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 (Amendment No.        )

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NOTICE OF

 

2008 ANNUAL MEETING

 

OF STOCKHOLDERS

 

AND PROXY STATEMENT

 

Meeting Date:

 

Monday, September 22, 2008

at 11:00 a.m. (Central Daylight Time)

 

Meeting Place:

 

Children’s Theatre Company

2400 Third Avenue South

Minneapolis, Minnesota

 

 

 

August 11, 2008

 

Dear Stockholder:

 

It is my pleasure to invite you to the General Mills 2008 Annual Meeting of Stockholders. We will hold the meeting in the auditorium of the Children’s Theatre Company, 2400 Third Avenue South, Minneapolis, Minnesota, on Monday, September 22, 2008, at 11:00 a.m. Central Daylight Time. During the meeting, we will discuss each item of business described in this Notice of Annual Meeting of Stockholders and Proxy Statement, and give a current report on our business operations. There also will be time for questions. We expect the meeting to adjourn at about 12:15 p.m.

 

We hope you will be able to attend the meeting. If you need special assistance at the meeting because of a disability, please contact the Corporate Secretary at the address above. Whether or not you expect to attend, please vote your proxy so your shares will be represented at the meeting. You may vote by telephone if you reside in the United States or Canada, via the Internet (see the instructions on the proxy card) or by signing and mailing the proxy card in the enclosed envelope.

 

Sincerely,

 

 

NOTICE OF

2008 ANNUAL MEETING OF STOCKHOLDERS

SEPTEMBER 22, 2008

 

August 11, 2008

 

Dear Stockholder:

 

The Annual Meeting of Stockholders of General Mills, Inc. will be held on Monday, September 22, 2008, at 11:00 a.m., Central Daylight Time, in the auditorium of the Children’s Theatre Company, 2400 Third Avenue South, Minneapolis, Minnesota. The purpose of the meeting is to:

 

 

 

The record date for the Annual Meeting is July 24, 2008. If you held General Mills stock at the close of business on that date, you are entitled to vote at the Annual Meeting.

 

At the meeting, we also will report on our fiscal 2008 business results and other matters of interest to stockholders.

 

Sincerely,

 

 

 

 

TABLE OF CONTENTS

 

GENERAL MILLS, INC.
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
MONDAY, SEPTEMBER 22, 2008

 

The board of directors of General Mills, Inc. (“General Mills,” “we,” “our,” “us” or the “company”) is soliciting proxies for use at the Annual Meeting of Stockholders to be held on September 22, 2008. This proxy statement summarizes the information you need to know to vote at the Annual Meeting. You do not need to attend the Annual Meeting to vote your shares. We first mailed the proxy statement and proxy card to stockholders on or about August 11, 2008.

 

General Mills has a long-standing commitment to good corporate governance practices. These practices provide an important framework within which our board of directors and management can pursue the strategic objectives of General Mills and ensure the company’s long-term vitality for the benefit of stockholders. Our corporate governance principles and practices have evolved over many years. The corporate governance committee reviews them annually, and changes are recommended to the board for approval as appropriate. The unchanging, fundamental premise of these principles, however, is the independent nature of the board and its overarching responsibility to our stockholders. Our governance principles are published on our website at www.generalmills.com in the “Investors” section and are available in print to any stockholder who requests a copy from our Corporate Secretary.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Audit Committee

 

Number of meetings in fiscal 2008: Seven

 

 

Compensation Committee

 

Number of meetings in fiscal 2008: Four

 

 

Corporate Governance Committee

 

Number of meetings in fiscal 2008: Four

 

 

Finance Committee

 

Number of meetings in fiscal 2008: Four

 

 

Public Responsibility Committee

Number of meetings in fiscal 2008: Two

 

Executive Committee

 

The board has discretion to appoint an executive committee to take actions on behalf of the full board, except where prohibited by Delaware law, and to meet between regular board meetings when necessary for the company’s efficient operation. The board has not appointed an executive committee for fiscal 2009.

 

Directors are expected to attend all board and committee meetings, as well as the annual meetings of stockholders, absent exigent circumstances. Eleven of our 13 directors in office at the time attended the 2007 Annual Meeting of Stockholders. During fiscal 2008, the board of directors met seven times and various committees of the board met a total of 21 times. All directors attended at least 75 percent of the aggregate total meetings of the board and board committees on which the directors served during fiscal 2008, except for Mr. Anderson and Dr. Spence. Mr. Anderson was appointed to the board in December 2007, and the board held two regularly scheduled meetings and one special meeting during the remainder of fiscal 2008. Mr. Anderson attended both regularly scheduled meetings, but was unable to participate in the special meeting due to a scheduling conflict and the short notice for the special meeting. Due to other commitments, Dr. Spence will not stand for re-election to the board.

 

At the beginning of each fiscal year, the compensation committee reviews and approves compensation for executive officers, including any merit increases to base salary, annual incentive awards for the prior fiscal year’s performance, long-term incentive equity awards and performance targets for the next fiscal year. The compensation committee members base these determinations on their review of competitive market data from our compensation and performance peer groups and the recommendations of the Chief Executive Officer and our human resources department. For more information on our compensation and performance peer groups, see the Compensation Discussion and Analysis. Watson Wyatt & Company, the compensation committee’s outside compensation consultant (“Watson Wyatt”), has conducted a detailed review of our compensation and performance peer groups and internal equity comparisons to support the compensation committee’s review process, including benchmarking on pay philosophies, compensation elements separately and in total, and incentive mix.

 

The compensation committee conducts a performance assessment for the Chief Executive Officer that includes input from all non-employee directors. Chief Executive Officer performance is subsequently reviewed and compensation approved in a separate meeting between the compensation committee and Watson Wyatt without management present. In an executive session, the chair of the compensation committee leads non-employee directors through a review of the Chief Executive Officer’s annual accomplishments, compensation and performance objectives for the next fiscal year. Following the executive session, the chair of the compensation committee communicates the results of the evaluation to the Chief Executive Officer.

