UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

o  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to 240.14a-12

 

THE SHERWIN-WILLIAMS COMPANY

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Sherwin-Williams Company

 

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

To Be Held April 15, 2009

 

 

The Annual Meeting of Shareholders of The Sherwin-Williams Company will be held in the Landmark Conference Center, 927 Midland Building, 101 West Prospect Avenue, Cleveland, Ohio on Wednesday, April 15, 2009 at 9:00 A.M., local time, for the following purposes:

 

 

Shareholders of record at the close of business on February 27, 2009, the record date for the Annual Meeting, are the only shareholders entitled to notice of and to vote at the Annual Meeting.

 

Your vote is important. Whether or not you plan to attend the Annual Meeting, please promptly vote by the Internet, by telephone or by completing and returning the enclosed proxy card. Voting early will help avoid additional solicitation costs and will not prevent you from voting in person at the Annual Meeting if you wish to do so.

 

L. E. Stellato

Secretary

 

101 West Prospect Avenue

Cleveland, Ohio 44115-1075

March 5, 2009

 

ADMISSION TO THE 2009 ANNUAL MEETING.

 

You are entitled to attend the Annual Meeting only if you were a Sherwin-Williams shareholder at the close of business on February 27, 2009. We may ask you to present evidence of share ownership and valid photo identification to enter the Annual Meeting. Please refer to the section entitled “How can I attend the Annual Meeting?” on page 3 for further information.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON APRIL 15, 2009.

 

Sherwin-Williams’ Proxy Statement and 2008 Annual Report to Shareholders are available at http://proxymaterials.sherwin.com.

 

TABLE OF CONTENTS

 

 

THE SHERWIN-WILLIAMS COMPANY

 

101 West Prospect Avenue

 

Cleveland, Ohio 44115-1075

 

PROXY STATEMENT

 

March 5, 2009

 

 

PRELIMINARY

 

We are providing the enclosed proxy materials to you in connection with the solicitation by the Board of Directors of proxies to be voted at the Annual Meeting of Shareholders to be held on April 15, 2009. We began mailing these proxy materials to our shareholders on March 5, 2009. The use of the terms “we,” “us” and “our” throughout this Proxy Statement refers to Sherwin-Williams and/or its management.

 

ANNUAL REPORT

 

We are enclosing our Annual Report to Shareholders for the year ended December 31, 2008 with these proxy materials. We may submit additional financial and other reports at the Annual Meeting, but we do not intend to take any action relating to those reports.

 

What is the purpose of the Annual Meeting?

 

At the Annual Meeting, shareholders will act upon the proposals outlined in the Notice of Annual Meeting of Shareholders. These proposals include:

 

• the election of directors;

 

 

In addition, our management will report on Sherwin-Williams’ performance and respond to questions from shareholders. We are not aware of any other matters that will be brought before the Annual Meeting for action.

 

Who is entitled to vote at the Annual Meeting?

 

You are entitled to vote at the Annual Meeting only if you were a record holder of our common stock or our ESOP serial preferred stock at the close of business on February 27, 2009, the record date for the Annual Meeting. At the close of business on the record date, 117,396,377 shares of common stock and 216,753 shares of ESOP serial preferred stock were outstanding. Each share owned on the record date is entitled to one vote.

 

How do I vote?

 

Most shareholders have a choice of voting by mail, via the Internet, by telephone or in person at the Annual Meeting.

 

Voting by mail.  If you are a shareholder of record, you may vote by signing, dating and returning your proxy card in the enclosed prepaid envelope. The proxy holders will vote your shares in accordance with your directions. If you sign and return your proxy card, but do not properly direct how your shares should be voted on a proposal, the proxy holders will vote your shares “FOR” Proposals 1 and 2 and “AGAINST” Proposal 3. If you sign and return your proxy card, the proxy holders will vote your shares according to their discretion on any other proposals and other matters that may be brought before the Annual Meeting.

 

If you hold shares in an account through a broker or other nominee in “street name,” you should complete, sign and date the voting instruction card provided to you by your broker or nominee.

 

Voting via the Internet or by Telephone.  If you are a shareholder of record, detailed instructions for Internet and telephone voting are attached to your proxy card. Your Internet or

telephone vote authorizes the proxy holders to vote your shares in the same manner as if you signed and returned your proxy card by mail. If you are a shareholder of record and you vote via the Internet or by telephone, your vote must be received by 11:59 p.m. E.D.T. on April 14, 2009; you should not return your proxy card.

 

If you hold shares through a broker or other nominee in “street name,” you may be able to vote via the Internet or by telephone as permitted by your broker or nominee.

 

Voting in Person. All shareholders may vote in person at the Annual Meeting. Shareholders of record may also be represented by another person present at the Annual Meeting by signing a proxy designating such person to act on your behalf. If you hold shares through a broker or nominee, you may vote in person at the Annual Meeting only if you have obtained a signed proxy from your broker or nominee giving you the right to vote your shares.

 

Who tabulates the vote?

 

Representatives of The Bank of New York Mellon will tabulate the votes and act as inspectors of election at the Annual Meeting.

 

How do I vote if I am a participant in the Stock Ownership and Automatic Dividend Reinvestment Plan or the Employee Stock Purchase and Savings Plan?

 

If you are a participant in one of these plans, your proxy card also serves as voting instructions for the number of shares which you are entitled to direct the vote under each plan. You may vote your shares in the same manner outlined above. If you are a participant in our Employee Stock Purchase and Savings Plan, your voting instructions must be received by the close of business on April 10, 2009 in order to allow the trustee sufficient time for voting.

 

If you are a participant in our Employee Stock Purchase and Savings Plan and you do not timely provide your voting instructions, the trustee will vote your shares in the same proportion as the trustee votes those shares for which it receives proper instructions. The trustee will vote any unallocated shares held in our Employee Stock Purchase and Savings Plan in the same proportion as the trustee votes those shares for which it receives proper instructions.

 

What are the voting recommendations of the Board of Directors?

 

The Board of Directors recommends that you vote:

 

 

What constitutes a quorum for the Annual Meeting?

 

A “quorum” of shareholders is necessary for us to hold a valid Annual Meeting. For a quorum, there must be present, in person or by proxy, or by use of communications equipment, shareholders of record entitled to exercise not less than fifty percent of the voting power of Sherwin-Williams.

 

Proxy cards marked as withholding authority, as well as proxy cards containing abstentions and “broker non-votes,” will be treated as present for purposes of determining a quorum. A “broker non-vote” occurs when a broker or other nominee holding shares for a beneficial owner does not vote on a particular “non-routine” proposal because the broker or nominee does not have discretionary voting power for that proposal and has not received voting instructions from the beneficial owner. If you are a beneficial owner and a broker holds your shares, it is expected that your broker will be permitted to vote your shares on Proposals 1 and 2 even if your broker does not receive voting instructions from you.

 

What vote is required to approve each proposal?

 

Election of Directors (Proposal 1).  Proposal 1 to fix the number of directors at nine requires the affirmative vote of the holders of a majority of the shares present, in person or by

proxy, and entitled to vote on this proposal. To be elected as a director, a nominee must receive the affirmative vote of a plurality of the votes cast. Under the plurality voting standard, the nominees receiving the most “for” votes will be elected. A proxy card marked as withholding authority with respect to the election of one or more directors will be counted for quorum purposes.

 

Under our Majority Voting Policy, in an uncontested election, any nominee for director who receives a greater number of “withheld” votes than “for” votes is required to tender his or her resignation for consideration by the Nominating and Corporate Governance Committee of the Board of Directors. We have provided more information about our Majority Voting Policy under the heading “Corporate Governance — Majority Voting Policy.”

 

Ratification of Independent Registered Public Accounting Firm (Proposal 2).  Proposal 2 to ratify the appointment of Ernst & Young LLP as Sherwin-Williams’ independent registered public accounting firm requires the affirmative vote of a majority of the votes cast. A proxy card marked as abstaining with respect to this proposal will be counted for quorum purposes, but will not be counted as a vote cast, and therefore will have no effect on the vote.

 

Shareholder Proposal (Proposal 3).  Proposal 3 requires the affirmative vote of a majority of the votes cast. A proxy card marked as abstaining with respect to this proposal and any broker non-votes with respect to this proposal will be counted for quorum purposes, but will not be counted as a vote cast, and therefore will have no effect on the vote.

 

Other Items.  All other proposals and other business as may properly come before the Annual Meeting require the affirmative vote of a majority of the votes cast, except as otherwise required by statute or our Amended Articles of Incorporation or Regulations.

 

Can I revoke or change my vote after I submit my proxy?

 

Yes. You can revoke or change your vote before the proxy holders vote your shares by timely:

 

 

How can I attend the Annual Meeting?

 

You are entitled to attend the Annual Meeting only if you were a shareholder at the close of business on February 27, 2009, the record date. We may ask you to present evidence of share ownership and valid photo identification to enter the Annual Meeting.

 

 

What are the costs of this proxy solicitation?

 

The enclosed proxy is solicited by the Board of Directors, and Sherwin-Williams will pay the entire cost of solicitation. We have retained Georgeson Inc. to aid in the solicitation of proxies, for which it will receive a fee estimated at $15,000 plus reasonable expenses.

 

In addition, we may reimburse banks, brokers and other nominees for costs reasonably incurred by them in forwarding proxy materials to beneficial owners of our common stock. Our officers and other employees may also solicit the return of proxies. Proxies will be solicited by personal contact, mail, telephone and electronic means.

 

Are the Proxy Statement and the 2008 Annual Report to Shareholders available on the Internet?

 

Yes.  This Proxy Statement and our 2008 Annual Report to Shareholders are available at
http://proxymaterials.sherwin.com.

 

You may help us save money in the future by accessing your proxy materials online, instead of receiving paper copies in the mail. If you would like to access proxy materials on the Internet beginning next year, please follow the instructions located under “Access Proxy Materials Online” in the “Corporate Governance” section on the “Investor Relations” page of our website at www.sherwin.com.

 

We have a long history of good corporate governance practices that has greatly aided our long-term success. The Board of Directors and management have recognized for many years the need for sound corporate governance practices in fulfilling their respective duties and responsibilities to shareholders. We describe below our key corporate governance policies that enable us to manage our business in accordance with high ethical standards and in the best interests of our shareholders.

