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JACK IN THE BOX INC.

 

January 9, 2009

Dear Stockholder:

 

You are invited to attend the Jack in the Box Inc. Annual Meeting of Stockholders in San Diego, California, on February 13, 2009. In the following pages you will find information about the meeting as well as a Proxy Statement.

 

To assure that your shares are represented at the meeting, we urge you to mark your choices on the enclosed proxy card, sign and date the card and return it promptly in the postage-paid envelope provided. We also offer stockholders the opportunity to vote their shares electronically through the Internet or by telephone. Please see the Proxy Statement and the enclosed proxy card for details about electronic voting. If you are able to attend the meeting and wish to vote your shares personally, you may do so at any time before the proxy is voted at the meeting.

 

Sincerely,

 

Linda A. Lang

Chairman of the Board

and Chief Executive Officer

 

TABLE OF CONTENTS

 

JACK IN THE BOX INC.

9330 Balboa Avenue

San Diego, California 92123

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

To the Stockholders of Jack in the Box Inc.:

 

The 2009 Annual Meeting of Stockholders of Jack in the Box Inc. will be held at 2:00 p.m. on Friday, February 13, 2009, at the Marriott Courtyard, 8651 Spectrum Center Boulevard, San Diego, California for the following purposes:

 

 

The Board of Directors recommends that you vote FOR the eight nominees for director and FOR the ratification of the appointment of the independent registered public accounting firm.

 

Only stockholders of record at the close of business on December 19, 2008, will be entitled to notice of, and to vote at the Annual Meeting. For ten days prior to the Annual Meeting, a complete list of stockholders entitled to vote at the Annual Meeting will be available for examination by any stockholder, for a purpose related to the Annual Meeting, during ordinary business hours at our corporate headquarters located at 9330 Balboa Avenue, San Diego, CA 92123.

 

Whether or not you plan to attend the Annual Meeting, please sign, date, and return the enclosed white proxy card as promptly as possible in the envelope enclosed for your convenience. If you plan to attend, you will need valid picture identification such as a driver’s license or passport and proof of ownership of Jack in the Box Inc. common stock to enter the Annual Meeting. If your shares are held in the name of a bank, broker, or other holder of record, you will need a recent brokerage statement or letter from a bank reflecting stock ownership as of the record date. IF YOU DO NOT HAVE VALID PICTURE IDENTIFICATION AND A BROKERAGE STATEMENT OR LETTER FROM A BANK SHOWING THAT YOU OWN JACK IN THE BOX INC. COMMON STOCK, YOU MAY NOT BE ADMITTED TO THE ANNUAL MEETING.

 

Cameras and recording devices are not permitted at the Annual Meeting.

 

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be held on February 13, 2009.

 

The Proxy Statement, the Annual Report to Stockholders and the Annual Report on Form 10-K are available at www.jackinthebox.com/proxy.

 

By order of the Board of Directors

 

Phillip H. Rudolph

Secretary

 

San Diego, California
January 9, 2009

JACK IN THE BOX INC.
9330 Balboa Avenue

San Diego, California 92123

 

 

PROXY STATEMENT

 

 

ANNUAL MEETING OF STOCKHOLDERS

 

February 13, 2009

 

 

The Board of Directors of Jack in the Box Inc., a Delaware corporation (the “Company,” “we,” “us,” and “our”), solicits your proxies for the 2009 Annual Meeting of Stockholders (the “Annual Meeting”) to be held on Friday, February 13, 2009, at 2:00 p.m. local time, at the Marriott Courtyard, 8651 Spectrum Center Boulevard, San Diego, California, and at any postponements or adjournments of the meeting, for the purposes set forth in the “Notice of Annual Meeting of Stockholders.” This Proxy Statement, the Notice of Annual Meeting of Stockholders, the form of proxy, and the accompanying Jack in the Box Inc. 2008 Annual Report, which includes the Annual Report on Form 10-K, were mailed to stockholders on or about January 9, 2009.

 

The Company will pay for the cost of preparing, printing, assembling and mailing the Notice of Annual Meeting of Stockholders, Proxy Statement, form of proxy, Annual Report and any other solicitation materials furnished to stockholders. Copies of solicitation materials will be furnished to banks, brokerage houses, fiduciaries, and custodians holding in their names shares of common stock beneficially owned by others to forward to such beneficial owners. The Company may reimburse persons representing beneficial owners of common stock for their costs of forwarding solicitation materials to such beneficial owners. If you choose to access proxy materials and/or vote over the Internet, you are responsible for Internet access charges. If you choose to vote by telephone, you are responsible for telephone charges. We have engaged Innisfree M&A Inc. (“Innisfree”), a proxy soliciting firm, to provide advice with respect to the 2009 Annual Meeting of Stockholders and to assist us in the solicitation of proxies, for which the Company will pay a fee of $25,000 plus reimbursement of certain out-of-pocket expenses. In addition to solicitation by mail, proxies may be solicited personally, by telephone or other means by Innisfree, as well as by directors, officers, or employees of the Company, who will receive no additional compensation for such services.

 

Only holders of record of common stock at the close of business on December 19, 2008, (the “Record Date”) will be entitled to notice of and to vote at the Annual Meeting and any postponements or adjournment of the meeting. At the close of business on the Record Date, there were 56,837,339 shares of Jack in the Box Inc. common stock, $.01 par value (the “common stock”), outstanding, excluding treasury shares. Company treasury shares will not be voted. Each holder of record as of the Record Date is entitled to one vote for each share of stock held.