 

The compensation committee periodically considers issues of compensation philosophy and design in consultation with Watson Wyatt. In fiscal 2008, Watson Wyatt advised the compensation committee during its review of:

 

 

A representative of Watson Wyatt attends compensation committee meetings from time to time to serve as a resource for the compensation committee on executive compensation matters. In order to encourage independent review and discussion of executive compensation matters, the compensation committee and the committee chair may request meetings with Watson Wyatt in executive session without management present.

The compensation committee has sole authority to retain or replace Watson Wyatt in its role as consultant on executive compensation matters. While Watson Wyatt does no other executive compensation consulting for the company beyond that directed by the compensation committee, the firm performs benefit consulting work domestically and internationally. In order to maintain consultant independence, the compensation committee adopted a formal policy in fiscal 2008 requiring compensation committee pre-approval of consulting work performed by Watson Wyatt on behalf of management.

 

The board of directors encourages the development of practices that support board and management accountability and clear, meaningful communication with our stockholders. The board is also committed to responsible compensation practices that ensure pay is closely linked to company performance and that serve the best interests of our stockholders.

 

The corporate governance committee is responsible for recommending candidates for election to our board of directors. The corporate governance committee considers the board’s overall composition when it selects candidates. As a group, the board should reflect the diverse interests of our stockholders, and should bring expertise in fields relevant to our businesses and a breadth of experience from a variety of industries and professional disciplines, as well as diversity of gender, ethnicity, age and geographic location.

 

The corporate governance committee expects a high level of commitment from board members and evaluates each candidate’s leadership and industry experience, skills, expertise and character traits, including the candidate’s ability to devote sufficient time to board and committee meetings in light of other board service.

 

The corporate governance committee reviews whether a potential candidate meets board and/or committee membership requirements imposed by law, regulation or stock exchange rules, determines whether a potential candidate is independent according to standards for evaluating director independence and evaluates the potential for any conflict of interest between the director and General Mills.

 

Director nominees recommended by the corporate governance committee are subject to full board approval and election by stockholders at an annual meeting of stockholders. From time to time, the corporate governance committee retains a recruitment firm to assist in identifying, evaluating and recruiting director candidates, based on specified criteria, and pays the firm a fee for these services. Suggestions also are received from board members and stockholders.

 

Of the thirteen directors recommended for election at the 2008 Annual Meeting, all nominees were elected as directors at our 2007 Annual Meeting except for Bradbury H. Anderson and Lois E. Quam, who were appointed to the board after they were identified as candidates by management and by our director recruitment firm, respectively. The corporate governance committee reviewed their qualifications and recommended their election to the board.

 

Stockholders who wish to suggest a candidate for our board of directors may submit a written nomination to the Corporate Secretary, General Mills, Inc., P.O. Box 1113, Minneapolis, Minnesota 55440, along with the stockholder’s name, address and the number of General Mills shares beneficially owned; the name of the individual being nominated and number of General Mills shares beneficially owned by the candidate; the candidate’s biographical information describing experience and qualifications; a description of all agreements, arrangements or understandings between the stockholder and individual being nominated; and the candidate’s consent to serve as a director, if elected. The corporate governance committee may request that the stockholder provide certain additional information required to be disclosed in our proxy statement. For a candidate to be considered for the slate recommended in our proxy statement for the 2009 Annual Meeting, stockholders should submit the required information to the Corporate Secretary by April 15, 2009.

 

The corporate governance committee will consider and evaluate stockholder-recommended candidates by applying the same criteria used to evaluate director-recommended candidates. If the corporate governance committee decides the candidate is suitable for board membership, the corporate governance committee will make a recommendation to the board of directors for its approval to include the candidate in the slate of

directors nominated for election by stockholders in the proxy statement. During fiscal 2008, we received no director nominations from our stockholders.

 

Under our By-laws, stockholders may also nominate a candidate for election at an annual meeting of stockholders. Our annual meeting is typically held on the fourth Monday in September. Stockholders who intend to present a nomination at our 2009 Annual Meeting are required to notify the Corporate Secretary in writing and provide the information described above no earlier than May 25, 2009 and no later than June 24, 2009. Director nominees submitted through this process will be eligible for election at the annual meeting but will not be included in proxy materials sent to stockholders prior to the meeting.

 

Interested parties may directly contact any of our directors, any committee of the board, the board’s non-employee directors as a group or the board generally, by writing to them at General Mills, Inc., P.O. Box 1113, Minneapolis, Minnesota 55440 or via e-mail at boardofdirectors@genmills.com. The board of directors has instructed the Corporate Secretary to distribute communications to a director or directors, after ascertaining whether the communications are appropriate to duties and responsibilities of the board. The board has requested that the Corporate Secretary not forward the following types of communications: general surveys and mailings to solicit business or advertise products; job applications or resumes; product inquiries or complaints; new product suggestions or any material that is threatening, illegal or does not relate to the responsibilities of the board.

 

We have adopted a Code of Conduct applicable to all employees, including our principal executive officer, principal financial officer and principal accounting officer, and a Code of Conduct applicable to our directors. Copies of the Codes of Conduct are available on our website at www.generalmills.com and in print to any stockholder who requests a copy from our Corporate Secretary, General Mills, Inc., P.O. Box 1113, Minneapolis, Minnesota 55440.

 

The audit committee of the board of directors has established procedures for employees, stockholders, vendors and others to communicate concerns about our ethical conduct or business practices, including accounting, internal controls or financial reporting issues, to the audit committee, which has responsibility for these matters. Matters may be reported as follows:

 

 

* Callers outside the United States, Canada and Puerto Rico should refer to our Employee Code of Conduct at www.generalmills.com for dialing instructions.