 

Corporate Governance Guidelines. The Board of Directors has adopted Corporate Governance Guidelines, which provide the framework for the governance of our company. The Board of Directors reviews our Corporate Governance Guidelines at least annually. From time to time, the Board of Directors may revise our Corporate Governance Guidelines to reflect new regulatory requirements and evolving corporate governance practices.

 

Business Ethics Policy.  We have operated under a Business Ethics Policy for many years and are committed to conducting business in an ethical and legal manner throughout the world. Our Business Ethics Policy applies to all of our directors, officers and employees and outlines the broad principles of ethical and legal conduct embraced by our company to guide our business related conduct. Under our Business Ethics Policy, any director or employee who reasonably believes or suspects that Sherwin-Williams or any director or employee has engaged or is engaging in improper or illegal activities, fraud or activities that appear to be inconsistent with or in violation of our Business Ethics Policy is responsible for reporting such activities. We do not permit retaliation of any kind against any person who, in good faith, reports any known or suspected improper activities pursuant to our Business Ethics Policy.

 

Our Business Ethics Policy includes additional ethical obligations for our senior financial management (which includes our chief executive officer, our chief financial officer, and the controller, treasurer and principal financial and accounting personnel in our operating groups and corporate departments). Our senior financial management is responsible for creating and maintaining a culture of high ethical standards throughout our company to ensure the fair and timely reporting of our financial results and financial condition.

 

Communications with Directors.  The Board of Directors has adopted a process by which shareholders and other interested parties may communicate with the non-management directors or the chairperson of any of the committees of the Board of Directors. You may send communications by regular mail to the attention of the Chairperson, Audit Committee; Chairperson, Compensation and Management Development Committee; or Chairperson, Nominating and Corporate Governance Committee; or to the non-management directors as a group to the Non-Management Directors, each c/o Corporate Secretary, The Sherwin-Williams Company, 101 West Prospect Avenue, 12th Floor, Midland Building, Cleveland, Ohio 44115.

 

Sherwin-Williams’ management will review all communications received to determine whether the communication requires immediate action. Management will pass on all communications received, or a summary of such communications, to the appropriate director or directors.

 

Complaint Procedures for Accounting, Auditing and Financial Related Matters.  The Audit Committee has established procedures for receiving, retaining and treating complaints from any source regarding accounting, internal accounting controls and auditing matters. The Audit Committee has also established procedures for the confidential, anonymous submission by employees of concerns regarding

questionable accounting or auditing matters. Interested parties may communicate such complaints by following the procedures described under the heading “Communications with Directors,” above. Employees may report such complaints by following the procedures outlined in our Business Ethics Policy. We do not permit any retaliation of any kind against any person who, in good faith, submits a complaint or concern under these procedures.

 

Independence of Directors.  Under our Director Independence Standards (a copy of which is attached as Appendix A), 10 of our current 11 directors are independent and eight of our nine director nominees are independent. In addition, all members of the Audit Committee, the Compensation and Management Development Committee, and the Nominating and Corporate Governance Committee are independent.

 

Majority Voting Policy.  The Board of Directors has adopted a Majority Voting Policy. Any nominee for director in an uncontested election who receives a greater number of “withheld” votes than “for” votes shall promptly tender his or her resignation. The Nominating and Corporate Governance Committee will promptly consider the tendered resignation and will recommend to the Board of Directors whether to accept the tendered resignation or to take some other action, such as rejecting the tendered resignation and addressing the apparent underlying causes of the “withheld” votes.

 

In making this recommendation, the Committee will consider all factors deemed relevant by its members. These factors may include the underlying reasons why shareholders “withheld” votes for election from such director (if ascertainable), the length of service and qualifications of the director whose resignation has been tendered, the director’s contributions to Sherwin-Williams, whether by accepting such resignation Sherwin-Williams will no longer be in compliance with any applicable law, rule, regulation or governing document, and whether or not accepting the resignation is in the best interests of Sherwin-Williams and our shareholders.

 

In considering the Committee’s recommendation, the Board of Directors will consider the factors considered by the Committee and such additional information and factors that the Board of Directors believes to be relevant. We will promptly publicly disclose the Board of Directors’ decision and process in a periodic or current report filed with the SEC.

 

Executive Sessions.  The non-management members of the Board of Directors meet at least twice each year in regularly scheduled executive sessions. Additional executive sessions may be scheduled by the non-management directors. The chairpersons of the Audit Committee, the Compensation and Management Development Committee, and the Nominating and Corporate Governance Committee rotate presiding over these sessions.

 

Annual Board Self-Assessments.  The Board of Directors has instituted annual self-assessments of the Board of Directors, as well as the Audit Committee, the Compensation and Management Development Committee, and the Nominating and Corporate Governance Committee, to assist in determining whether the Board of Directors and its committees are functioning effectively. In early 2009, the Board and each of its committees completed self-evaluations and reviewed and discussed the results. The Nominating and Corporate Governance Committee oversees this evaluation process.

 

Board Committee Charters.  The Board of Directors has adopted written charters for the Audit Committee, the Compensation and Management Development Committee, and the Nominating and Corporate Governance Committee. Each committee reviews and evaluates the adequacy of its charter at least annually and recommends any proposed changes to the Board of Directors for approval.

 

Stock Ownership Guidelines.  The Board of Directors has established a minimum share ownership requirement for its directors, executive officers and operating presidents. Each director who has served on the Board of Directors for at least five years is expected to own a minimum of 10,000 shares of common stock. Each executive officer and operating president who has served in such capacity for at least five years is expected to own shares of common stock equal in value to a multiple of his base salary ranging from a low of three times to a high of five times for the Chairman and Chief Executive Officer. For purposes of meeting this minimum share ownership

requirement, each equivalent share of common stock and each share of restricted stock held under our benefit plans is considered as a share of common stock. Stock options are not considered towards meeting this requirement.

 

All directors, executive officers and operating presidents have either met our stock ownership guidelines or are pursuing plans to meet our guidelines within the time frames prescribed.

 

Executive Compensation Adjustment and Recapture Policy.  The Board of Directors has adopted a policy regarding the adjustment and recapture of compensation paid or payable to certain key employees and executives. Under the policy, employees who participate in our 2007 Executive Performance Bonus Plan are required to reimburse Sherwin-Williams for any award paid under this plan in the event:

 

 

The reimbursement will be equal to the difference in the amount of the award prior to the restatement and the amount of the award determined using the restated financial results.

 

In addition, under our 2006 Equity and Performance Incentive Plan, (a) all outstanding stock awards will be cancelled and (b) the employee will be required to reimburse Sherwin-Williams for any economic gains received by the employee pursuant to a stock award during the one-year period preceding the Board of Directors’ determination that the employee engaged in the conduct described above.

 

Availability of Corporate Governance Materials.  You may access all committee charters, our Corporate Governance Guidelines, our Director Independence Standards, our Business Ethics Policy, our Majority Voting Policy and other corporate governance materials in the “Corporate Governance” section on the “Investor Relations” page of our website at www.sherwin.com. You also may receive copies without charge by writing to us at: The Sherwin-Williams Company, 101 West Prospect Avenue, Cleveland, Ohio 44115, Attention: Investor Relations.

 

 

 

At the Annual Meeting, the number of directors is to be fixed at nine, and nine directors are to be elected to hold office until the next Annual Meeting of Shareholders and until their successors are elected.

 

Our Board of Directors currently has 11 members. All of these directors are standing for re-election as nominees except for Messrs. Evans and Mahoney. Messrs. Evans and Mahoney are retiring as directors at the Annual Meeting in accordance with the Board of Directors’ retirement policy.

 

All of the nominees were elected by the shareholders at the 2008 Annual Meeting. All of the nominees are independent except for Mr. Connor. Mr. Connor is not considered to be independent because of his position as Chairman and Chief Executive Officer of Sherwin-Williams. There are no family relationships among any of the directors and executive officers.

 

Each of the nominees has agreed to serve if elected. If any nominee declines or is unable to accept such nomination or is unable to serve, an event which we do not expect, the Board of Directors reserves the right in its discretion to substitute another person as a nominee or to reduce the number of nominees. In this event, the proxy holders may vote in their discretion for any substitute nominee proposed by the Board of Directors unless you indicate otherwise.

 

The following is biographical information regarding each nominee:

 

Arthur F. Anton

President and Chief Executive Officer,
Swagelok Company

Director of Sherwin-Williams since 2006

 

Arthur F. Anton, 51, has served as President and Chief Executive Officer of Swagelok Company (manufacturer and provider of fluid system products and services) since January 2004. Mr. Anton served as President and Chief Operating Officer of Swagelok from January 2001 to January 2004, Executive Vice President of Swagelok from July 2000 to January 2001, and Chief Financial Officer of Swagelok from August 1998 to July 2000. Mr. Anton is also a Director of University Hospitals Health System and is Chairman of the Manufacturing Advocacy & Growth Network.

 

James C. Boland

Former Vice Chairman,
Cavaliers Operating Company, LLC

Director of Sherwin-Williams since 1998

 

James C. Boland, 69, served as Vice Chairman of Cavaliers Operating Company, LLC (formerly known as Cavaliers/Gund Arena Company) from January 2003 to June 2007 and President and Chief Executive Officer of CAVS/Gund Arena Company from January 1998 to January 2003. Prior to his time with the Cavaliers, Mr. Boland served for 22 years as a partner of Ernst & Young LLP in various roles including Vice Chairman and Regional Managing Partner as well as a member of the firm’s Management Committee from 1988 to 1996 and as Vice Chairman of National Accounts from 1997 to his retirement from the firm in 1998. Mr. Boland is also a Director of The Goodyear Tire & Rubber Company and Invacare Corporation and is a Trustee of Bluecoats, Inc. and The Harvard Business School Club of Cleveland.

 

Christopher M. Connor
Chairman and Chief Executive Officer,

Sherwin-Williams

Director of Sherwin-Williams since 1999

 

Christopher M. Connor, 52, has served as Chairman of Sherwin-Williams since April 2000 and Chief Executive Officer of Sherwin-Williams since October 1999. Mr. Connor served as President of Sherwin-Williams from July 2005 to October 2006, Vice Chairman of Sherwin-Williams from October 1999 to April 2000, and President, Paint Stores Group of Sherwin-Williams from August 1997 to October 1999. Mr. Connor has been with Sherwin-Williams since 1983 in roles of increasing responsibility. Mr. Connor is also a Director of Eaton Corporation.