 

Quorum.  The presence, in person or by proxy, of the holders of at least a majority of the total number of shares of common stock entitled to vote is necessary to have a quorum at the Annual Meeting. Abstentions and broker non-votes (described below) are counted for the purpose of determining whether a quorum is present. If there are insufficient votes to constitute a quorum at the time of the Annual Meeting, we may adjourn the Annual Meeting to solicit additional proxies.

 

Broker Non-Votes.  A “broker non-vote” occurs when your broker submits a proxy card for your shares of common stock held in a fiduciary capacity (often referred to as being held in “street name”), but does not indicate a vote on a particular matter because the broker has not received voting instructions from you and does not have authority to vote on that matter without such instructions. Under the rules that govern brokers who are voting shares held in street name, brokers have the discretion to vote those shares on routine matters but not on non-routine matters. Routine matters include the election of directors and ratification of independent public accountants. Non-routine matters include actions on stock plans.

 

Voting and Revocability of Proxies.  Your proxy will be voted as you direct, either in writing or by telephone or Internet. If you give no direction, your proxy will be voted FOR the nominees for election as directors, and FOR Proposal 2. The enclosed proxy gives discretionary authority as to any matters not specifically referred to therein. See “Other Business.” The telephone and Internet voting procedures, available only if you are a stockholder of record, are designed to authenticate your identity, to allow you to vote your shares and to confirm that your instructions have been properly recorded. The enclosed proxy card sets forth specific instructions that you must follow if you qualify to vote via telephone or Internet and wish to do so. If you do not wish to vote by telephone or the Internet, please complete, sign and return the proxy card in the enclosed self-addressed, postage-paid envelope. You may revoke your proxy at any time before it is voted at the Annual Meeting by filing a written notice of revocation with the Secretary of the Company at the Company’s executive offices at 9330 Balboa Avenue, San Diego, California 92123, by filing a duly executed written proxy bearing a later date or, if you qualify, by a later proxy delivered using the telephone or Internet voting procedures. Your proxy will not be voted if you are present at the Annual Meeting and elect to vote in person. Attendance at the meeting will not, by itself, revoke a proxy.

 

All of the directors of the Company are elected annually and serve until the next Annual Meeting and until their successors are elected and qualified. The current nominees for election as directors are set forth below. Should any nominee become unavailable to serve as a director, your proxy will be voted for such other person as the Board of Directors of the Company (the “Board”) designates. To the best of our knowledge, all nominees are and will be available to serve, and have consented to be named in the Proxy Statement. Stockholders’ nominations for election of a director may be made only pursuant to the provisions of the Company’s Bylaws. The Company did not receive any stockholder nominations for election of a director at the Annual Meeting. The Bylaws are available on the Company’s website at www.jackinthebox.com, in the “Investors” section under the link for “Corporate Governance.”

 

Your vote may be cast in favor of the proposed directors or withheld. A plurality of the votes cast at the meeting (assuming a quorum) will be sufficient to elect the directors. Accordingly, withheld votes or broker non-votes will have no effect on the election of directors. Stockholders may not cumulate votes in the election of directors.

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ALL NOMINEES.

 

The following table provides certain information about each nominee for director as of January 1, 2009.

 

 

 

 

The business experience, principal occupations and employment of the nominees follows:

 

Mr. Alpert has been a director of the Company since August 1992 and is currently Chair of the Finance Committee. Mr. Alpert was a partner in the San Diego office of the law firm of Gibson, Dunn & Crutcher LLP for more than five years prior to his retirement in August 1992.

 

Mr. Goebel has been a director of the Company since December 2008. He has been a member of the U.S. Faculty of Mentors for Merryck & Company, a worldwide business mentoring firm that offers services exclusively for chief executive officers by chief executive officers since May 2008. Mr. Goebel has 35 years of experience in the retail, food service and hospitality industries. From August 2006 until November 2007, he served as President and Chief Executive Officer of Applebee’s International, Inc. Mr. Goebel joined Applebee’s in 2001 where he held several positions, including Executive Vice President of Operations, Executive Vice President and Chief Operating Officer, and President, prior to becoming Chief Executive Officer. Prior to joining Applebee’s, Mr. Goebel was President of Summit Management, Inc., a consulting group, specializing in executive development and strategic planning.

 

Ms. Gust has been a director of the Company since January 2003 and is currently Chair of the Nominating and Governance Committee. Ms. Gust has served as Special Counsel to the Attorney General of the State of California since January 2007. She served as Executive Vice President and Chief Administrative Officer of The Gap, Inc. from March 2000 until her retirement in May 2005. She joined The Gap, Inc. in 1991 and served in various management roles prior to her appointment as Chief Administrative Officer, including General Counsel. Prior to joining The Gap, Inc., Ms. Gust was a lawyer at the firms of Orrick, Herrington & Sutcliffe LLP and Brobeck, Phleger & Harrison LLP.

 

Mr. Hutchison has been a director of the Company since May 1998 and serves as Lead Director. He served 24 years as Chief Executive Officer and Chairman of International Technology Corp., a large publicly traded environmental engineering firm, until his retirement in 1996. Mr. Hutchison serves as a director of Cadiz Inc. and Cardium, Inc., and is Chairman of the Board of Texas Eastern Products Pipeline Co., LLC.