 

The thirteen director nominees presented below are recommended for election to the board of directors. Directors are elected for a one-year term and serve until the next annual meeting where their successors are elected, or, if earlier, until their retirement, resignation or removal. If unforeseen circumstances (such as death or disability) make it necessary for the board of directors to substitute another person for any of the nominees, the proxies will vote your shares for that other person unless you instruct us otherwise on your proxy card.

 

Two directors elected at our 2007 Annual Meeting will not be standing for re-election. Our former Chairman and Chief Executive Officer, Stephen W. Sanger, retired from General Mills and the board of directors at the end of fiscal 2008, following a distinguished 34-year career with General Mills. After 16 years of distinguished service, A. Michael Spence will not stand for re-election at the 2008 Annual Meeting.

 

 

The board of directors unanimously recommends a vote FOR each director nominee.

 

We structure director compensation to attract and retain qualified non-employee directors and to further align the interests of directors with the interests of stockholders. A substantial portion of director compensation is linked to our stock performance, and directors can elect to receive their entire board remuneration in stock and stock-related compensation. Directors are expected to keep all of the shares which they receive as compensation, net of shares used to pay the exercise price or withholding taxes, until they own shares equal in market value to at least five-times their annual retainer.

 

Determining Director Compensation.  The compensation committee periodically reviews a competitive analysis of non-employee director compensation and makes recommendations to the board of directors on compensation for our non-employee directors, including their retainers and annual equity awards. In fiscal 2008, the compensation committee reviewed and approved a transition to fixed-value stock awards for our non-employee directors in response to market trends and comparable changes to management stock awards. Each component of director compensation is described below.

 

Annual Retainer.  Non-employee directors each receive an annual retainer of $75,000. The chair of the audit committee receives an additional $15,000, chairs of other committees receive an additional $10,000, and other audit committee members receive an additional $5,000. We do not pay any additional fees for attending or chairing a meeting. We pay annual retainers in quarterly installments. Directors can elect to have their retainers paid in cash and/or common stock.

 

Restricted Stock Units.  Through fiscal 2008, non-employee directors received 1,000 restricted stock units when they attended their first board meeting and each time they were re-elected to the board. Beginning in fiscal 2009, each director will receive restricted stock units with a value of $90,000, upon attending their first board meeting and each re-election. The number of restricted units will be determined based on the closing sales price of our common stock on the date of the grant. Restricted stock units are granted under the 2006 Compensation Plan for Non-Employee Directors. The restricted stock units vest at the next annual meeting of stockholders. Directors who leave the board prior to the end of this vesting period forfeit their restricted stock units. In the event an active director dies, his or her restricted stock units fully vest. Restricted stock units earn amounts equivalent to the regular dividend payments on our common stock. These amounts can be reinvested in additional stock units or paid to the director.

 

Stock Options.  Through fiscal 2008, non-employee directors also received options to purchase 10,000 shares of our common stock when they attended their first board meeting and each time they were re-elected to the board. Beginning in fiscal 2009, each director will receive stock options valued at $90,000 upon attending their first board meeting and each re-election. Options are granted under the 2006 Compensation Plan for Non-Employee Directors. The exercise price is the closing sales price of our common stock on the date of grant. The options become exercisable at the next annual meeting of stockholders and expire 10 years after grant. Directors who stop serving on the board prior to vesting forfeit their unvested options, unless they have died during their board service, in which case the options fully vest upon death and remain exercisable by the directors’ estate for the remainder of the option’s full term.

 

Deferred Compensation.  Non-employee directors may defer their retainer and restricted stock units. Any deferred cash contributions earn interest based on a director’s selection from a group of funds offered to employees participating in our Deferred Compensation Plan. One of these funds tracks the return on our common stock. The interest rate earned is not above-market or preferential.

 

Other Benefits.  We have a Planned Gift Program for Directors (the “Planned Gift Program”) that has been discontinued for all directors elected during or after fiscal 2007. The Planned Gift Program is funded by General Mills-paid life insurance policies on each participating director. Upon the death of a director, we donate $1 million to a qualifying charity recommended by the director, and we receive the entire charitable deduction. We are then reimbursed by life insurance proceeds. We have calculated the change in the accrued liability for the benefit in fiscal 2008 and included it in our directors’ compensation disclosure.

From time to time, we also invite our directors’ spouses to accompany them to the company’s annual strategic planning meetings, and we reimburse travel and incidental expenses related to their attendance, in order to encourage attendance and to foster social interaction among the directors. There were no such reimbursements in fiscal 2008.

 

The fiscal 2008 compensation of our non-employee directors is shown in the following table.

 

DIRECTOR COMPENSATION FOR FISCAL 2008

 

 

 

The grant date fair value of restricted stock units granted to each director in fiscal 2008 is $57,880 ($55,960 for Mr. Anderson and $60,900 for Ms. Quam), which consists of 1,000 restricted stock units granted to each director upon their re-election, or in the case of newly appointed directors, attendance of their first board meeting. The grant date fair value is based on the closing sales price of our common stock on the New York Stock Exchange on the grant date. All directors deferred their entire restricted stock unit awards, except for Mr. Anderson, Mr Gilmartin and Ms. Quam, who deferred none of their awards. At fiscal year end, each non-employee director held 1,021 restricted stock units, which included reinvested dividends, except for Mr. Anderson, Mr. Gilmartin, Ms. Hope, Ms. Quam and Mr. Ryan, who each held 1,000 restricted stock units.

 

 

 

 

The following table shows the amount of General Mills common stock beneficially owned by (a) each director and director nominee, (b) each named executive officer listed in the Summary Compensation Table, (c) all directors, director nominees and active executive officers as a group and (d) each person or group owning more than 5 percent of our outstanding shares on the dates indicated. Unless otherwise noted, all amounts are as of July 24, 2008, and the stockholders listed in the table have sole voting and investment power with respect to the shares owned by them.