 

David F. Hodnik

Retired, Former President and

Chief Executive Officer,

Ace Hardware Corporation

Director of Sherwin-Williams since 2005

 

David F. Hodnik, 61, prior to his retirement in April 2005, served as Chief Executive Officer of Ace Hardware Corporation (cooperative of independent hardware retail stores) since January

1997. Mr. Hodnik also served as President of Ace Hardware from January 1996 through December 2004. Mr. Hodnik joined Ace Hardware in October 1972 and held various financial, accounting and operating positions at Ace Hardware.

 

Susan J. Kropf

Retired, Former President and

Chief Operating Officer,

Avon Products, Inc.

Director of Sherwin-Williams since 2003

 

Susan J. Kropf, 60, prior to her retirement in January 2007, served as President and Chief Operating Officer of Avon Products, Inc. (global manufacturer and marketer of beauty and related products) since January 2001. Mrs. Kropf served as Executive Vice President and Chief Operating Officer, North America and Global Business Operations, of Avon from December 1999 to January 2001 and Executive Vice President and President, North America, of Avon from March 1997 to December 1999. Mrs. Kropf joined Avon in 1970 and held various positions in manufacturing, marketing and product development. Mrs. Kropf is also a Director of Coach, Inc., MeadWestvaco Corporation, The Kroger Co. and the Wallace Foundation.

 

Gary E. McCullough

President and Chief Executive Officer,

Career Education Corporation

Director of Sherwin-Williams since 2002

 

Gary E. McCullough, 50, has served as President and Chief Executive Officer of Career Education Corporation (provider of post-secondary educational services) since March 2007. Immediately prior to joining Career Education Corporation, Mr. McCullough served as Senior Vice President of Abbott Laboratories and President of its Ross Products Division from December 2003 to March 2007. Immediately prior to joining Abbott Laboratories, Mr. McCullough served as Senior Vice President – Americas of Wm. Wrigley Jr. Company from March 2000 to December 2003. Mr. McCullough also spent 13 years at the Procter & Gamble Company where he served in a variety of marketing and management positions. Mr. McCullough is also a Director of Career Education Corporation.

 

A. Malachi Mixon, III

Chairman and Chief Executive Officer,
Invacare Corporation

Director of Sherwin-Williams since 1993

 

A. Malachi Mixon, III, 68, has served as Chief Executive Officer of Invacare Corporation (manufacturer and distributor of home health care products) since January 1980 and Chairman of Invacare since September 1983. Mr. Mixon served as President of Invacare from January 1980 to November 1996. Mr. Mixon is also a Director of Park-Ohio Holdings Corp., is Chairman of The Cleveland Clinic Foundation and the Cleveland Institute of Music and is on the Visiting Committee of the Harvard School of Business Administration.

 

Curtis E. Moll

Chairman and Chief Executive Officer,
MTD Holdings Inc

Director of Sherwin-Williams since 1997

 

Curtis E. Moll, 69, has served as Chairman and Chief Executive Officer of MTD Holdings Inc (manufacturer of outdoor power equipment and tools, dies and stampings for the automotive industry) since October 1980. Mr. Moll is also a Director of AGCO Corporation and is Chairman of the Board of Directors of Shiloh Industries, Inc.

 

Richard K. Smucker

Executive Chairman and
Co-Chief Executive Officer,
The J.M. Smucker Company

Director of Sherwin-Williams since 1991

 

Richard K. Smucker, 60, has served as Co-Chief Executive Officer of The J.M. Smucker Company (makers of food products) since February 2001 and Executive Chairman of J.M. Smucker since June 2008. Mr. Smucker served as President of J.M. Smucker from January 1987 to June 2008 and Chief Financial Officer of J.M. Smucker from June 2003 to January 2005. Mr. Smucker is also a Director of J.M. Smucker and is a Trustee of Miami University of Ohio and the Musical Arts Association (The Cleveland Orchestra).

 

The Board of Directors unanimously recommends that you vote “FOR” Proposal 1 relating to the election of directors.

 

The Board of Directors has adopted categorical Director Independence Standards to assist the Board of Directors in determining the independence of each director. To be considered independent, the Board of Directors must affirmatively determine that the director has no material relationship with Sherwin-Williams. In each case, the Board of Directors broadly considers all relevant facts and circumstances, including the director’s commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships, and such other criteria as the Board of Directors may determine from time to time.

 

During the Board of Directors’ annual review of director independence, the Board of Directors considers transactions, relationships and arrangements between each director or an immediate family member of the director and Sherwin-Williams. The Board of Directors also considers transactions, relationships and arrangements between each director or an immediate family member of the director and Sherwin-Williams’ senior management.

 

Under our Director Independence Standards, the following relationships are not considered to be material relationships that would impair a director’s independence:

 

 

A complete copy of our Director Independence Standards is attached as Appendix A.

 

Early this year, the Board of Directors performed its annual director independence review for 2009. As part of this review, the Board of Directors considered club memberships common among our directors, including Messrs. Anton, Boland, Connor, Mixon and Smucker. The Board of Directors also considered common public, private and charitable board memberships among our executive officers and directors, including Messrs. Anton, Boland, Connor, Mixon and Moll. The Board of Directors does not believe that any of these common club and board memberships impair the independence of our directors.

 

As a result of this review, the Board of Directors determined that 10 of our 11 current directors and eight of our nine director nominees are independent. In addition, all members of the Audit Committee, the Compensation and Management Development Committee, and the Nominating and Corporate Governance Committee are independent. The Board of Directors determined that Mrs. Kropf and Messrs. Anton, Boland, Evans, Hodnik, Mahoney, McCullough, Mixon, Moll and Smucker meet these standards and are independent and, in addition, satisfy the independence requirements of the New York Stock Exchange. Mr. Connor is not considered to be independent because of his position as Chairman and Chief Executive Officer of Sherwin-Williams.

 

The following table sets forth information regarding the compensation of our nonemployee directors for 2008. Mr. Connor, who is our Chairman and Chief Executive Officer, does not receive any additional compensation for services as a director.

 

		Fees Earned								Option				All Other
		or Paid in				Stock Awards				Awards				Compensation				Total
Name		Cash ($)(5)				($)(6,7,8)				($)(9)				($)(10,11)				($)
A. F. Anton			85,000				78,461				-0-				-0-				163,461
J. C. Boland(1)			97,832				77,548				-0-				5,000				180,380
D. E. Evans			85,000				77,548				-0-				-0-				162,548
D. F. Hodnik			85,000				77,756				-0-				-0-				162,756
S. J. Kropf			85,000				77,548				-0-				-0-				162,548
R. W. Mahoney(2)			96,500				77,548				-0-				-0-				174,048
G. E. McCullough			85,000				77,548				-0-				-0-				162,548
A. M. Mixon, III			85,000				77,548				-0-				-0-				162,548
C. E. Moll(3)			90,668				77,548				-0-				-0-				168,216
R. K. Smucker(4)			90,000				77,548				-0-				1,000				168,548

 

 

 

 

The Compensation and Management Development Committee is responsible for annually reviewing and approving the compensation for the nonemployee directors. All of the nonemployee directors are paid under the same compensation program. Officers of Sherwin-Williams who also serve as directors do not receive any additional compensation for services as a director.

 

We use a combination of cash and equity-based compensation to attract and retain our nonemployee directors. Compensation for the nonemployee directors consists of an annual cash retainer; an additional annual cash retainer for chairs of the Audit Committee, the Compensation and Management Development Committee, and the Nominating and Corporate Governance Committee; meeting fees; an annual grant of restricted stock; and other benefits.

 

Stock options are not currently a part of the nonemployee director compensation program. In addition, we do not provide retirement benefits to our nonemployee directors.

 

Director Fees.  For 2008 and 2009, the cash and equity compensation program for the nonemployee directors consists of the following:

 

 

 

We reimburse all directors for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of the Board of Directors and its committees. This includes travel expenses of spouses if they are invited for a specific business purpose.

 

Other Benefits.  We also pay the premiums for liability insurance and business travel accident insurance for all directors, including $225,000 accidental death and dismemberment coverage and $225,000 permanent total disability coverage, while the directors are traveling on Sherwin-Williams’ business.

 

Directors may also receive the same discounts as our employees on the purchase of products at Sherwin-Williams’ stores and are eligible to participate in our matching gifts programs on the same basis as employees. These programs provide for annual matches in an equal amount of up to $5,000 under the matching gifts to education program and $1,000 under the matching gifts for volunteer leaders program, as well as annual grants of up to $200 under the grants for volunteers program. Amounts of matching gifts and grants under these programs are included in the “All Other Compensation” column of the 2008 Director Compensation Table.

 

Deferral of Director Fees.  Directors may elect to defer all or a part of their retainer and meeting fees under our Director Deferred Fee Plan. The amounts deferred during 2008 are set forth in a footnote to the 2008 Director Compensation Table.

 

Deferred fees may be credited to a common stock account, a shadow stock account or an interest bearing cash account. The value of the shadow stock account reflects changes in the market price of our common stock and the payment of dividend equivalents at the same rate as dividends are paid on our common stock. The number of shares of common stock and shadow stock held by participating directors under the plan is set forth in a footnote to the 2008 Director Compensation Table.

 

Amounts deferred may be distributed either in annual installments over a period up to ten years or in a lump sum on the date chosen by the director. Amounts credited to a shadow stock account are distributed in cash.

 

 

 

The Board of Directors held six meetings during 2008. Each director attended at least 75% of the meetings of the Board of Directors and committees on which he or she served. Each director is expected to attend, absent unusual circumstances, all annual and special meetings of shareholders. All directors except one attended the 2008 Annual Meeting of Shareholders.

 

The Board of Directors has established an Audit Committee, a Compensation and Management Development Committee, and a Nominating and Corporate Governance Committee. The Board of Directors has adopted a written charter for each committee. You can find a complete copy of each charter in the “Corporate Governance” section on the “Investor Relations” page of our website at www.sherwin.com. The following table sets forth the current membership of the committees.