 

Ms. Lang has been a director of the Company since November 2003. Ms. Lang has been Chairman of the Board since October 2005, and is currently the Chair of the Executive Committee. She has been Chief Executive Officer since October 2005. Ms. Lang was President and Chief Operating Officer from November 2003 to October 2005, and Executive Vice President from July 2002 to November 2003. From 1996 through July 2002, Ms. Lang held officer level positions with responsibility for marketing or operations. Ms. Lang has more than 20 years of experience with the Company in various marketing, finance and operations positions. Ms. Lang serves as a director of WD-40 Company.

 

Mr. Murphy has been director of the Company since September 2002 and is currently Chair of the Compensation Committee. He has been President and Chief Executive Officer of Sharp HealthCare, San Diego’s largest integrated health system, since April 1996. Prior to his appointment to President and Chief Executive Officer, Mr. Murphy served as Senior Vice President of Business Development and Legal Affairs. He began his career at Sharp in 1991 as Chief Financial Officer of Grossmont Hospital before moving to Sharp’s system-wide role of Vice President of Financial Accounting and Reporting.

 

Mr. Tehle has been a director since December 2004, and is currently Chair of the Audit Committee. He has been Executive Vice President and Chief Financial Officer of Dollar General Corporation, a large discount retailer, since June 2004. Formerly a public company, Dollar General became a private company in 2007. Mr. Tehle served from 1997 to June 2004 as Executive Vice President and Chief Financial Officer of Haggar Corporation, a manufacturing, marketing and retail corporation. From 1996 to 1997, he was Vice President of Finance for a division of The Stanley Works, one of the world’s largest manufacturer of tools, and from 1993 to 1996, he was Vice President and Chief Financial Officer of Hat Brands, Inc.

 

Ms. Webb has been a director of the Company since July 2008. She is currently the Chief Communications and Investor Relations Officer for Ticketmaster Entertainment, Inc., the world’s leading live entertainment ticketing and marketing company. Ms. Webb has 26 years’ experience in treasury, investment banking, institutional and retail investor relations, and capital markets. She joined Ticketmaster in April 2008, after a 20-year career with The Walt Disney Company. She was most recently the executive director of The Walt Disney Company Foundation, where she was responsible for setting strategic direction for Disney’s philanthropic efforts. Previously she was Disney’s senior vice president of investor relations and shareholder services.

 

The Board has analyzed the independence of each director and determined that the following directors are independent directors under the NASDAQ Marketplace Rules, and the additional Director Independence Guidelines adopted by the Board, and have no material relationships with the Company (either directly or as a partner, stockholder or officer of an organization that has a relationship with the Company): Messrs. Alpert, Goebel, Hutchison, Murphy and Tehle, Ms. Gust and Ms. Webb. Ms. Lang is not considered independent because she is an officer of the Company. The Jack in the Box Inc. Director Independence Guidelines are attached hereto as Exhibit A.

 

There are no family relationships among our directors and executive officers.

 

The Board of Directors has approved the following Board Committee assignments to be effective February 13, 2009:

 

 

The Board held five meetings in fiscal 2008. We expect each director to attend each meeting of the Board and the committees on which he or she serves, and also expect them to attend the Annual Meeting. During the time each director served on the Board in fiscal 2008, each director attended more than 75% of the meetings of the Board and the committees on which he or she served. There have been no committee meetings since Mr. Goebel was appointed to the Board. All of the then-sitting directors attended the 2008 Annual Meeting.

 

The Board of Directors has five standing committees: Audit, Compensation, Nominating and Governance, Finance and Executive. The authority and responsibility of each committee is summarized below. A more detailed description of the functions of the Audit, Compensation, Nominating and Governance, and Finance Committees is included in each committee charter as adopted by the Board of Directors. All committee charters can be found in the “Corporate Governance” subsection of the “Investors” section of the Company’s website at www.jackinthebox.com.

 

Committee Member Independence.  The Board has determined that each current and anticipated member of the Audit, Compensation, Nominating and Governance, and Finance Committees is an independent director for purposes of NASDAQ listing rules as well as under the additional Independence Guidelines adopted by the Board. In addition, the members of the Audit Committee are all independent as required under Rule 10A-3(b)(1)(ii) under the Securities Exchange Act of 1934, and the members of the Compensation Committee are independent as required under Section 162(m) of the Internal Revenue Code.

 

Audit Committee.  As more fully described in its charter, included as Exhibit B to this Proxy Statement, the Audit Committee assists the Board of Directors with overseeing: the integrity of the Company’s financial reports; the Company’s compliance with legal and regulatory requirements; the independent registered public accountant’s performance, qualifications and independence; the performance of the Company’s internal auditors; and the Company’s processes for identifying, evaluating and addressing major financial risks. The Audit Committee has sole authority to select, evaluate and, when appropriate, replace the Company’s independent registered public accountants. The Audit Committee meets each quarter with the Company’s independent registered public accountants, KPMG LLP (“KPMG”), the Company’s Director of Internal Audit, and management to review the Company’s annual and interim consolidated financial results before the publication of quarterly earnings press releases and the filing of quarterly and annual reports with the Securities and Exchange Commission (“SEC”). The Audit Committee also meets separately each quarter

with each of KPMG, management and the Director of Internal Audit. The Board of Directors has determined that each member of the Audit Committee qualifies as an “audit committee financial expert” as defined by SEC rules. The Audit Committee held six meetings in fiscal 2008.