 

 

 

 

Based on a review of reports filed with the SEC by our directors and executive officers regarding their ownership and transactions in our common stock and written representations from those officers and directors, we believe that each executive officer and director has filed timely reports under Section 16(a) of the Securities Exchange Act of 1934 during fiscal 2008, except that due to an administrative delay, a report was not filed in a timely manner for the equity awards granted to Bradbury Anderson when he attended his first board meeting.

 

The Audit Committee.  The audit committee of the board of directors consists of five non-employee directors named below. Each member of the audit committee is an independent director under our guidelines and as defined by New York Stock Exchange listing standards and SEC regulations for audit committee membership. In addition, the board of directors has unanimously determined that Dean Danos, Mr. Esrey and Mr. Ryan, members of the audit committee, qualify as “audit committee financial experts” within the meaning of SEC regulations and have accounting or related financial management expertise within the meaning of New York Stock Exchange listing standards. The board of directors has also unanimously determined that all audit committee members are financially literate within the meaning of the New York Stock Exchange listing standards. The audit committee, which operates according to its charter, is primarily responsible for oversight of our financial statements and internal controls; assessing and ensuring the independence, qualifications and performance of the independent registered public accounting firm; approving the independent registered public accounting firm’s services and fees; reviewing our risk assessment process and ethical, legal and regulatory compliance programs; and reviewing and approving our annual audited financial statements before issuance, subject to the board of directors’ approval. No members of the audit committee received any compensation from General Mills during the last fiscal year other than directors’ fees. The audit committee’s charter may be found on our website located at www.generalmills.com in the “Investors” section under “Corporate Governance.”

 

Audit Committee Report.  The following is the report of the audit committee with respect to our audited financial statements for the fiscal year ended May 25, 2008.

 

The audit committee has reviewed and discussed the company’s audited financial statements for the fiscal year ended May 25, 2008 with management, the internal auditor and KPMG LLP, the company’s independent registered public accounting firm, with and without management present. In connection with that review, the audit committee considered and discussed the quality of the company’s financial reporting and disclosures, management’s assessment of the company’s internal control over financial reporting and KPMG LLP’s evaluation of the company’s internal control over financial reporting. The audit committee discussed and reviewed with KPMG LLP critical accounting policies and practices, internal controls, other material written communications to management and the scope of KPMG LLP’s audit. The audit committee also has discussed with KPMG LLP matters relating to its judgments about the quality, as well as the acceptability, of the company’s accounting principles as applied in its financial reporting as required by Statement of Auditing Standards No. 114 (Auditor’s Communications with Those Charged With Governance).

 

In addition, the audit committee has discussed with KPMG LLP its independence from management and the company, as well as the matters in the written disclosures received from KPMG LLP and required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees). The audit committee received a letter from KPMG LLP confirming its independence and discussed with KPMG LLP the matters covered by that letter.

 

The audit committee has reviewed all fees paid to KPMG LLP during the fiscal year and has considered the compatibility of KPMG LLP’s performance of non-audit services, including the tax planning services described below, with the maintenance of KPMG LLP’s independence as the company’s independent registered public accounting firm.

 

Based on the audit committee’s review and discussions referred to above, the audit committee recommended to the company’s board of directors that the company’s audited financial statements be included in the company’s annual report on form 10-K for the fiscal year ended May 25, 2008 for filing with the SEC.

 

SUBMITTED BY THE AUDIT COMMITTEE:

 

Judith Richards Hope, Chair

Paul Danos

William T. Esrey

Robert L. Ryan

Dorothy A. Terrell

 

The following table shows aggregate fees billed to us for fiscal years ended May 25, 2008 and May 27, 2007 by KPMG LLP, our independent registered public accounting firm.

 

 

 

 

The audit committee has determined that performance of services other than audit services is compatible with maintaining the independence of KPMG LLP.

 

Auditor Services Pre-approval Policy.  The audit committee has a formal policy concerning approval of all services to be provided by KPMG LLP, including audit, audit-related, tax and other services. The policy requires that all services KPMG LLP may provide to us be pre-approved by the audit committee. The chair of the audit committee has the authority to pre-approve permitted services that require action between regular audit committee meetings, provided the chair reports to the full audit committee at the next regular meeting. Certain permitted non-audit services, excluding certain designated audit-related and tax services, are limited to $1,000,000 in the aggregate during any fiscal year. The audit committee approved all services provided by KPMG LLP during fiscal years 2007 and 2008.

 

The board of directors is submitting the selection of KPMG LLP to serve as our independent registered public accounting firm for fiscal 2009 for ratification in order to ascertain the views of our stockholders on this selection. Proxies solicited by the board of directors will, unless otherwise directed, be voted to ratify the appointment by the audit committee of KPMG LLP as our independent registered public accounting firm for the fiscal year ending May 31, 2009. If stockholders do not ratify the appointment of KPMG LLP, the audit committee will reconsider its selection, but it retains sole responsibility for appointing and terminating our independent registered public accounting firm.

 

Representatives from KPMG LLP will attend the Annual Meeting and will have the opportunity to make a statement and answer questions.

 

The board of directors unanimously recommends a vote FOR the ratification of KPMG LLP as our independent registered public accounting firm for fiscal 2009.

 

The compensation committee of the company has reviewed and discussed the following Compensation Discussion and Analysis with management and, based on such review and discussions, the compensation committee recommended to the board that the Compensation Discussion and Analysis be included in this proxy statement and in our annual report on form 10-K for the fiscal year ended May 25, 2008.

 

SUBMITTED BY THE COMPENSATION COMMITTEE

 

Michael D. Rose, Chair

Raymond V. Gilmartin

Heidi G. Miller

A. Michael Spence

 

Executive Summary

 

This Compensation Discussion and Analysis describes the key principles and approaches used to determine the compensation of the named executive officers listed in the Summary Compensation Table and should be read in conjunction with the tables and narrative included in the rest of the Executive Compensation section of this proxy statement. All compensation paid to the named executive officers is determined by the compensation committee of the board of directors, which is composed solely of independent non-employee directors who meet regularly each fiscal year. The compensation committee has retained Watson Wyatt & Company as its outside compensation consultant. For more information on Watson Wyatt’s role in advising the compensation committee on executive compensation matters, see Determining Executive Compensation in the Corporate Governance section of this proxy statement.