 

				Compensation and		Nominating and
				Management		Corporate
Name		Audit		Development		Governance
A. F. Anton		x
J. C. Boland		Chair				x
D. E. Evans				x
D. F. Hodnik		x
S. J. Kropf				x
R. W. Mahoney				Chair		x
G. E. McCullough		x
A. M. Mixon, III				x		x
C. E. Moll				x		Chair
R. K. Smucker		x				x

 

Audit Committee. The purpose of the Audit Committee is to assist the Board of Directors in fulfilling the Board of Directors’ oversight responsibilities on matters relating to:

 

 

The Audit Committee met five times during 2008. Each member of the Audit Committee is independent as defined in the corporate governance listing standards of the New York Stock Exchange, SEC regulations and our Director Independence Standards. The Board of Directors has determined that Messrs. Anton, Boland, Hodnik, McCullough and Smucker are “audit committee financial experts,” as that term is defined by SEC regulations. No member of the Audit Committee serves on the audit committees of three other public companies.

 

Compensation and Management Development Committee. The purpose of the Compensation and Management Development Committee is to assist the Board of Directors in fulfilling the Board of Directors’ oversight responsibilities on matters relating to:

 

 

 

The Compensation Committee met five times during 2008. Each member of the Compensation Committee is independent as defined in the corporate governance listing standards of the New York Stock Exchange and our Director Independence Standards.

 

Process for Determining Director and Executive Compensation.  The Compensation Committee reports to the Board of Directors on all compensation matters regarding our directors, executives and other key salaried employees. The Compensation Committee annually reviews and approves the compensation for our directors, executives and other key salaried employees. The Compensation Committee does not generally delegate any of its authority to other persons, although it has the power to delegate authority to subcommittees. The Compensation Committee relies upon several members of our management and their staff, as well as an outside compensation consultant, in order to assist the Compensation Committee in performing its duties.

 

We strive to pay our directors and executives compensation that is competitive in the marketplace. In order to assist the Compensation Committee in determining compensation that is competitive, the Compensation Committee has engaged Towers Perrin, an outside compensation consulting firm, as its compensation consultant. Towers Perrin annually compiles information regarding the compensation that similar companies are paying to their directors and executives. Our Senior Vice President — HR and his staff usually work directly with Towers Perrin to compile the market compensation information. We use that information as a starting point to set compensation levels for our directors and executives.

 

Role of the Compensation Consultant.  Towers Perrin serves as an advisor to the Compensation Committee on compensation matters relating to our directors and executives. Towers Perrin generally provides the Compensation Committee with market compensation data and makes recommendations with regard to the form and amount of director and executive compensation based on the market data. Towers Perrin typically makes recommendations with regard to the base salary, annual cash incentive compensation and long-term equity incentive compensation for our Chief Executive Officer.

 

Towers Perrin also from time to time identifies peer companies for benchmarking director and executive compensation, provides other market compensation information and analysis, assists with the development of, and changes to, compensation plans and programs, and attends Compensation Committee meetings.

 

Role of Management.  Several members of our management participate in the Compensation Committee’s executive compensation process. The Compensation Committee relies upon our Senior Vice President — HR and his staff for input in determining director and executive compensation levels. Towers Perrin typically provides the requested market compensation information to our Senior Vice President — HR, and our Senior Vice President — HR typically meets with Towers Perrin to discuss this information. Our Chief Executive Officer does not meet with Towers Perrin on an individual basis. With regard to director compensation, Towers Perrin also typically provides the Compensation Committee with recommendations of any changes to director compensation. Our Senior Vice President — HR may also make recommendations to the Compensation Committee of changes to director compensation based upon the market compensation information.

 

With regard to executive compensation, management generally makes recommendations to the Compensation Committee and plays a more active role in the compensation process. Management makes recommendations relating to the development of compensation plans and programs and changes to existing plans and programs. Management also makes recommendations with respect to:

 

 

 

Prior to providing recommendations to the Compensation Committee at its formal meetings, our Senior Vice President — HR generally will meet with our Chief Executive Officer to review the recommendations, except for recommendations concerning our Chief Executive Officer’s compensation. Our Chief Executive Officer and our Senior Vice President — HR also may meet with the chair of the Compensation Committee prior to meetings to review the agenda for the meetings and the compensation recommendations. Our Chief Executive Officer and our Senior Vice President — HR generally attend all Committee meetings. Our Chief Executive Officer does not have the ability to call meetings. Our Senior Vice President — HR serves as secretary for the Compensation Committee at its meetings. Our Chief Executive Officer is excused from that part of the meeting during which the Compensation Committee discusses his annual performance evaluation and compensation.

 

Nominating and Corporate Governance Committee. The purpose of the Nominating and Corporate Governance Committee is to assist the Board of Directors in fulfilling the Board of Directors’ oversight responsibilities on matters relating to:

 

 

The Nominating Committee met twice in 2008. Each member of the Nominating Committee is independent as defined in the corporate governance listing standards of the New York Stock Exchange and our Director Independence Standards.

 

Director Qualifications.  The Nominating Committee seeks a diverse group of candidates who possess the appropriate characteristics, skills, experience and time to make a significant contribution to the Board of Directors, Sherwin-Williams and our shareholders. The Nominating Committee seeks input from senior management and other members of the Board of Directors to identify and evaluate potential director candidates. Each candidate is evaluated in the context of the Board of Directors as a whole, with the objective that the Board of Directors can best perpetuate Sherwin-Williams’ success and represent shareholders’ interests through the exercise of sound business judgment using the directors’ diversity of experiences. Each candidate shall have the highest personal and professional character and integrity, and shall have demonstrated exceptional ability and judgment in their respective endeavors. Candidates must possess sufficient time to effectively carry out their duties and responsibilities.

 

In considering the composition of the Board of Directors as a whole, the Board of Directors considers the following characteristics, skills and experiences of each individual candidate:

 

 

In addition, the Board of Directors considers such other skills and experiences as it deems appropriate given the then-current needs of the Board of Directors and Sherwin-Williams.

 

The Nominating Committee may, but typically does not, employ professional search firms

(for which it would pay a fee) to assist it in identifying potential members of the Board of Directors with the desired skills and disciplines.

 

Consideration of Candidates Recommended by Shareholders.  The Nominating Committee’s policy with respect to the consideration of director candidates recommended by shareholders is that the Nominating Committee will consider such candidates on the same basis and in the same manner as it considers all director candidates. Recommendations are required to include the following information:

 

 

You may find a complete description of these requirements under “Procedures for Shareholders to Recommend Director Candidates” in the “Corporate Governance” section on the “Investor Relations” page of our website at www.sherwin.com. Shareholders may submit recommendations, along with proof of shareholder status, in writing to Chairperson, Nominating and Corporate Governance Committee, c/o Corporate Secretary, The Sherwin-Williams Company, 101 West Prospect Avenue, 12th Floor, Midland Building, Cleveland, Ohio 44115.

 

 

 

Management has the primary responsibility for the integrity of Sherwin-Williams’ financial information and the financial reporting process, including the system of internal control over financial reporting. Ernst & Young LLP, Sherwin-Williams’ independent registered public accounting firm, is responsible for conducting independent audits of Sherwin-Williams’ financial statements and management’s assessment of the effectiveness of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States) and expressing an opinion on the financial statements and management’s assessment based upon those audits. The Audit Committee is responsible for overseeing the conduct of these activities by management and Ernst & Young LLP.

 

As part of its oversight responsibility, the Audit Committee has reviewed and discussed the audited financial statements, the adequacy of financial controls and the effectiveness of Sherwin-Williams’ internal control over financial reporting with management and Ernst & Young LLP. The Audit Committee also has discussed with Ernst & Young LLP the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees). The Audit Committee has received the written disclosures and the letter from Ernst & Young LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence. The Audit Committee also has discussed with Ernst & Young LLP that firm’s independence.

 

Based upon these reviews and discussions, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in Sherwin-Williams’ Annual Report on Form 10-K for the year ended December 31, 2008 for filing with the Securities and Exchange Commission.

 

AUDIT COMMITTEE

J. C. Boland, Chairman

A. F. Anton

D. F. Hodnik

G. E. McCullough

R. K. Smucker

 

The Compensation and Management Development Committee has reviewed and discussed with management the Compensation Discussion and Analysis contained in this Proxy Statement. Based upon this review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in Sherwin-Williams’ Annual Report on Form 10-K for the year ended December 31, 2008 and this Proxy Statement.

 

COMPENSATION AND MANAGEMENT

DEVELOPMENT COMMITTEE

R. W. Mahoney, Chairman

D. E. Evans

S. J. Kropf

A. M. Mixon, III

C. E. Moll

 

 

Executive Summary.

 

 

Overview of Our Executive Compensation Program

 

The Compensation Committee.  The Compensation and Management Development Committee assists our Board of Directors in fulfilling our Board of Directors’ oversight responsibilities to administer our executive compensation program. Each member of the Compensation Committee is independent as defined in the corporate governance listing standards of the New York Stock Exchange and our director independence standards.

 

The Compensation Committee reports to the Board of Directors on all compensation matters regarding our executives and other key salaried employees. You may learn more about the Compensation Committee’s responsibilities by reading the Compensation Committee’s charter, which is available in the “Corporate Governance” section on the “Investor Relations” page of our website at www.sherwin.com. We have also included additional information about the Compensation Committee, including the role of compensation consultant and management in the compensation setting process, under the heading “Board Meetings and Committee

Membership — Compensation and Management Development Committee.”

 

Components of Compensation.  The major components of our executive compensation program, the primary purpose of each component and the form of compensation for each component are described in the following table.

 

Component		Primary Purpose		Form of Compensation
Base Salary		Provides base compensation for the day-to-day performance of job responsibilities.		Cash
Annual Cash Incentive Compensation		Rewards performance during the year based on the achievement of annual performance goals.		Cash
Long-Term Equity Incentive Compensation		Encourages improvement in the long-term performance of our company, thereby aligning the interests of our executives with the interests of our shareholders.		Stock options, which vest over a three-year period, and performance-based restricted stock, which vests based upon the achievement of financial performance goals.
Other Employee And Executive Benefits, Including Perquisites		Provides a broad-based executive compensation program for employee retention, retirement and health.		Retirement and savings programs, health and welfare programs, and employee benefit plans, programs and arrangements generally available to all employees; limited perquisites, executive life insurance program, executive long-term disability program and grantor trust program.