 

Compensation Committee.  As more fully described in its charter, the Compensation Committee assists the Board in discharging the Board’s responsibilities relating to director and executive officer compensation and oversees the evaluation of management. The Compensation Committee reviews and approves the Company’s compensation philosophy, each of the compensation components, equity and benefit plans, and compensation of executive officers, including performance goals and objectives. The Committee approved the disclosures in the Company’s “Compensation Discussion and Analysis” beginning on page 14 of this Proxy Statement. The Compensation Committee held five meetings in fiscal 2008.

 

Executive Committee.  The Executive Committee is authorized to exercise all the powers of the Board in the management of the business and affairs of the Company while the Board is not in session. The Executive Committee did not meet in fiscal 2008.

 

Finance Committee.  The Finance Committee assists the Board in advising and consulting with management concerning financial matters of importance to the Company. Topics considered by the Committee include the Company’s capital structure, financing arrangements, stock repurchase programs, capital investment policies, oversight of the Company’s retirement plans, the budget process and the financial implications of major acquisitions and divestitures. The Finance Committee held five meetings in fiscal 2008.

 

Nominating and Governance Committee.  The Nominating and Governance Committee assists the Board in identifying and recommending to the Board qualified candidates to become directors, including: considering nominees properly submitted by stockholders; developing and recommending to the Board a set of corporate governance guidelines; providing oversight with respect to the annual evaluation of Board, Committee and individual director performance; and recommending to the Board director nominees for each Board committee. All nominees for election as Directors currently serve on the Board of Directors and are known to the Nominating and Governance Committee in that capacity. The Nominating and Governance Committee also assists the Board in its oversight of the Corporation’s insider trading compliance program. The Nominating and Governance Committee held six meetings in fiscal 2008.

 

Executive Sessions.  Non-employee directors meet in executive session without management present each time the Board holds its regularly scheduled meetings. Mr. Hutchison has been designated by the Board to act as the Lead Director for such executive sessions of non-employee directors.

 

Policy Regarding Consideration of Candidates for Director.  The Nominating and Governance Committee has the responsibility to identify, screen and recommend qualified candidates to the Board. In order to be evaluated in connection with the Nominating and Governance Committee’s established procedures, stockholder recommendations for candidates for the Board must be sent in writing to the following address at least 120 days prior to the first anniversary of the date of the previous year’s Annual Meeting of Stockholders:

 

Nominating and Governance Committee of the Board of Directors

c/o Office of the Corporate Secretary
Jack in the Box Inc.
9330 Balboa Avenue
San Diego, CA 92123

 

Any recommendation submitted by a stockholder to the Nominating and Governance Committee must include the same information concerning the potential candidate and the recommending stockholder as would be required under Article III Section 3.16 of the Jack in the Box Inc. Bylaws if the stockholder wishes to nominate the candidate directly. In evaluating director candidates, the Nominating and Governance Committee considers the qualifications listed in the Jack in the Box Inc. Corporate Governance Principles and Practices which are available at www.jackinthebox.com on the “Investors” page under the link “Corporate Governance.” The following are some of the factors considered by the Nominating and Governance Committee in evaluating director candidates:

 

 

 

The Nominating and Governance Committee may also consider such other factors as it may deem are in the best interests of the Company and its stockholders. The Committee considers all candidates regardless of the source of the recommendation. In addition to stockholder recommendations, the Committee considers recommendations from current directors, Company personnel and others. From time to time, the Nominating and Governance Committee retains a search firm to assist it. During fiscal year 2008, at the Committee’s request, the Company engaged one such search firm, the Alexander Group, and paid approximately $57,000 in connection with identification of possible candidates. The Committee applies the same standard in evaluating candidates submitted by stockholders as it does in evaluating candidates submitted by other sources.

 

We strive to operate within a comprehensive plan of corporate governance for the purpose of defining responsibilities, setting high standards of professional and personal conduct and assuring compliance with these responsibilities and standards. The following Corporate Governance documents appear on the Company’s website in the “Investors” section under the link “Corporate Governance.” These materials are also available in print to any stockholder upon written request to the Company’s Corporate Secretary.

 

 

The Corporate Governance Principles and Practices include, among other matters, the following items concerning the Board:

 

1. Meetings of Non-Employee Directors.   The non-employee directors of the Company meet separately on a regular basis in executive session. The Lead Director is responsible for setting the agenda and presiding at the meetings.

 

2. Lead Director.   The non-employee directors appoint a Lead Director each year to set the agenda for and preside at the executive sessions of the Board. The Lead Director acts as the primary communication channel between the Board and the Chief Executive Officer (“CEO”), and determines the format and the adequacy of information required by the Board. For 2009, the non-employee directors have appointed Murray Hutchison as Lead Director.

 

3. Limitation on Other Board Service.   The Company’s Corporate Governance Principles and Practices set forth the Board’s policy limiting non-employee directors to simultaneous service on no more than four public companies, including Jack in the Box Inc. The Board has an approval process that generally limits

each of our officers to serving on no more than one public company’s board outside of Jack in the Box Inc. The approval process considers both the time commitment and potential business conflicts and is administered by the Nominating and Governance Committee.

 

4. Director Independence Guidelines.  In addition to the Corporate Governance Principles and Practices, the Board has adopted Independence Guidelines, which are attached as Exhibit A.

 

5. Retirement Policy.   The Board has adopted a retirement policy under which directors may not stand for election or be appointed after age 73.

