive Compensation Policy. The policy allows the Company to seek reimbursement with respect to incentive compensation paid or awarded to executive officers (as designated by the board) where (i) the payment of a bonus or equity award (or the vesting of such award) was predicated upon the achievement of financial results, which financial results were the product of fraudulent activity or that were subsequently the subject of a material negative restatement, and (ii) a lower bonus payment or equity award would have been made to executive officers (or lesser or no vesting would have occurred with respect to such award) based on the restated financial results or the financial results that would have pertained absent such fraudulent activity. The Compensation Committee believes that a Recovery of Incentive Compensation Policy is in the best interests of the Company. The policy is effective with respect to equity awards made beginning fiscal 2010 and bonus incentive payments earned for fiscal 2010.

Equity Grant Timing Practices

 

In September 2008, our board of directors approved the following revised equity compensation grant timing guidelines:

 

Regular Annual Grant Dates.  Regular annual grants for partners and non-employee members of the board are approved at the November Compensation Committee and board meetings, and the grant date for such annual grants is the second business day after the public release of fiscal year-end earnings. However, if fiscal year-end earnings are released before the November Compensation Committee and board meetings, then the grant date will be the Monday following such meetings. The grants are approved as formulas based on a specified dollar amount; the number of shares and exercise price for each option grant are determined based on the closing market price of our stock on the grant date, and the number of shares for each restricted stock unit is determined by dividing the dollar amount by the closing market price of our stock on the grant date.

 

Grant Dates for New Hires and Promotions.  Grant dates for new hire and promotion grants are determined as follows:

 

 

Grant Dates for Other Equity Awards.  Grant dates for equity awards other than annual equity award grants and new hire/promotion grants are determined as follows:

 

 

Initial Grant Dates for Newly Elected Non-Employee Directors.  The grant date for initial grants to newly elected non-employee members of the board of directors is the date of election to the board, if the election date is open for trading under our blackout policy for stock trading, or as of the first open trading day after the election date, if the election date is not open for trading under our blackout policy.

 

Tax Deductibility of Executive Compensation

 

Section 162(m) of the Internal Revenue Code prevents us from taking a tax deduction for non-performance-based compensation in excess of $1 million in any fiscal year paid to the chief executive officer and the three other most highly compensated named executive officers (excluding the chief financial officer). We refer to these executives as the “Section 162(m) covered executives.” In designing our executive compensation program, we

carefully consider the effect of Section 162(m) together with other factors relevant to our business needs. We design annual incentive and long-term performance awards to be tax-deductible to Starbucks, so long as preserving the tax deduction does not inhibit our ability to achieve our executive compensation objectives. We will pay non-deductible compensation when necessary to achieve our executive compensation objectives. For fiscal 2009, the following elements of compensation were designed to qualify as tax-deductible under Section 162(m):

 

Annual Incentive Bonus.  The Executive Management Bonus Plan, as in effect during fiscal 2009, was designed to enable at least 80% of the annual incentive bonuses paid to the named executive officers (other than Mr. Schultz, who did not participate in the plan) to qualify as performance-based and therefore be deductible under Section 162(m). We believe it is important for the executive team to have individual performance bonus goals in order to drive specific behaviors and business initiatives, even if it means a portion of their bonuses will not be tax-deductible.

 

Stock Options.  Stock options granted to the covered executive officers are designed to qualify as Section 162(m) performance-based compensation, and any gain upon exercise of the options should be fully deductible under Section 162(m).

 

Performance-Based Restricted Stock Units.  Performance RSUs granted to the covered executive officers are designed to qualify as Section 162(m) performance-based compensation, and any gain upon vesting of the performance RSUs should be fully deductible under Section 162(m).

 

Compensation paid to the Section 162(m) covered executives that is not considered “performance-based” under Section 162(m) is not deductible to the extent that it, together with other non-performance-based compensation, exceeds $1 million in any fiscal year. For fiscal 2009, the following elements of compensation were not designed to qualify as tax-deductible under Section 162(m): base salary, the discretionary bonuses, the portion under the Executive Management Bonus Plan based on individual performance goals and certain other compensation. For fiscal 2009, other compensation paid to Mr. Schultz included: (i) imputed income related to travel by Mr. Schultz’s family members on certain flights using corporate aircraft; (ii) imputed income for life and long-term disability insurance premiums paid by Starbucks; and (iii) a payment to replace a split-dollar life insurance benefit formerly provided to him, as more fully explained on page 34.

 

The Compensation Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on this review and discussion, the Compensation Committee recommended to the board of directors that the Compensation Discussion and Analysis be included in the Starbucks 2009 10-K and this proxy statement.

 

Respectfully submitted,

 

Barbara Bass (Chair)
Mellody Hobson*
Kevin R. Johnson*
James G. Shennan, Jr.**
Javier G. Teruel*
Myron E. Ullman, III

 

*Joined the Compensation Committee in September 2009.
**Joined the Compensation Committee in March 2009.

 

The following table sets forth information regarding the fiscal 2009 compensation for our chief executive officer, chief financial officer (at year-end), our two other most highly compensated executive officers in fiscal 2009, plus Martin Coles, our former president, Starbucks Coffee International and Peter J. Bocian, our former executive vice president, chief financial officer and chief administrative officer (collectively, our “named executive officers”). Columns required by SEC rules are omitted where there is no amount to report. The table also sets forth information regarding the fiscal 2007 and/or fiscal 2008 compensation for Messrs. Schultz, Burrows, Coles and Bocian because they were also named executive officers in fiscal 2007 and/or fiscal 2008.

 

 

 

 

Fiscal 2009 All Other Compensation Table

 

						Insurance
						Premiums
						& Annual				Retirement Plan
		Security				Physical				Contributions				Other				Total
Name		($)(A)				($)				($)				($)				($)
Howard Schultz			680,961				4,365				14,100				236,250	(B)			935,676
Troy Alstead			—				819				300				—				1,119
Clifford Burrows			30,798				2,575				6,900				48,142	(C)			88,415
Martin Coles			17,709				2,640				4,900				—				25,249
Arthur Rubinfeld			—				1,782				2,300				—				4,082
Peter J. Bocian			—				396				—				—				396

 

 

 

 

The following table sets forth information regarding fiscal 2009 annual incentive bonus awards and equity awards granted to our named executive officers in fiscal 2009.