 

 

Compensation Objectives.  We design and manage our company-wide compensation programs to align with our overall business strategy for the benefit of our shareholders. We believe it is important that our executive compensation programs:

 

 

The policies we use to make compensation decisions and the decisions we make are materially similar for all executives. These policies and decisions result in higher compensation levels for our Chairman and Chief Executive Officer primarily based upon the higher market compensation that is available for chief executive officers.

 

We compensate our executives principally by using a combination of fixed and

performance-based compensation, annual and long-term compensation, and cash and stock-based compensation. We determine this mix by reviewing the mix available at the peer companies listed on the next page and according to the general survey data described below. Accordingly, we do not have a specific policy for the allocation of compensation between fixed and performance-based compensation, annual and long-term compensation, and cash and stock-based compensation. The following table illustrates the allocation of the major compensation components for our named executives for 2008 in terms of this mix. The percentages reflect the amounts of salary and annual cash incentive compensation earned in 2008 and the aggregate grant date fair values of stock options and shares of restricted stock granted in 2008 (as reflected in the 2008 Grants of Plan-Based Awards Table).

 

 

 

Benchmarking — Our Starting Point

 

We offer our executives compensation that is intended to be competitive in the market. The Compensation Committee has retained Towers Perrin, an outside compensation consulting firm, to identify annually the compensation paid to executives holding equivalent positions or having similar responsibilities at similar chemical, building product manufacturing and retail peer companies with comparable sales. Towers Perrin also compiles compensation data derived from the average of five general broad-based surveys of industrial companies of similar size to us. These surveys are sponsored by nationally recognized compensation consulting firms.

 

We calculate an average of (a) the compensation available at the peer companies and (b) the average compensation derived from the five general broad-based surveys. We refer to this average as “market” compensation. This market compensation provides a framework for us to determine the mix of compensation components and target compensation levels. We generally benchmark the compensation that we pay to our executives to approximate the median market compensation. We benchmark against median market compensation because it allows us to attract and retain employees and helps us to manage the overall cost of our compensation program. We use this information only as a starting point, not as a determining factor, in setting compensation.

 

We review compensation paid at these peer companies because their size and business make them most comparable to us. We also believe these companies likely compete with us for executive talent. For compensation earned in 2008, these peer companies included the companies listed in the following table. The peer companies are regularly reviewed and changed from time to time, and the information is updated annually.

Air Products & Chemicals, Inc.		Eastman Chemical Co.		Owens Corning
Akzo Nobel, N.V.		Fortune Brands Inc.		PPG Industries, Inc.
American Standard Companies, Inc.		Leggett & Platt Inc.		Rohm and Haas Company
Ashland Inc.		The Lubrizol Corporation		The Stanley Works
Avery Dennison Corporation		Masco Corporation		USG Corporation
The Black & Decker Corporation		Mohawk Industries, Inc.		Weyerhaeuser Company
Celanese Corporation		Newell Rubbermaid Inc.

 

 

The market compensation information provided by Towers Perrin includes base salary, annual cash incentive compensation, long-term equity incentive compensation and total direct compensation. We define total direct compensation as the sum of base salary, annual cash incentive compensation and long-term equity incentive compensation. We review total direct compensation in order to help us determine whether the principal compensation components that we pay to our executives are competitive in the aggregate. The Compensation Committee compares each named executive’s base salary, annual cash incentive compensation, long-term equity incentive compensation and total direct compensation to the median market compensation.

 

The following table sets forth the projected total direct compensation for our named executives as a percent of the median market total direct compensation. For purposes of this table, projected total direct compensation includes 2009 base salary, 2009 targeted annual cash incentive compensation, the annual grant of stock options granted in October 2008 and the targeted value of the recommended 2009 annual grant of restricted stock.

		Projected Targeted
		Total Direct Compensation
		as a Percentage of
Named Executive		Market Compensation
C.M. Connor			98.2
J.G. Morikis			97.0
S.J. Oberfeld			124.9
S.P. Hennessy			103.8
T.W. Seitz			109.0

 

The median total direct compensation paid by the peer companies reflects 2007 compensation because more current compensation amounts were not available at the time the Compensation Committee reviewed the information. Consequently, because peer compensation amounts were two years old, we expected that projected targeted total direct compensation for our named executives (as set forth in the table above) may exceed 100% of median market compensation.

 

In addition, the projected total direct compensation for Mr. Oberfeld materially exceeded 100% primarily because of the value of stock options and restricted stock. For internal pay equity purposes, Mr. Oberfeld was targeted the same number of stock options and restricted stock as Mr. Hennessy because they are in the same pay grade. Accordingly, the value of stock options and restricted stock for Mr. Oberfeld materially exceeded median market.

 

The actual amounts we pay our executives may vary from the targeted amounts based upon company and individual performance and the market price of our common stock. Individual components may be greater than or lesser than that targeted because we focus on the overall competitiveness of the entire compensation program. In addition, the Compensation Committee did not increase or decrease the amount of any compensation component based upon the amount of any other compensation component or its review of projected targeted total direct compensation.

 

Major Components of Our Executive Compensation Program

 

Base Salary.  Each executive salaried position at our company is assigned a salary grade that corresponds to a salary range. We review the salary ranges against median market base salaries based upon the position and level of responsibility. The midpoint of the range generally approximates the median market salary paid for an equivalent or similar position at the peer companies and according to the general survey data. The Compensation Committee reviews and approves the base salary of each executive annually and at other times in connection with any promotion or other change in responsibility. Annual base salary increases are effective in March.

 

Annual salary increases are based, in part, on the overall annual salary budget guidelines for our company. In addition, each executive undergoes an annual performance review. The executive’s performance for the prior year is reviewed by his direct supervisor. With regard to the evaluation of our Chairman and Chief Executive Officer, each director provides ratings and comments for performance results, business strategy, developing a management team, and leadership. The results are reviewed by the Compensation Committee and by the non-management directors in executive session.

 

As part of this annual performance review, all salaried employees, including our executives, are assigned a performance rating that corresponds with a range of potential merit increases. Increases are based upon the executive’s performance, responsibilities, experience and tenure in his particular position and our company-wide performance. These factors are not quantified or weighted in any objective manner. Instead, the Compensation Committee exercises its discretion and subjective judgment in assessing those factors and in approving a specific merit increase within the range.

 

We adopt budget salary guidelines for all of our employees. For 2008, we adopted an overall 3.25% merit budget for annual salary increases with possible merit increases ranging from 0% to 7.75%. Each of our named executives received a merit salary increase of 3.25% during 2008. For 2009, we adopted an overall 3.0% merit budget for annual salary increases with possible merit increases ranging from 0% to 7.5%. We set the range of merit salary increases for all employees as part of our annual operating budget process. The maximum amount of the range is equal to the amount necessary to increase the salary of an employee (whose salary is below median market for his position, but who receives the highest performance rating) to an amount that approximates the median market salary for his position.

 

In early 2009, the Compensation Committee performed its annual review of the base salaries of each executive. The Compensation Committee decided that our named executives would not receive a merit salary increase for 2009 as a part of our efforts to manage employee-related costs during this challenging global economic environment.

 

The following table sets forth the 2008 and 2009 base salaries and the percentage merit increases for our named executives. The table reflects $23,000 increases to Mr. Oberfeld’s 2008 annual base salary and Mr. Seitz’s 2009 annual base salary to offset the elimination of their company automobiles.

 

		% Merit Increase				2008				% Merit Increase				2009
Named Executive		for 2008				Base Salary ($)				for 2009				Base Salary ($)
C.M. Connor			3.25				1,221,987				-0-				1,221,987
J.G. Morikis			3.25				705,566				-0-				705,566
S.J. Oberfeld			3.25				512,999				-0-				512,999
S.P. Hennessy			3.25				539,127				-0-				539,127
T.W. Seitz			3.25				450,907				-0-				473,907

 

Annual Cash Incentive Compensation.  We pay annual cash incentive compensation to our executives under our shareholder-approved 2007 Executive Performance Bonus Plan. All of our executives participate in our Performance Plan. Our Performance Plan is designed so that our executives may earn higher than average annual cash incentive compensation for above average performance and lower than average annual cash incentive compensation for below average performance.

 

The Compensation Committee annually reviews target and maximum annual cash incentive compensation levels for our executives as a percent of their salary. Target incentive awards are determined by using the median market annual cash incentive compensation, which generally equals the amount an executive could receive under our Performance Plan if he achieves a 100% average of his goals. The maximum incentive awards are determined by using the maximum annual cash incentive compensation available at the peer companies and according to the general survey data, which generally equals the amount an executive could receive if he achieves a 125% average of his goals.

 

The following table sets forth the 2008 minimum, target and maximum cash incentive amount levels, as a percent of salary, for each named executive based upon the executive achieving an average of 75%, 100% and 125%, respectively, of his performance goals.

 

		Incentive Amount as a
		Percentage of Salary
Named Executive		Minimum				Target				Maximum
C.M. Connor			40				95				190
J.G. Morikis			40				75				150
S.J. Oberfeld			30				60				120
S.P. Hennessy			40				75				150
T.W. Seitz			30				60				120

 

 

The Compensation Committee reviews and approves each named executive’s achievement of performance goals for the prior year and approves new performance goals for the current year.

 

For 2008, we established a threshold goal to increase company earnings. 75% of this earnings increase must have been achieved in order to have paid annual incentive compensation under our Performance Plan. Under our Performance Plan, the Compensation Committee may approve, based upon our Chief Executive Officer’s recommendation, the payout of awards on a discretionary basis if performance goals are not achieved, except with respect to executives who are subject to Section 162(m) of the Internal Revenue Code. For Section 162(m) participants, the Compensation Committee retains the discretion to reward individual performance by paying executive compensation outside of our Performance Plan.

 

During 2008, the Compensation Committee approved the performance goals of all of our named executives. Our Chairman and Chief Executive Officer also approved the goals of our other named executives. Performance goals varied by executive and usually related to the business unit or function for which such person has responsibility. Performance goals were weighted between 10% and 30%. Financial performance goals were generally weighted more heavily.