 

6. Board, Committee and Individual Director Evaluations.   Each year the Directors complete an evaluation process focusing on an assessment of Board operations as a whole and the service of each director. Additionally, each of the Audit, Compensation, Finance, and Nominating and Governance Committees conducts a separate evaluation of its own performance and the adequacy of its Charter. The Nominating and Governance Committee coordinates the evaluation of individual directors and of the Board operations and reviews and reports to the Board on the annual self-evaluations completed by the committees.

 

7. New-Director Orientation and Continuing Education.   The Board works with management to schedule new-director orientation programs and continuing education programs for directors. Orientation is designed to familiarize new directors with the Company and the restaurant industry as well as Company personnel, facilities, strategies and challenges. Continuing education programs may include in-house and third-party presentations and programs.

 

8. Attendance at Annual Meetings.   The Company’s Corporate Governance Principles and Practices sets forth the Board’s policy on director attendance at our Annual Meeting of Stockholders. It states that all directors shall make every effort to attend the Annual Meeting.

 

9. Stock Ownership Guidelines.   The Board has established stock ownership guidelines for non-employee directors to appropriately link their interests with those of other stockholders. These guidelines provide that within a three-year period following appointment or election, the director should attain and hold an investment position of $150,000 in defined total stock value, exclusive of any outstanding stock options but including directly and indirectly held shares and the equivalent number of shares derived from deferral of director compensation. The Board has established ownership guidelines for senior officers as described in the “Compensation Discussion and Analysis” section of this Proxy Statement.

 

The Company regularly monitors developments in the area of corporate governance and may modify its Principles and Practices as warranted. Any modifications are reflected on the Jack in the Box Inc. website at www.jackinthebox.com.

 

No member of our Compensation Committee is an officer, former officer, or employee of the Company. During fiscal 2008, no member of the Compensation Committee had any relationship with the Company requiring disclosure under Item 404 of Regulation S-K . During fiscal 2008, no interlocking relationship existed between any of our executive officers or Compensation Committee members, on the one hand, and the executive officers or Compensation Committee members of any other entity, on the other hand.

 

Independent Compensation Consultants

 

The Compensation Committee has retained Towers Perrin as its independent consultant for executive compensation. A representative of Towers Perrin, attends Compensation Committee meetings as requested and the Chair of the Compensation Committee communicates with Towers Perrin between meetings. Towers Perrin provides no services to management at Jack in the Box Inc. When evaluating the compensation of non-employee directors in 2008, the Compensation Committee engaged the services of a separate consultant, Compensia, to provide information and advice. The Compensation Committee regularly reviews the services provided by its outside consultants.

 

Communications with the Board of Directors

 

Stockholders or others who wish to communicate any concern of any nature to the Board of Directors, any Committee of the Board, any individual director, or group of directors, may write to a director or directors

in care of the Office of the Corporate Secretary, Jack in the Box Inc. 9330 Balboa Avenue, San Diego, CA 92123, or telephone 1-888-613-5225.

 

Your letter should indicate that you are a stockholder of the Company. Comments or questions regarding our accounting, internal controls or auditing matters will be referred to members of our Audit Committee. Comments or questions regarding the nomination of directors and other corporate governance matters will be referred to members of the Nominating and Governance Committee. For all other matters, our Corporate Secretary will, depending on the subject matter:

 

 

The following is the report of the Audit Committee with respect to Jack in the Box Inc.’s audited financial statements for the fiscal year ended September 28, 2008.

 

The Audit Committee of the Board of Directors (the “Audit Committee”) is composed of the three directors named below, each of whom is an “independent director” as defined in the listing standards of the NASDAQ Stock Market. Our Board has determined that each of the members of the Audit Committee is an audit committee financial expert as defined by the Securities and Exchange Commission (“SEC”). The duties of the Audit Committee are summarized in this Proxy Statement under “Board Meetings and Committees of the Board of Directors” on page 5 and are more fully described in the Audit Committee charter adopted by the Board of Directors attached hereto as Exhibit B. Each year, the Audit Committee reviews and assesses the adequacy of its charter and conducts a review and evaluation of the Committee’s operations. The Audit Committee charter can be found on the Company’s website at www.Jackinthebox.com, in the “Investors” section under the link for “Corporate Governance.”

 

As more fully described in its charter, one of the Audit Committee’s primary responsibilities is to assist the Board in its general oversight of Jack in the Box Inc.’s financial reporting, internal controls, and audit functions. Management is responsible for the following: the Company’s accounting and financial reporting principles; establishing, maintaining and evaluating the effectiveness of disclosure controls and procedures as well as internal controls over financial reporting and the preparation, presentation and integrity of the Company’s consolidated financial statements. KPMG, the Company’s independent registered public accounting firm, is responsible for performing an independent audit of the Company’s consolidated financial statements and internal control over financial reporting in accordance with the Standards of the Public Company Accounting Oversight Board (United States) (the “PCAOB”) and issuing a report thereon.

 

Jack in the Box Inc. has an Internal Audit Department that reports to the Audit Committee and the Company’s General Counsel. The Internal Audit Department’s responsibilities include reviewing and evaluating the Company’s internal controls. The function of the Audit Committee is not to duplicate the activities of management, or the internal or external auditors, but to serve a Board-level oversight role in which it provides advice, counsel and direction to management and the auditors.

 

The Audit Committee has sole authority to select, evaluate, approve fees, and when appropriate, to replace the Company’s independent registered public accountants. The Audit Committee also pre-approves all audit and non-audit services performed by the independent auditors. The Audit Committee has appointed KPMG as the Company’s independent registered public accountants for fiscal year 2009 and has requested stockholder ratification of its appointment.