 

General Mills strives to achieve financial performance that is consistently superior to that of our consumer products industry peer group. The indicators utilized to determine whether the company meets this objective are the four key corporate performance measures that, taken together, correlate most highly with the creation of total enterprise value in major consumer food companies: net sales growth, segment operating profit growth, earnings-per-share growth and improvement in return on capital. When combined with an attractive dividend yield, we believe that the achievement of consistently superior performance versus these four measures of corporate performance will continue to result in strong total returns for General Mills stockholders.

 

The compensation committee designs the company’s compensation programs for executive officers to place a heavy emphasis on performance. As a result, approximately 80 percent of the total compensation of the named executive officers varies with annual company performance, with the only fixed compensation elements being base salary and certain employee benefits.

 

The annual Corporate Performance Rating, which the compensation committee uses to determine the size of both annual incentive and long-term incentive awards for the named executive officers, is based on specific targets approved by the compensation committee at the start of the fiscal year for the four key corporate performance measures outlined above, which are equally weighted (25 percent). In determining the specific incentive targets each year, the compensation committee utilizes two-year and five-year compound growth rates for performance peer group companies for each measure. Corporate Performance Ratings can vary from 0 to 1.80, and targets are set such that, when General Mills’ performance is at the median of the performance peer group (Corporate Performance Ratings of 1.30 to 1.50), General Mills’ total compensation for executive officers is targeted to be at approximately the median compensation paid by the same group of companies. When General Mills’ performance is superior to that of the performance peer group (Corporate Performance Ratings between 1.50 and 1.80), executive officer compensation is targeted to be well above the peer group median. When General Mills’ performance is below that of the performance peer group (Corporate Performance Ratings below 1.30), executive officer compensation is targeted to be well below the median of that paid by peer group companies.

The annual Corporate Performance Ratings vary significantly based on the company’s performance in the fiscal year. One way to look at how difficult or likely it would be for the company to achieve the incentive targets would be to look at historical results. In the past 10 years (fiscal years 1999 through 2008), Corporate Performance Ratings have ranged from a low of 1.16 to a high of 1.80. In the past 20 years (fiscal years 1989 through 2008), Corporate Performance Ratings have ranged from 0 to 1.80. Over this 20-year period, annual Corporate Performance Ratings have averaged 1.49, which is at the high end of the 1.30 to 1.50 “On Target” rating range of the incentive rating schedule. Over the same 20-year period, the company’s total stockholder return has outpaced the returns of our performance peer group. The difference in total direct compensation (base salary, annual incentive and long-term incentive) when a 1.80 Corporate Performance Rating is achieved versus that of a 1.00 Corporate Performance Rating for most executive officers is approximately 80 percent.

 

In fiscal 2008, the compensation committee assigned a Corporate Performance Rating of 1.80. They based this rating on the company far exceeding the highest performance targets for three of the four corporate performance measures and approaching the highest performance target on the fourth measure, segment operating profit growth. The committee also considered U.S. retail market share gains, which represented a significant fiscal 2008 achievement. Financial performance in fiscal 2008 was another significant step-up in results from those achieved in fiscal 2007, with net sales and earnings per share growing at significantly higher rates than the strong growth rates achieved in fiscal 2007. In measuring earnings-per-share and return on capital, we excluded net gains from mark-to-market valuation of certain commodity positions for fiscal 2008. Additionally, the company achieved results that exceeded the compound growth rate trends for our performance peer group on all four measures.

 

The compensation committee believes that the company’s executive compensation programs have been effective at incenting the achievement of superior results, appropriately aligning pay and performance, creating an ownership culture in which company managers think and act like stockholders, and in enabling General Mills to attract and retain some of the most talented executives in the global consumer products industry.

 

Compensation Philosophy and Principles

 

General Mills’ guiding philosophy is to maintain a compensation system that will attract, motivate, reward and retain competitively superior leaders who are able to consistently achieve corporate performance and total stockholder value that is in the top tier of its peer group. The compensation committee bases its compensation decisions on the following core principles:

 

 

 

Performance and Compensation Peer Groups

 

To assure our compensation programs for executive officers are appropriately competitive in the marketplace, the compensation committee, with the assistance of management and Watson Wyatt, benchmarks our performance and compensation against a peer group of 18 major consumer products companies. To establish this peer group, the compensation committee used the following five selection criteria:

 

 

As shown below, the median annual revenues and market capitalizations for the 18 companies in this peer group are comparable to those of General Mills. The compensation committee annually reviews the composition of this peer group to assure it is the most relevant set of companies to use for comparison purposes. The peer groups utilized for comparisons of performance and compensation are identical with the exception of three European companies (Nestlé, Unilever and Danone) that are in our performance peer group but not in our compensation peer group, due to the lack of availability of publicly reported pay information.

 

The following branded consumer products companies comprise our performance peer group:

 

*Not in our compensation peer group.

 

Source: Standard & Poor’s Compu Stat Database

* As of May 31, 2008

 

The compensation committee annually reviews comparisons of General Mills’ compensation under various performance scenarios versus peer group compensation practices to ensure our programs function consistently with our compensation philosophy and principles. Based upon these reviews, the compensation committee believes that the compensation paid to General Mills’ named executive officers is reasonable and appropriate.

 

Elements of the General Mills Total Rewards Program

 

During fiscal 2008, the General Mills executive pay program consisted of base salary, annual incentive, long-term incentive and health benefits and other perquisites. Our named executive officers were also eligible to participate in the various retirement benefit plans available to General Mills’ U.S.-based salaried employees (401(k) savings plan and a defined benefit pension plan). The Chief Executive Officer and other named executive officers participate in the same benefit programs and are subject to the same policies in all material respects as all company officers.