 

The 2008 target levels for most of the financial performance goals were set at levels that showed improvement over 2007. When target levels for financial performance goals are set at levels that show improvement over the prior year, the levels coincide with improvements established by our annual operating budget over the level realized in the prior operating year. The Board of Directors reviews our annual operating budget, each financial improvement objective therein and approves financial performance goals that are set at levels that show relative improvement over the prior year at the same magnitude of improvement as is set forth in our annual operating budget. The following table shows for each named executive the 2008 performance goals and the weightings for each goal.

Named Executive		2008 Performance Goals and Weightings
C.M. Connor		Earnings per share of $5.09 (weighted 30%)
J.G. Morikis		Net sales of $8.3 billion (weighted 20%, 20% and 10%, respectively)
S.P. Hennessy		After tax return on equity of 35.06% (weighted 20%, 10% and 10%, respectively)
		Free cash flow of $534.7 million (weighted 10%, 10% and 20%, respectively)
		Consolidated working capital as a % of sales of 12.36% (weighted 10%)
		Earnings before interest, taxes, depreciation and amortization of $1.175 billion (weighted 10%, 20% and 20%, respectively)
S.J. Oberfeld		Paint Stores Group sales of $5.1 billion (weighted 20%)
		Paint Stores Group profit before taxes (weighted 20%)
		Paint Stores Group return on sales (weighted 20%)
		Paint Stores Group return on net assets employed of 45.98% (weighted 10%)
		Paint Stores Group gallons sold (weighted 10%)
		Paint Stores Group new store openings of 101 (weighted 10%)
		Sales of 190.9 million and profit before taxes of 27.5 million for M.A. Bruder and Columbia Paint (weighted 10%)
T.W. Seitz		Earnings per share of $5.09 (weighted 20%)
		Net sales of $8.3 billion (weighted 20%)
		Return on net assets employed of 27% (weighted 20%)
		Development of excellence initiatives throughout company (weighted 20%)
		Creation of a global sourcing strategy for commodities (weighted 10%)
		Improvement in processes and leveraging (weighted 10%)

 

 

We have not disclosed the target levels for three of Mr. Oberfeld’s individual performance goals because we believe such disclosure will cause competitive harm to Sherwin-Williams with regard to product pricing. These goals relate to Paint Stores Group profit before taxes, return on sales and gallons sold. The target levels of these goals were based upon historical and budgeted amounts and were established at levels that would require a higher rate of achievement than industry growth expectations. When these levels were set, the Compensation Committee believed that these goals could have been achieved through organic growth in the number of distribution outlets in the Paint Stores Group, growth of business with existing customers, attaining new customers or business, sales of new products and gaining market share. The Compensation Committee believed that reaching the target levels for these goals would have been unlikely without substantial growth of existing business and new business resulting in market share gains.

 

In February 2009, the Compensation Committee reviewed achievement against the 2008 threshold earnings goal. For 2008, the threshold earnings goal was to increase 2008 earnings before taxes $16.1 million over 2007 earnings before taxes. In 2008, our earnings before taxes decreased compared to 2007. Accordingly, we did not meet the 2008 threshold earnings goal, and no annual cash incentive compensation was earned or paid to our named executives under our Performance Plan.

 

Long-term Equity Incentive Compensation.  We grant long-term equity incentive compensation in the form of stock options and restricted stock annually under our shareholder-approved 2006 Equity and Performance Incentive Plan. Our long-term equity compensation program is designed to focus the efforts of our employees on performance objectives that contribute to company success on a long-term basis, while serving important employee retention, recognition and management succession planning purposes. Our stock option program is the primary means in which we grant long-term stock compensation to a broad group of key employees based strictly upon increases in our stock price. Our restricted stock program is designed for a more selective group of key employees and rewards participants based upon

the achievement of financial performance goals and for the appreciation in our stock price.

 

When making grants, we begin by determining the median market value of long-term equity incentive compensation. We allocate that value between stock options and restricted stock by targeting comparable values for stock options and restricted stock. We allocate the mix of stock options and restricted stock in this way because we want to equally reward the growth in the value of our common stock and the achievement of financial performance goals.

 

We have used a consistent approach in granting stock options and restricted stock over the years. We grant stock options and restricted stock on an annual basis at regularly scheduled Compensation Committee meetings. We schedule the dates of these meetings approximately one year in advance. We typically grant restricted stock in February and stock options in October. We grant restricted stock and stock options in February and October so that our annual grants are made at different times of the year. Information relating to the stock options and shares of restricted stock granted to our named executives is set forth in the Summary Compensation Table and the 2008 Grants of Plan-Based Awards Table.

 

At each October Compensation Committee meeting, we grant stock options to all eligible employees. These grants are made typically on the same day that the Audit Committee approves our earnings release for the third quarter and a day or so before we release our third quarter earnings results. At each February Compensation Committee meeting, we grant restricted stock. This meeting typically occurs in the third week of February, approximately three or four weeks after we release our annual earnings results. We may also grant restricted stock and stock options at other regularly scheduled Compensation Committee meetings in connection with an employee’s initial hire, promotion and other events. The dates of these grants may occur shortly before we release our quarterly earnings results. We do not take into account our earnings results when determining the number of stock options or shares of restricted stock to be granted.

 

Stock Options.  The number of stock options granted to an executive is based upon the executive’s position and level of responsibility using comparable positions at the peer companies and according to the general survey data. We determine the specific number of stock options to be granted by calculating the Black-Scholes value of the stock options over a prior 90-day period. Black-Scholes is a generally accepted model used in estimating the value of stock options. We identify the minimum, median and maximum values of stock options granted by the peer companies and according to the general survey data. The Compensation Committee generally grants stock options to approximate median market value.

 

In accordance with the terms of our stock plans, the option exercise price for all stock options is equal to the average of the high and low market price of our common stock on the date options are granted. Accordingly, the exercise price may be higher or lower than the closing price of our common stock on that day. We do not reprice stock options, and our stock plans do not contain reload features. Stock options typically vest at the rate of one-third per year for three years (beginning one year from the date of grant) and expire ten years from the date of grant. In October 2008, we granted stock options to all executives.

 

Restricted Stock.  We determine the granting of restricted stock in a manner similar to how we determine the granting of stock options. We identify the minimum, median and maximum values of restricted stock granted by the peer companies and according to the general survey data. The Compensation Committee generally grants restricted stock with a value higher than the median to allow our executives the opportunity to earn above average compensation for above average performance. In 2008, the Compensation Committee granted shares of restricted stock at approximately 150% of the median value in order to provide an incentive for above average performance.

 

Shares of restricted stock are subject to a “substantial risk of forfeiture” and vest in accordance with performance and time restrictions. The number of shares of restricted stock that will vest at the end of the restriction period is based upon the achievement of one or more performance goals. Up to 100% of the number of shares of restricted stock may be forfeited if the

performance goals are not achieved. The shares of restricted stock granted in 2008 and in prior years vest at the end of four years. During the four-year period, executives beneficially own the shares of restricted stock and possess all voting and dividend rights.

 

The number of shares of restricted stock that will actually vest will range from 0% to 100% based upon our company’s achievement of specified financial performance goals. These goals measure average return on average equity and cumulative earnings before interest, taxes, depreciation and amortization (EBITDA) over the four-year period and are calculated as follows:

 

 

The Compensation Committee selected these two performance measures because they reward our executives in achieving two important business objectives — earnings growth and working capital management. The Compensation Committee believes these objectives help us improve our long-term financial results.

 

At the end of the vesting period, the Compensation Committee will review performance against the goals and determine the number of shares of restricted stock that will vest.

 

For the 2008 grant of restricted stock:

 

 

In February 2008 and 2009, the Compensation Committee approved the vesting of 100% of the shares of restricted stock granted in February 2004 and 2005, respectively. During each four-year period, Sherwin-Williams achieved at least a 17% average return on average equity and at least an 8% cumulative growth in EBITDA.

 

Long-term incentive opportunities are intended to be competitive with market long-term incentive opportunities. Therefore, we do not consider the amount of outstanding stock options and shares of restricted stock currently held by an executive when making awards of stock options and restricted stock.

 

Other Arrangements, Policies and Practices

 

Perquisites.  During 2007, the Compensation Committee eliminated most of the perquisites that we had historically provided to our executives. Accordingly, we now offer a limited number of perquisites to our executives, including personal use of the corporate aircraft, an executive automobile program (which is being phased out as automobile lease terms end) and relocation expenses. These perquisites represent a small portion of the total compensation paid to our executives. The incremental costs of these perquisites for 2008 are set forth in a footnote to the “All Other Compensation” column of the Summary Compensation Table.

Other Benefits.  We provide our named executives with various retirement and savings programs, health and welfare programs, and employee benefit plans, programs and arrangements generally available to all employees and other executive benefits. We annually review these items in connection with our preparation and review of the overall compensation packages of our named executives and in connection with our review of tally sheets. We also offer deferred compensation plans under which participating employees may elect to defer compensation on a pre-tax basis. None of our named executives participate in these deferred plans.

 

Other executive benefit programs include an executive life insurance program, an executive long-term disability program and a grantor trust program. The 2008 amounts for these programs are set forth in a separate table that is included in a footnote to the “All Other Compensation” column of the Summary Compensation Table.

 

The life insurance and long-term disability programs are designed to provide our named executives with life and disability benefits greater than the life and disability benefits available under the broad-based life insurance and long-term disability programs that we offer to other employees due to benefit limitations within the broad-based programs.

 

We initiated our grantor trust program in 2003 to replace our non-qualified deferred compensation plan in order to provide financial security to those executives who have accumulated a significant retirement benefit in our non-qualified deferred compensation plan. All salaried employees are eligible to participate in funded retirement plans. The Internal Revenue Code contains limits on the amount of benefits that can be contributed to and/or paid from a qualified retirement plan. Employees whose retirement benefits are limited are eligible to participate in the nonqualified deferred compensation plan to provide such employees with the retirement benefits they would have received under our qualified retirement plans but for those limitations. Executives who are eligible to participate in our grantor trust program are not eligible to participate in our deferred compensation plan.

 

All of our named executives participate in our grantor trust program. Under this program, supplemental compensation payments and related tax gross-up payments are made to our named executives to fund individual grantor trusts established by the executives. It is intended that these payments provide our named executives with the same after-tax amount at retirement age as would have been provided under our non-qualified deferred compensation plan.