 

During the course of fiscal 2008, the Audit Committee met and discussed with representatives of management, the Internal Audit Department staff, and the independent auditors the matters over which the Audit Committee has been delegated oversight responsibility. The Audit Committee met regularly in separate private sessions with representatives of management, the Internal Audit Department staff, and the independent auditors. The Audit Committee reviewed and discussed with management and KPMG the disclosures made in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 28, 2008. The Audit Committee reviewed and discussed management’s report on the effectiveness of the Company’s internal control over financial reporting and KPMG’s Report of Independent Registered Public Accounting Firm included in the Company’s Annual Report on Form 10-K related to its audit of (i) the consolidated financial statements, and (ii) the effectiveness of internal control over financial reporting.

 

The Committee discussed with KPMG the matters required to be discussed by Statement on Auditing Standards No. 61, “Communications with Audit Committees,” as amended and PCAOB Auditing Standard No. 2, “An Audit of Internal Control Over Financial Reporting Performed in Conjunction with an Audit of Financial Statements.” In addition, the Audit Committee received the written disclosures and the letter from KPMG required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees,” and discussed with KPMG its independence from the Company.

 

The Audit Committee has discussed with management and KPMG such other matters and received such assurances from them as the Audit Committee deemed appropriate.

Based on the reviews and discussions referred to above, and the reports of KPMG, the Audit Committee recommended to the Board of Directors, and the Board of Directors approved, the inclusion of the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended September 28, 2008, for filing with the SEC.

 

THE AUDIT COMMITTEE

David M. Tehle, Chair

Murray H. Hutchison

Michael W. Murphy

 

This report is not deemed to be incorporated by reference in any filing by the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates this report by reference.

 

The following table presents fees billed for professional services rendered by KPMG, the Company’s independent registered public accountants for the fiscal years ended September 28, 2008 and September 30, 2007.

 

 

 

 

Registered Public Accountants Independence.  The Audit Committee has considered whether the provision of the above-noted services is compatible with maintaining KPMG’s independence and has determined that the provision of such services has not adversely affected KPMG’s independence.

 

Policy on Audit Committee Pre-Approval.  The Company and its Audit Committee are committed to ensuring the independence of the independent registered public accountants, both in fact and in appearance. In this regard, the Audit Committee has established a pre-approval policy in accordance with applicable Securities rules. The Audit Committee’s pre-approval policy is set forth in the Policy for Audit Committee Pre-Approval of Services, included as Exhibit C to this Proxy Statement.

 

The Audit Committee has appointed the firm of KPMG as the Company’s independent registered public accountants for fiscal year 2009. Although action by stockholders in this matter is not required, the Audit Committee believes it is appropriate to seek stockholder ratification of this appointment.

 

KPMG has served as the Company’s independent auditors since 1986. One or more representatives of KPMG will be present at the Annual Meeting and will have the opportunity to make a statement and to respond to appropriate questions from stockholders. The following proposal will be presented at the Annual Meeting:

 

Action by the Audit Committee appointing KPMG as the Company’s independent registered public accountants to conduct the annual audit of the consolidated financial statements of the Company and its subsidiaries for the fiscal year ending September 27, 2009, is hereby ratified, confirmed and approved.

 

Approval of this proposal requires the affirmative vote of a majority of the votes cast at the Annual Meeting (assuming a quorum). For this proposal, abstentions and broker non-votes will each be counted as present for purposes of determining the presence of a quorum but will not have any effect on the outcome of the proposal.

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” RATIFICATION OF THE APPOINTMENT OF KPMG AS INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS.

 

This Compensation Discussion and Analysis (i) provides information on our compensation objectives and philosophy, (ii) discusses and analyzes the components of our compensation program, the reasons we provide each component, how we determine targeted compensation, and the basis of our pay decisions for the executive officers of the Company, including the amounts paid to the named executive officers (“NEO”) as shown in the “Summary Compensation Table.”

 

Overview of the Company’s Named Executive Officers

 

The following executive officers were the named executive officers for fiscal 2008:

 

 

Oversight of the Executive Compensation Program

 

Role of the Compensation Committee.  The Compensation Committee (the “Committee”) acts pursuant to a written charter and is comprised entirely of independent directors. The Committee administers the Company’s executive compensation program on behalf of the Board of Directors (the “Board”) and reviews and approves the Company’s compensation philosophy, each of the compensation components, equity and benefits plans, and compensation of our executive officers, including performance goals and objectives.

 

Compensation of the Chief Executive Officer.  Following a presentation to the Committee on CEO market pay and compensation perspectives by the Committee’s independent compensation consultant, the Committee discusses and determines the compensation package for Ms. Lang. The Committee determines base salary, annual incentive targets, and long-term equity awards. The Committee considers the competitiveness of Ms. Lang’s compensation package relative to the market, in addition to the Company’s financial and operational performance. In fiscal 2008, Ms. Lang’s compensation mix consisted of approximately 16% base pay, 15% bonus, and 68% equity awards ($849,519 base pay and $802,729 bonus respectively, as reflected in the Summary Compensation Table, and $3,574,580 in equity as reflected in the Grants of Plan Based Awards Table). Committee discussion on Ms. Lang’s compensation occurs during executive session when only independent Committee members are present. Ms. Lang does not participate in these discussions and management provides input into the determination of the CEO’s compensation only as requested by the Committee. The Committee reviews and approves the compensation level of the Chairman and CEO based on the evaluation of performance and comparative data.