 

In the following table we have outlined our objectives regarding:

 

 

Pay and Performance Relationship

 

When determining executive compensation, General Mills achieves its strong performance orientation through aligning the total direct compensation (base salary, annual incentive and long-term incentive) with the company’s performance against its performance peer group. Only base salary, retirement and health benefits and certain perquisites do not vary annually based upon company performance versus the peer group. Between 79 percent and 88 percent of total direct compensation for our five active named executive officers is performance-based, assuming target performance, as shown in the charts below.

 

 

The following is a brief description of how the compensation committee determined annual and long-term incentive awards for fiscal 2008.

 

Annual Incentive Awards — Tied to Corporate and Individual Performance

 

General Mills has an Executive Incentive Plan that provides the named executive officers with an opportunity to earn an annual incentive award that is paid partially in cash, with the balance paid in restricted stock units that require a stock ownership commitment. The compensation committee approves performance targets for these awards at the beginning of each fiscal year and also approves the awards granted annually in June after fiscal year end, based on that fiscal year’s performance. For the named executive officers, the restricted stock unit component is equal to 30 percent of their cash incentive award and can be increased or decreased by as much as 30 percent based on the Corporate Performance Rating for that fiscal year.

 

For the seven named executive officers, annual incentive cash awards are determined by multiplying their base salary by a base incentive rate (50 percent to 75 percent), which is a percentage based on their level of responsibility, the Corporate Performance Rating (as determined by the compensation committee) and by their Individual Performance Rating (determined by the compensation committee for the Chief Executive Officer and former Chief Executive Officer and by the Chief Executive Officer, subject to review by the compensation committee, for the other named executive officers). Annual incentive awards for the named executive officers can vary greatly from year to year based on the Corporate Performance Rating, which can range from 0 to 1.80; and the executive’s Individual Performance Rating, which can range from 0 to 1.50. The Executive Incentive Plan establishes a maximum award, which is adjusted downward based on these ratings.

 

 

 

After reviewing the company’s fiscal 2008 performance, the compensation committee assigned a Corporate Performance Rating of 1.80. This maximum incentive rating was based on June estimates of comparable year-to-year growth and improvement in our four performance measures. For the year, we reported an increase in net sales of 9.7 percent, segment operating profit growth of 6.4 percent, diluted earnings-per-share growth of 16.7 percent and improvement in return on average total capital of 100 basis points. In evaluating growth in earnings per share and return on capital, the compensation committee excluded net gains from mark-to-market valuation of certain commodity positions for fiscal 2008. On this basis, earnings per share increased 13.5 percent and return on capital improved 65 basis points. Three of four performance measures far exceeded the targets in the approved fiscal 2008 Corporate Rating Schedule for a 1.80 rating, and one measure, segment operating profit growth, approached the maximum performance target. All four measures exceeded the two and five-year compound growth rate trends for our performance peer group. Performance also met or exceeded General Mills’ publicly stated long-term performance goals of low single-digit net sales growth, mid-single-digit segment operating profit growth and high single-digit earnings-per-share growth. In addition to the four performance measures, the compensation committee gave recognition to U.S. retail market share gains, which represented a significant fiscal 2008 achievement, in arriving at the final incentive rating.

 

In fiscal 2008, all employees eligible for annual incentive stock awards received the 30 percent upward adjustment in grant size based on the 1.80 Corporate Performance Rating.

 

Individual Performance Ratings are based on the achievement of specific annual objectives such as financial and operating results, completion of strategic initiatives, the quality of business plans and organizational development progress in important areas like diversity and employee development. In determining the fiscal 2008 Individual Performance Rating for Mr. Powell, the compensation committee reviewed in executive session the results of a CEO performance assessment. Each non-employee board member independently completed the performance assessment questionnaire and the compensation committee chair collected and summarized the results. The compensation committee also reviewed a summary prepared by Mr. Powell of his accomplishments against his pre-established objectives for the year. As this was a year of CEO transition, the compensation committee also reviewed Mr. Sanger’s performance. Mr. Sanger’s Individual Performance Rating was based on the company’s financial performance for the first four months of the fiscal year, along with an evaluation of specific transition goals established at the time of Mr. Powell’s appointment as CEO.

 

The specific cash incentive awards for the seven named executive officers for fiscal 2008 are included in the Summary Compensation Table in the column titled “Non-Equity Incentive Plan Compensation,” and the stock incentive awards for the seven named executive officers are included in Footnote 1 to the Summary Compensation Table.

 

The restricted stock unit portion of the annual incentive vests 100 percent four years after the grant date. To be eligible to receive these restricted stock units, each named executive officer must put an equal number of personally-owned shares of General Mills stock on deposit with the company for four years. The named executive officer’s shares must remain on deposit until the end of the restricted period in order for the restricted stock units to vest. Restricted stock units earn dividend equivalents equal to regular dividends paid on our common stock. Whereas awards have previously been settled solely in shares of our common stock, beginning with awards granted in June 2008, half of the value of the awards will be settled in cash and half of the value will be settled in stock.

Long-Term Incentive Awards — Performance Adjusted

 

In alignment with the company’s objective to achieve performance which is consistently superior to its performance peer group, a significant portion of the named executive officers’ pay opportunity is provided through long-term incentive awards granted under the 2007 Stock Compensation Plan. Awards are granted annually in June after fiscal year end. The size of the awards is periodically benchmarked against the long-term incentive awards made by other large food and consumer products companies to executives holding comparable positions, and each named executive officer’s standard award can be increased or decreased by as much as 30 percent based on the Corporate Performance Rating for that fiscal year. For long-term incentive awards granted in June 2007, 75% of the value of the award was delivered in stock options, and 25% of the value was delivered in restricted stock units. Beginning with long-term incentive awards granted in June 2008, 50 percent of the value of the award was delivered in stock options, and 50 percent of the value was delivered in restricted stock units, with executives being able to elect a greater portion in restricted stock units up to a maximum of 100 percent. For the June 2008 awards, all employees eligible for stock compensation received an increase to their long-term incentive grant value of 30 percent based on the 1.80 Corporate Performance Rating for fiscal 2008. The June 2007 long-term incentive awards for the seven named executive officers are included under Grants of Plan-Based Awards for Fiscal 2008. The June 2008 long-term incentive awards are included in Footnote 1 to the Summary Compensation Table.