 

Internal Pay Equity.  The Compensation Committee broadly considers internal pay equity when setting compensation levels for executives with similar responsibilities, experience and tenure. However, the Compensation Committee has no specific policy and follows no established guidelines or formulas when comparing compensation levels among executives. In connection with grants of stock options and restricted stock, the Compensation Committee generally grants the same number of stock options and shares of restricted stock to employees who are in similar pay grades.

 

Use of Tally Sheets.  When approving changes in compensation for our named executives, our human resources department prepares a tally sheet for each named executive. Tally sheets set forth the dollar amounts of all components of each named executive’s current compensation, including salary, annual cash incentive compensation, long-term incentive compensation, retirement and savings programs, health and welfare programs and other executive benefits, including perquisites.

 

The Compensation Committee uses tally sheets as a reference in order to ensure that members understand the total compensation of our named executives. Tally sheets also allow the Compensation Committee and management to review, in one place, how a change in the amount of each compensation component affects each named executive’s total compensation and to review each named executive’s total compensation in the aggregate. Based upon its most recent review, the Compensation Committee determined that total compensation, in the aggregate, for each of our named executives to be consistent with the Compensation Committee’s expectations. The Compensation Committee did not increase or decrease the amount of compensation of our named executives solely based upon the review of tally sheets.

The Compensation Committee and management also reviewed potential payments to our named executives under termination and change in control scenarios including:

 

 

This review included potential severance payment obligations, potential values of accelerated shares of restricted stock and stock options, and projected payment obligations in connection with our retirement and savings programs, health and welfare plans, and other executive benefits. The Compensation Committee determined that the total potential payments, in the aggregate, for each of our named executives under each scenario to be reasonable and not excessive.

 

Tax and Accounting Considerations.  From time to time, we review the accounting and tax laws, rules and regulations that may affect our compensation programs. However, tax and accounting considerations have not significantly impacted the compensation programs we offer to our executives.

 

Section 162(m) of the Internal Revenue Code generally provides that certain compensation in excess of $1 million per year paid to a company’s chief executive officer and any of its four other highest paid executive officers is not deductible by a company unless the compensation qualifies for an exception. Section 162(m) provides an exception to the deductibility limit for performance-based compensation if certain procedural requirements, including shareholder approval of the material terms of the performance goal, are satisfied.

 

Under our 2007 Executive Performance Bonus Plan, we have the ability to pay non-discretionary annual cash incentive compensation to our named executives that will qualify for deductibility. Independent of our Performance Plan, the Compensation Committee retains the discretion to reward individual performance by paying executive compensation amounts that may not be deductible under Section 162(m). The Compensation Committee believes that its ability to exercise such discretion is in the best interests of Sherwin-Williams and our shareholders. The Compensation Committee did not approve the payment of any such discretionary bonus amounts for 2008 that are not deductible under Section 162(m).

 

Executive Compensation Adjustment and Recapture Policy.  In February 2008, the Board of Directors and the Compensation Committee adopted a policy regarding the adjustment and recapture of compensation paid or payable to key employees and executives. Under the policy, employees who receive an award under our 2007 Executive Performance Bonus Plan are required to reimburse Sherwin-Williams in the event:

 

 

The reimbursement will be equal to the difference in the amount of the award prior to the restatement and the amount of the award determined using the restated financial results.

 

In addition, under our 2006 Equity and Performance Incentive Plan, (a) all stock awards will be cancelled and (b) the employee will be required to reimburse Sherwin-Williams for any economic gains received by the employee pursuant to a stock award during the one-year period preceding the Board of Director’s determination that the employee engaged in such conduct.

 

Severance Pay Agreements.  To ensure continuity and the continued dedication of our executives during any period of uncertainty

caused by the possible threat of a takeover, we have entered into severance pay agreements with our executives, including each of our named executives. These severance pay agreements have not been a significant factor in setting compensation levels and have not affected the Compensation Committee’s decisions with respect to the compensation components.

 

In 2006, the Compensation Committee engaged Towers Perrin to evaluate our then existing severance pay agreements in order to determine how these agreements compared to market practices. Towers Perrin’s evaluation included a review of material terms of the agreements, including the change in control trigger threshold, severance pay single versus double triggers, severance pay multiples, continuation of retirement, health and welfare benefits, excise tax gross-ups, and the impact of Section 409A of the Internal Revenue Code.

 

Based upon this evaluation, the Compensation Committee approved a new form of severance agreement in February 2007, and we entered into new severance agreements with each of our executives. The Compensation Committee believes that the material terms of the severance agreements are consistent with market practices.

 

Potential cash severance payments are based upon a multiplier of base salary and annual cash incentive pay. Because Mr. Connor’s base salary and annual cash incentive pay are higher than that of our other named executives, Mr. Connor’s potential cash severance payment is correspondingly higher than that of our other named executives. Additional information regarding the severance agreements, including the estimated amounts payable to each named executive, is set forth under the heading “Potential Payments upon Termination or Change in Control.”

 

Stock Ownership Guidelines.  We have established a minimum share ownership requirement for our directors, executive officers and operating presidents. We require each director who has served on the Board of Directors for at least five years to own a minimum of 10,000 shares of common stock. We require each executive and operating president who has served in such capacity for at least five years to own shares of common stock equal in value to a multiple of his base salary ranging from a low of three times to a high of five times. The requirements for our executives and operating presidents are as follows.

 

		Minimum Share
		Ownership as
		Multiple of
Title		Base Salary
Chief Executive Officer		5 times
Chief Operating Officer		4 times
Other Executives and Operating Presidents		3 times

 

For purposes of meeting this requirement, each equivalent share of common stock held under our benefit plans and each share of restricted stock is considered as a share of common stock. Stock options are not considered towards meeting the requirement. The Compensation Committee reviews compliance with these guidelines annually. All directors, executive officers and operating presidents have either met the guidelines or are pursuing plans to meet the guidelines within the time frames prescribed.

 

 

The following table sets forth information regarding the compensation of our Chairman and Chief Executive Officer, our Senior Vice President — Finance and Chief Financial Officer and our other three highest paid executive officers (our “named executives”).

 

																										Change
																										in
																										Pension
																										Value
																										and
																						Non-Equity				Nonqualified
Name																						Incentive				Deferred				All
and														Stock				Option				Plan				Compensation				Other
Principal						Salary				Bonus				Awards				Awards				Compensation				Earnings				Compensation				Total
Position		Year				($)				($)				($)(2,3)				($)(3,4)				($)				($)(5)				($)(6)				($)
C. M. Connor			2008				1,214,590				-0-				2,610,830				1,853,283				-0-				-0-				524,807				6,203,510
Chairman and			2007				1,161,047				-0-				2,730,500				1,609,818				1,544,000				-0-				540,064				7,585,429
Chief Executive Officer			2006				1,113,742				-0-				2,657,568				1,311,425				1,816,000				-0-				454,283				7,353,018
J. G. Morikis			2008				701,295				-0-				1,017,886				614,482				-0-				-0-				223,132				2,556,795
President and			2007				663,481				-0-				950,199				477,558				697,000				-0-				254,948				3,043,186
Chief Operating Officer			2006				479,036				-0-				803,983				315,980				577,000				-0-				194,016				2,370,015
S. J. Oberfeld(1)
President,			2008				493,225				-0-				585,927				828,633				-0-				-0-				187,869				2,095,654
Paint Stores Group			2007				459,272				-0-				474,603				729,311				276,000				-0-				249,720				2,188,906
S. P. Hennessy
Senior Vice President —			2008				535,863				-0-				663,125				471,341				-0-				-0-				197,075				1,867,404
Finance and			2007				503,617				-0-				661,186				382,116				604,000				-0-				193,997				2,344,916
Chief Financial Officer			2006				472,572				-0-				670,774				298,841				634,000				-0-				174,650				2,250,837
T. W. Seitz
Senior Vice President —			2008				448,177				-0-				539,007				367,109				-0-				62,165				295,676				1,712,134
Strategic Excellence			2007				422,093				-0-				531,201				412,697				339,000				85,979				258,036				2,049,006
Initiatives			2006				399,642				-0-				444,052				583,737				327,000				53,816				356,401				2,164,648

 

 

		2008				2007				2006				2005
Risk-free interest rate			3.01	%			4.03	%			4.68	%			4.15	%
Expected life of options			5.24	years			4.67	years			4.55	years			4.33	years
Expected dividend yield of stock			2.41	%			1.80	%			1.84	%			1.86	%
Expected volatility of stock			0.321				0.279				0.259				0.240

 

 

 

 

		C.M. Connor				J.G. Morikis				S.J. Oberfeld				S.P. Hennessy				T.W. Seitz
Company Contributions — Pension Plans ($)			13,500				13,500				13,500				13,500				2,300
Company Match — Employee Stock Plan ($)			13,800				13,800				13,800				13,800				13,800
Supplemental Payments — Grantor Trust ($)			316,838				131,027				64,710				109,349				194,562
Value — Executive Life Insurance Plan ($)			85,800				19,950				8,885				22,800				52,000
Premiums — Executive Disability Plan ($)			2,372				2,283				2,661				2,620				3,378
Tax Reimbursements ($)			51,371				15,308				31,734				20,645				10,474
Company Charitable Matching Gifts ($)			20,000				-0-				-0-				-0-				5,000
Perquisites ($)			21,126				27,264				52,579				14,361				14,162
TOTAL ($)			524,807				223,132				187,869				197,075				295,676

 

Amounts do not include the incremental cost of our Business Travel Accident Insurance Plan, which provides coverage for all of our directors, executive officers and full-time salaried employees. The total aggregate premium in 2008 for this plan for all directors, executives and employees was $34,028.

 

Perquisites.  The incremental costs of all perquisites provided to our named executives during 2008 were as follows: $27,264, $26,211, $14,361 and $14,162 for Messrs. Morikis, Oberfeld, Hennessy and Seitz, respectively, under our executive automobile program (which is being phased out as individual automobile lease terms end); $26,368 for Mr. Oberfeld for relocation expenses; and $21,126 for Mr. Connor for personal use of corporate aircraft.

 

Narrative Information Regarding the Summary Compensation Table.

 

Employment Agreements.  None of our named executives have entered into employment agreements with Sherwin-Williams.