 

Role of the Chief Executive Officer in Compensation Decisions.  Our Chairman and CEO reviews the performance of the named and other executive officers with the Committee on an annual basis and provides recommendations on compensation actions for them. Additionally, she provides her perspective and recommendations to the Committee on compensation and benefit plan design and strategies, financial goals and criteria for the annual incentive plan, and the amount of long-term incentive awards.

 

Role of the Independent Compensation Consultant.  To assist the Committee with its responsibilities, the Committee has retained the services of Towers Perrin, a nationally recognized compensation consulting firm, to serve as its independent compensation consultant. Towers Perrin provides the Committee with comparative information, advice and perspective on matters related to compensation for our Chairman and CEO and our other executive officers. The compensation consultant provides the Committee with objective information and expertise to assist the Committee in making informed decisions on executive compensation. Apart from its services to the Committee, Towers Perrin provides no compensation consulting or other services to the Company.

Towers Perrin performs an annual review of competitive compensation practices for all officer positions and, based on that assessment, provides advice regarding changes to base salaries, annual incentives, and long-term incentives. Towers Perrin obtains market data from a variety of sources, including the 2008 Towers Perrin executive compensation survey, the Chain Restaurant Compensation Survey, and proxy and other disclosures of our industry peer group companies (see “Benchmarking Executive Compensation”). We refer to these three sources collectively as our comparative benchmark group. A representative from Towers Perrin attends Compensation Committee meetings as requested, including four of the five Committee meetings fiscal 2008. The Chair of the Committee consults with Towers Perrin as needed between meetings.

 

Executive Compensation Philosophy and Objectives

 

Our compensation philosophy, reviewed annually by the Compensation Committee, is to provide competitive pay for expected performance and exemplary pay for exemplary performance. We define competitive pay as the median (50th percentile) of market pay, and expected performance as performance meeting budgeted targets established by the Board of Directors. Exemplary pay is defined as pay above the median of market pay for performance above budgeted targets. Throughout this discussion, when we use the term “market pay” or “market,” we are referring to the pay levels or practices for similar executive positions among our comparative benchmark group.

 

We target our base pay, annual incentive, and long-term incentives (collectively, “direct compensation”) at the median of the market. Our compensation program is built on this philosophy and is further designed to support three key objectives.

 

 

Components and Analysis of Total Compensation

 

Our total compensation program for executive officers consists of a combination of base salary, annual incentive, grants of long-term incentives, benefits, and limited perquisites that have a business purpose. The program is designed to provide an appropriate balance between annual and long-term performance of the Company, as well as between fixed and variable (“at-risk”) compensation. Each year, the Committee’s independent consultant, Towers Perrin, provides the Committee and management with a comparison between the executive officers’ direct compensation (base salary and annual and long-term incentives) and the direct compensation paid to executive officers of the organizations in the Company’s comparative benchmark group. Upon review of the information, the Committee makes its own assessments and decisions with respect to each of the compensation components described in more detail below.

 

Base Salaries

 

Purpose:  Base salaries compensate executives for the knowledge and skills, experience and expertise that they bring to Jack in the Box Inc. as they fulfill their job duties and responsibilities. We provide competitive base salaries that enable us to attract and retain skilled executives who are critical to our long-term success.

 

Pay Determination:  Each November, our Chairman and CEO makes recommendations to the Committee on salary increases for the named and other executive officers. To determine the appropriate salary level of an executive, the Company considers the performance of the executive during the fiscal year, maturity in the role and the ability to fulfill the requirements of the role, the criticality of the role to the

Company, and the difficulty in replacing the executive. Individual performance is measured by what is achieved (results) and how it is achieved (behaviors).

 

The Committee assesses the performance of our Chairman and CEO, and our Chairman and CEO assesses the performance of each of the other executive officers. The Chairman and CEO, in consultation with the Company’s Compensation Department, develops a recommended salary adjustment amount for each executive officer (other than herself) and subsequently provides the Committee with her performance assessments and salary adjustment recommendations. The Committee also considers the position of the executive’s salary in relation to the range of base salaries of the comparative benchmark group provided annually by the Committee’s independent compensation consultant.

 

Fiscal 2008 Pay Decisions:  In November 2007, the Committee evaluated base salaries relative to market pay data and in consideration of the Chairman and CEO’s evaluations and recommendations relative to the NEOs and other officers. Based on the assessment of the factors described above, the Committee approved increases that moved the base salary of each executive officer to an appropriate position in the salary range. The increases were effective November 2007 and ranged from 0% to 15%. The Committee found Ms. Lang’s and Mr. Rebel’s performance in 2007 to be exemplary, and in consideration of their performance and their pay relative to the market median pay, determined that a 15% increase in base salary was appropriate. After the November 2007 adjustment, in fiscal 2008, the Chairman and CEO’s salary was approximately 1.6 times higher than the salary of the President and Chief Operating Officer (“COO”). The table below shows the 2008 annualized base salary of each named executive officer and the fiscal 2008 pay increase that was effective in November 2007.

 

 

Annual Incentive

 

Purpose:  Jack in the Box Inc.’s annual incentive plan, the Executive Performance Bonus Plan, is designed to reward executives based on the level of achievement of certain annual operating goals that are established by the Board of Directors to drive increases in stockholder value. Each participant’s annual incentive is based solely on Company performance because we believe all executive officers, key management and staff should be focused on the same goals, and work together to achieve those goals.