 

The restricted stock units issued as long-term incentive awards vest 100 percent four years after the grant date. They earn dividend equivalents equal to regular dividends paid on our common stock. Whereas awards have previously been settled solely in shares of our common stock, beginning with long-term incentive awards granted in June 2008, half of the value of the awards will be settled in cash and half of the value will be settled in stock.

 

The options issued as long-term incentive awards also vest 100 percent four years after the grant date. The exercise price per share equals the closing sales price of our common stock on the New York Stock Exchange on the grant date. The options generally expire 10 years and one month from the grant date. They include the right to pay the exercise price in cash or previously acquired common stock and the right to have shares withheld by the company to pay minimum withholding tax obligations due upon exercise.

 

Significant Compensation Actions Since the Beginning of Fiscal 2008

 

In addition to the compensation decisions described above, the board of directors has taken the following actions since the beginning of fiscal 2008 that impact the named executive officers’ compensation arrangements:

 

Discontinuation of Management Continuity Agreements

 

In June 2007, the board of directors authorized the discontinuation of individual Management Continuity Agreements previously granted to certain executive officers. These Management Continuity Agreements defined the salary and benefit payments which would be made in the event that the executive was to be terminated as a result of a change of control. All of the named executive officers with Management Continuity Agreements have terminated their agreements.

 

Adoption of General Mills Separation Pay and Benefits Program for Officers

 

With the discontinuation of Management Continuity Agreements in June 2007, the board of directors determined it advisable to formalize the separation payments and benefits made to executives involuntarily terminated other than for cause, and adopted the General Mills Separation Pay and Benefits Program for Officers (the “Severance Plan”). The payments and benefits to be provided to select senior executives who are terminated in connection with a change of control, including the named executive officers, are specifically addressed as part of the Severance Plan. These payments and benefits materially reduce those previously provided in the discontinued Management Continuity Agreements. For more detail on the Severance Plan, see Potential Payments Upon Termination.

Approval of 2007 Stock Compensation Plan

 

In June 2007, the board of directors approved the 2007 Stock Compensation Plan, and stockholders approved the Plan at the 2007 Annual Meeting, with 79 percent of the votes cast in favor of the Plan.

 

Management Succession

 

Mr. Sanger announced his intention to retire as Chief Executive Officer in September 2007 and as Chairman at the end of fiscal 2008, and Mr. Lawrence announced his intention to retire as Chief Financial Officer in October 2007. In September, the board approved the promotions of Mr. Powell and Mr. Mulligan to the positions of Chief Executive Officer and Chief Financial Officer, respectively, and the compensation committee approved commensurate pay actions. Both Mr. Powell and Mr. Mulligan received increases to base salary, target annual incentive awards and long-term incentive awards. The compensation committee approved the continued vesting through 2010 of 8,334 restricted stock units granted to Mr. Lawrence in return for Mr. Lawrence’s agreeing to sign a non-disclosure and non-solicitation agreement.

 

Limitation on Company-Covered Costs of Personal Use of Corporate Aircraft

 

In December 2006, the compensation committee limited the company-covered costs of personal use of corporate aircraft by the Chief Executive Officer to $50,000 in value annually. Expenses incurred for the personal use of corporate aircraft which exceeded $50,000 during fiscal 2008 were fully reimbursed by the Chief Executive Officer under an aircraft time sharing agreement. After Mr. Powell’s appointment as Chief Executive Officer, he entered into an aircraft time sharing agreement in December 2007. Since Mr. Sanger’s retirement as Chairman, he is no longer able to use corporate aircraft for personal travel.

 

The compensation committee periodically reviews the annual limit on company paid personal use of corporate aircraft to make sure it is competitive. As a result of the 2008 review completed in June, the compensation committee increased the annual limit for the Chief Executive Officer to $100,000. In arriving at its decision, the compensation committee reviewed the value of similar benefits at peer companies and a cross-industry sample of large companies. The committee also considered trends in cost elements included in value of the benefit, and the number of flights the company considered reasonable and intended to have covered by the policy.

 

Shareholder Dialogue

 

As part of our efforts to communicate with a number of the company’s largest investors in July and August 2007, management engaged the investors in a discussion about executive compensation policies and practices at General Mills.

 

Approval of Guidelines for Compensation Consultant Use

 

In May 2008, the compensation committee approved guidelines for engagement of the committee’s independent consultant. The guidelines formally state that the compensation committee has the sole authority to retain or replace the independent consultant. Compensation committee approval is required prior to the company retaining the independent consultant and/or the firm for any executive compensation services or other new consulting services or products above an aggregate annual amount of $25,000.

 

Approval of Consulting Arrangement with Mr. Darcy

 

In May 2008, the compensation committee approved an arrangement for Mr. Darcy to provide transitional consulting services in fiscal 2009 following his retirement. The consulting arrangement provides that Mr. Darcy will receive $400,000 in fees and vesting of 20,000 previously granted restricted stock units 10 months ahead of the original vesting date in return for his services.

 

Stock Ownership Guidelines

 

Since 1991 the company has established stock ownership guidelines for senior executives. Currently these targets are ten-times salary for the Chief Executive Officer, five-times salary for senior executives, including the

named executive officers other than the Chief Executive Officer, and three-times salary for all other corporate officers. Newly-hired or promoted executives are given five years to attain the ownership target.