 

Salary.  The salary amounts disclosed in the table are the amounts of base salary earned by our named executives during the indicated year. For 2008, salaries earned by our named executives accounted for the following percentages of their total compensation set forth in the table: Mr. Connor (19.6%), Mr. Morikis (27.4%), Mr. Oberfeld (23.5%), Mr. Hennessy (28.7%) and Mr. Seitz (26.2%). The percentages for 2008 are higher than the percentages for 2007 because of the lower total compensation paid to our named executives for 2008.

 

Mr. Morikis was promoted to President and Chief Operating Officer in October 2006. Prior to October 2006, Mr. Morikis was President, Paint Stores Group.

 

Non-Equity Incentive Plan Compensation.  No annual cash incentive compensation was earned or paid to our named executives under our 2007 Executive Performance Bonus Plan for 2008.

 

Pension Investment Plan.  Mr. Seitz is the only named executive who participates in our Salaried Employees’ Pension Investment Plan. Information about our Salaried Employees’ Pension Investment Plan is set forth in the 2008 Pension Benefits Table and the accompanying narrative discussion.

 

Key Management Deferred Compensation Plan.  Our Key Management Plan is a nonqualified deferred compensation plan pursuant to which employees who participate in our 2007 Executive Performance Bonus Plan or other identified employee groups may elect to defer on a pre-tax basis up to 100% of their base salary and bonus. None of our named executives participate in our Key Management Plan.

 

Perquisites.  The value of perquisites disclosed in the table is based upon the incremental cost of providing the benefit to the executive. During 2007, the Compensation and Management Development Committee eliminated most of the perquisites that we had provided to our executives. Accordingly, perquisites for 2008 for our named executives related only to our executive automobile program, personal use of the corporate aircraft and relocation expenses.

 

 

In addition, we purchase tickets to sporting and cultural events for business purposes. If not used for business purposes, the tickets are made available to our executives and other employees for personal use.

 

 

The following table sets forth information regarding the grants of annual cash incentive compensation, stock options and restricted stock during 2008 to our named executives.

 

																												All
																												Other								Grant
																												Option				Exercise				Date
																												Awards;				of				Fair
																												Number				Base				Value
																												of				Price				of
				Estimated Possible Payouts Under												Estimated Future Payouts Under												Securities				of				Stock
				Non-Equity Incentive Plan Awards(1)												Equity Incentive Plan Awards(2)												Underlying				Option				and
		Grant		Threshold				Target				Maximum				Threshold				Target				Maximum				Options				Awards				Option
Name		Date		($)				($)				($)				(#)				(#)				(#)				(#)(3)				($/Sh)(4)				Awards($)(5)
C. M. Connor		02/19/2008			485,836				1,153,860				2,307,721
		02/19/2008															-0-				28,667				43,000												2,314,045
		10/14/2008																											125,000				54.09				1,782,113
J. G. Morikis		02/19/2008			280,518				525,971				1,051,942
		02/19/2008															-0-				11,333				17,000												914,855
		10/14/2008																											50,000				54.09				712,845
S. J. Oberfeld		02/19/2008			147,967				295,935				591,870
		02/19/2008															-0-				8,333				12,500												672,688
		10/14/2008																											36,000				54.09				513,248
S. P. Hennessy		02/19/2008			214,345				401,897				803,794
		02/19/2008															-0-				8,333				12,500												672,688
		10/14/2008																											36,000				54.09				513,248
T. W. Seitz		02/19/2008			134,453				268,906				537,813
		02/19/2008															-0-				4,533				6,800												365,942
		10/14/2008																											21,000				54.09				299,395

 

 

Narrative Information Regarding the 2008 Grants of Plan-Based Awards Table.

 

Non-equity Incentive Plan Awards.  The non-equity incentive plan awards set forth in the table reflect annual cash incentive compensation that could have been earned by our named executives during 2008 under our 2007 Executive Performance Bonus Plan based upon the achievement of a threshold company earnings goal and the accomplishment by the executive of performance goals. No annual cash incentive compensation was earned or paid to our named executives for 2008.

 

Annual cash incentive compensation is payable as a percentage of salary. These percentages vary by named executive. The performance goals and the percentages of salary are set forth under the heading “Compensation Discussion and Analysis.”

 

The threshold, target and maximum amounts set forth in the table correspond to the named executive achieving an average of 75%, 100% and 125% of his performance goals, respectively.

 

Restricted Stock.  We grant restricted stock pursuant to our 2006 Equity and Performance Incentive Plan. The shares of restricted stock granted in 2008 vest at the end of a four-year period based upon the achievement of specified financial performance goals. The number of shares of restricted stock that will actually vest at the end of the vesting period will range from 0% to 100% based upon achievement of the specified financial performance goals. The maximum amounts set forth in the table correspond to the Compensation Committee’s decision to grant a number of shares of restricted stock equal to 150% of target in order to provide an incentive for above average performance. We have included more information about these performance goals under the heading “Compensation Discussion and Analysis.”

 

Shares of restricted stock will vest immediately upon the death or disability of the named executive or upon a change in control of Sherwin-Williams.

 

During the vesting period, the executives are the beneficial owners of the shares of restricted stock and possess all voting and dividend rights. Dividends are payable at the same rate as is paid on Sherwin-Williams common stock generally. During 2008, the quarterly dividend rate was $0.35 per share. In February 2009, the Board of Directors announced an increase in the quarterly dividend rate to $0.355 per share payable on March 13, 2009.

 

Stock Options.  We grant stock options pursuant to our 2006 Equity and Performance Incentive Plan. The option exercise price is equal to the market value of our common stock on the date options are granted. In accordance with the terms of the plan, the market value is equal to the average of the highest and lowest reported sale prices of our common stock on the date of grant.

 

Stock options vest in approximately three equal installments on the first, second and third anniversary dates of the date of grant and have a term of ten years. Stock options become immediately exercisable in the event of the death or disability of the executive or in the event of a change in control of Sherwin-Williams. Stock options are not transferable other than by will or the laws of descent and distribution.

 

 

The following table sets forth information regarding the number of unexercised stock options and the number and value of unvested shares of restricted stock outstanding on December 31, 2008 for our named executives.

 

																						Stock Awards
																						Equity Incentive
		Option Awards																				Plan Awards:				Equity Incentive
						Number of				Number of												Number of				Plan Awards:
						Securities				Securities												Unearned				Market or Payout
						Underlying				Underlying												Shares,				Value of Unearned
						Unexercised				Unexercised				Option								Units or Other				Shares, Units or
						Options				Options				Exercise				Option				Rights That Have				Other Rights That
		Option				(#)				(#)				Price				Expiration				Not Vested				Have Not Vested
Name		Grant Date(1)				Exercisable				Unexercisable				($)				Date				(#)				($)(2)
C. M. Connor			10/18/2002				246,067				-0-				25.425				10/17/2012				53,750	(3)			3,211,563
			10/24/2003				200,000				-0-				31.20				10/23/2013				59,000	(4)			3,525,250
			10/20/2004				135,000				-0-				41.725				10/19/2014				43,375	(5)			2,591,656
			10/21/2005				175,000				-0-				43.595				10/20/2015				43,000	(6)			2,569,250
			10/18/2006				93,333				46,667				59.435				10/17/2016
			10/19/2007				33,334				66,666				63.44				10/18/2017
			10/14/2008				-0-				125,000				54.09				10/13/2018
J. G. Morikis			10/20/2004				10,000				-0-				41.725				10/19/2014				11,500	(3)			687,125
			10/21/2005				40,000				-0-				43.595				10/20/2015				28,700	(4)			1,714,825
			10/18/2006				33,333				16,667				59.435				10/17/2016				14,250	(5)			851,438
			10/19/2007				13,334				26,666				63.44				10/18/2017				17,000	(6)			1,015,750
			10/14/2008				-0-				50,000				54.09				10/13/2018
S. J. Oberfeld			10/19/2000				5,095				-0-				19.625				10/18/2010				5,000	(3)			298,750
			10/17/2001				4,114				-0-				24.305				10/16/2011				13,500	(4)			806,625
			10/18/2002				3,933				-0-				25.425				10/17/2012				10,000	(5)			597,500
			10/24/2003				3,205				-0-				31.20				10/23/2013				12,500	(6)			746,875
			10/20/2004				13,500				-0-				41.725				10/19/2014
			10/21/2005				16,000				-0-				43.595				10/20/2015
			10/18/2006				22,000				11,000				59.435				10/17/2016
			10/19/2007				10,000				20,000				63.44				10/18/2017
			10/14/2008				-0-				36,000				54.09				10/13/2018
S. P. Hennessy			10/24/2003				41,795				-0-				31.20				10/23/2013				13,750	(3)			821,563
			10/20/2004				30,000				-0-				41.725				10/19/2014				15,000	(4)			896,250
			10/21/2005				40,000				-0-				43.595				10/20/2015				10,000	(5)			597,500
			10/18/2006				22,000				11,000				59.435				10/17/2016				12,500	(6)			746,875
			10/19/2007				10,000				20,000				63.44				10/18/2017
			10/14/2008				-0-				36,000				54.09				10/13/2018
T. W. Seitz			10/24/2003				3,795				-0-				31.20				10/23/2013				6,250	(3)			373,438
			10/20/2004				13,604				-0-				41.725				10/19/2014				17,500	(4)			1,045,625
			10/21/2005				30,000				-0-				43.595				10/20/2015				7,500	(5)			448,125
			10/18/2006				18,667				9,333				59.435				10/17/2016				6,800	(6)			406,300
			10/19/2007				6,000				12,000				63.44				10/18/2017
			10/14/2008				-0-				21,000				54.09				10/13/2018

 

 

 

The following table sets forth information regarding the number and value of stock options exercised and restricted stock vested during 2008 for our named executives.

 

		Option Awards								Stock Awards
		Number of								Number of
		Shares Acquired				Value Realized				Shares Acquired				Value Realized
		on Exercise				on Exercise				on Vesting				on Vesting
Name		(#)				($)(1)				(#)				($)(2)
C. M. Connor			339,943				11,654,269				88,000				4,735,720
J. G. Morikis			-0-				-0-				20,000				1,076,300
S. J. Oberfeld			22,296				584,121				7,000				376,705
S. P. Hennessy			-0-				-0-				20,000				1,076,300
T. W. Seitz			-0-				-0-				11,000				591,965