 

General Mills executives who have been in their role for multiple years generally exceed the stock ownership guidelines by significant amounts, as illustrated by three of the five active named executive officers shown in the table below. Our high level of executive stock ownership is a result of strong retention of executive talent (unwanted turnover of the top 500 managers is typically less than 1 percent annually) and the terms of General Mills’ stock compensation program, which has longer vesting requirements than any company in our compensation peer group (awards vest 100 percent four years from the grant date). In addition, most executives at General Mills hold their stock options for eight years or longer. Mr. Powell and Mr. Mulligan have not yet fulfilled the guidelines due to their respective promotions this year, which significantly increased their stock ownership requirements from those established for their previous roles. Both executives have five years to attain their stock ownership guidelines.

 

Stock Ownership for Active Named Executive Officers

 

 

Other Compensation Policies

 

Stock Compensation Award Approval Policy

 

In order to assure that the terms of all stock compensation awards fully reflect the intent of the board of directors and comply with all applicable regulatory requirements, we have strict administrative guidelines on the timing and approval of stock compensation awards. These guidelines have been reviewed by the company’s compensation committee and audit committee. The compensation committee must approve all stock compensation awards to senior vice presidents and higher-level executive officers. Except for annual stock option awards granted each June, which the Chief Executive Officer may approve for employees below senior vice president, no other stock options can be awarded to new or current employees except with the prior approval of the compensation committee. The compensation committee has delegated authority to the Chief Executive Officer to grant stock compensation awards other than stock options to employees below senior vice president, including incentive stock awards each June and restricted stock units throughout the year to new hires or for promotion, retention or recognition purposes. The Chief Executive Officer may only approve these stock compensation awards on two scheduled days in each calendar month to minimize the potential for error. Except for the annual June grant, stock compensation awards to executive officers may not be approved during trading blackout periods.

For all stock option awards, the exercise price is equal to the closing sales price of our common stock on the New York Stock Exchange on the grant date or, if shares were not traded on that date, the most recent prior date when shares were traded. Under the terms of the 2007 Stock Compensation Plan, the company cannot grant stock options at a discount to fair market value on the grant date.

 

Tax Deductibility of Compensation

 

Our Executive Incentive Plan and the 2007 Stock Compensation Plan have each been structured with the intention that cash incentive payments, restricted stock units, stock options and stock appreciation rights awarded under these plans can be qualified performance-based compensation, which is tax-deductible to the company under Section 162(m) of the Internal Revenue Code.

The following tables and accompanying narrative disclosure should be read in conjunction with the Compensation Discussion and Analysis, which presents objectives of our executive compensation and benefits programs. The table below presents compensation for individuals who served as Chief Executive Officer and Chief Financial Officer during fiscal 2008 and for each of the other three most highly-compensated executive officers who were serving as executive officers at the end of fiscal 2008 (the “named executive officers”). Mr. Mulligan and Mr. Friendly were not named executive officers in fiscal 2007, and therefore information on their fiscal 2007 compensation is not included.

 

 

Compensation in Fiscal 2008

 

The grant date fair value of the stock awards and option awards quantified above reflect a 30 percent increase from target levels due to the fiscal 2008 Corporate Performance Rating.

 

The grant date fair value of each restricted stock unit based on fiscal 2008 performance equals the closing sales price of our common stock on the New York Stock Exchange on the grant date June 23, 2008 ($63.40). The values shown have not been adjusted to reflect that these units are subject to forfeiture.

 

The grant date fair value of option awards based on fiscal 2008 performance equals $9.41 per share based on the Black-Scholes option-pricing model. The following unaudited assumptions were used in the calculation: option term of 8.5 years; dividend yield of 2.7 percent annually; a risk-free interest rate of 4.4 percent; and expected price volatility of 16.1 percent. The values shown have not been adjusted to reflect that these options are subject to forfeiture.

 

The following table shows the number of stock awards and option awards based on fiscal 2008 performance but granted after fiscal year end in June 2008, which are shown below but not included in the Summary Compensation Table.

 

Stock and Option Awards Based on Fiscal 2008 Performance

 

 

 

At Mr. Lawrence’s retirement, he forfeited two-thirds of a 25,000 restricted stock unit award (16,666 units) granted to him on June 1, 2006 that was to have vested on June 1, 2009. As a result, we deducted $279,811 from the compensation cost recognized in fiscal 2008 for Mr. Lawrence’s stock awards. The deduction is equal to the compensation cost previously reported in the Summary Compensation Table for the forfeited units in accordance with SFAS 123R. The remaining 8,334

restricted stock units will vest on June 1, 2010 if Mr. Lawrence adheres to a three-year non-disclosure and non-solicitation agreement.

 

 

Includes cash incentive award deferred under the Deferred Compensation Plan: $666,000 in fiscal 2007 and $691,019 in fiscal 2008 for Mr. Rotsch; and $199,429 in fiscal 2008 for Mr. Friendly.

 

 

Also includes a fiscal 2007 long-term incentive payment for Mr. Powell of $23,929 related to his prior service as Senior Vice President, CEO of Cereal Partners Worldwide, our joint venture with Nestlé; and a fiscal 2008 long-term incentive payment for Mr. Friendly of $83,401 related to his prior service as Senior Vice President, CEO of Cereal Partners Worldwide.

 

 

All Other Compensation

 

 

 

 

Perquisites and Other Personal Benefits

 

 

 

We executed Aircraft Time Sharing Agreements with Mr. Sanger and Mr. Powell that enabled them to reimburse us for personal use of corporate aircraft to the extent that the cost of their personal use exceeded $50,000 in any fiscal year. Amounts included in Mr. Powell’s compensation for fiscal 2008 reflect the aggregate incremental cost of personal air travel conducted prior to the limits imposed pursuant to the Aircraft Time Sharing Agreement. In June 2008, the compensation committee increased the personal use limit to $100,000.

 

 

The following table describes the potential range of annual incentive cash awards for fiscal 2008 performance and equity awards granted in fiscal 2008 for fiscal 2007 performance. The Summary Compensation Table and Compensation Discussion and Analysis include additional information about equity awards granted.