 

 

 

 

Setting Annual Incentive Performance Goals:  The Committee approves annual incentive performance goals at the conclusion of the Company’s annual financial planning process and subsequent to the Board’s approval of the Company’s financial plan and budget for the fiscal year. The goals are considered to be challenging for the Company to achieve and generally reflect performance above the prior year. If the Company achieves the goals established at budget for the fiscal year, then the annual incentive will pay at targeted bonus levels which are set at competitive median levels. If the Company outperforms budget, then the annual incentive payout will be above the median of the market, and if it is below budget, payouts will be below market median.

 

Fiscal 2008 Performance:  At the Committee meeting held in September 2007, the Committee established performance goals for fiscal 2008 that were based on the fiscal 2008 operating plan and budget

approved by the Board of Directors. The threshold, target, and maximum bonus payout percentages for each named executive officer, expressed as a percentage of annual base salary are as follows:

 

Bonus Payout Percentages

 

 

In 2008, the EPS performance goal at budget (target) was 12.3% above prior fiscal year performance (FY 2007) and the goal at the maximum incentive payout level was 17.5% above prior fiscal year performance (FY 2007).

 

In determining fiscal 2008 goal achievement, the Committee approved an adjustment to performance due to the impact of Hurricane Ike, an unforeseeable event that affected fiscal 2008 performance. The Committee discussed the terms of the relevant insurance coverage and the amount of deductibles. Because Hurricane Ike occurred during the last two weeks of fiscal 2008, the losses impacted fiscal 2008 while the insurance recovery will affect fiscal 2009. The Committee made a determination to adjust the Company’s fiscal 2008 financial results for purposes of computing achievement of the annual incentive goals, to reflect the Company’s reasonable estimate of the financial impact of Hurricane Ike. The Committee also determined that Hurricane Ike-related insurance recoveries will be excluded from fiscal 2009 financial results for purposes of computing achievement of the fiscal 2009 annual incentive goals. As certified by the Committee, our performance results for fiscal 2008 were as follows:

 

 

 

 

Fiscal 2009:  In October 2008 the Company disclosed that it planned to sell its Quick Stuff convenience store operations. In the Company’s 2008 Annual Report on Form 10-K, results were reported separately for earnings from continuing operations and earnings from discontinued operations. The Committee determined that fiscal 2009 performance goals should be stated relative to earnings from continuing operations only.

 

Long-term Incentives

 

Purpose:  The long-term incentive program for executive officers consists of grants of non-qualified stock options. The Committee believes equity incentives provide strong alignment between stockholder interests and the personal financial interests of our executive officers. Options reward executives for achieving increases in stockholder value through appreciation in the price of Jack in the Box common stock over time. Executives only receive a benefit from the options if the market value of Jack in the Box stock increases above the option price. In addition, options facilitate ownership in the Company and serve to retain executives through use of a multi-year vesting schedule.

 

Annually, the Committee’s compensation consultant provides stock option grant guidelines at the market 50^th and 75^th percentiles. These guidelines are based on total direct compensation (includes the total

of base, bonus, and long-term incentives) of the comparative benchmark group. To determine the actual percentile at which to grant options, the Committee considers the Company’s overall fiscal year performance and recommendations from the Chairman and CEO on other executives’ individual performance.

 

Timing of Regular Annual Stock Option Grants:  The grant date of annual stock option grants is the date of the Committee’s regularly scheduled September meeting, and all grants are approved by resolution of the Committee. The dates of Board and committee meetings are generally scheduled years in advance of the actual date of the meeting. All stock options are granted with an exercise price equal to the closing price of Jack in the Box Inc. common stock on the date of grant. All stock option grants in 2008 for executive officers were consistent with these guidelines.

 

2008 Options Grants: In fiscal 2008, the Committee reviewed grant guidelines provided by Towers Perrin that ranged in value between the market 50th and 75th percentiles. The Committee approved grants to four of our five named executive officers that best approximated the 50th percentile (offsets were then applied for any prior or new restricted stock awards granted to the executive to satisfy the executive stock ownership program) . The option awards were approved and granted on September 12, 2008, the date of the Committee meeting, with an exercise price equal to the closing price of Jack in the Box stock on the date of grant. The options vest one-third on each anniversary of the award and have a seven-year term for exercise. The majority of options granted in prior years vest at a rate of 25% per year over a four-year period and have a ten-year term. The vesting schedule and option term were changed in 2007 to better align with market practices and reduce option expensing in the long term.

 

2008 Grant Guidelines

 

 

 

 

Health & Welfare Benefits

 

Purpose:  The Committee believes health and welfare benefits are an important component of the total compensation package and provide executives with a level of security and protection that allows them to focus their efforts more completely on the Company’s business. Benefit programs are also commonplace among our comparative benchmark group and are necessary to attract and retain top talent.

 

Supplemental Benefits:  The health and welfare benefits we provide to the named and other executive officers are generally available to other employees in the Company. We provide both company-subsidized and voluntary benefit programs to our employees that generally include medical, dental, life insurance and disability coverage. In addition to the coverage provided in the regular plans, the named executive officers participate in an executive health reimbursement program, for which the executives pay an additional

premium that provides for reimbursement of out-of-pocket healthcare expenses that exceed coverage under the regular plans, not to exceed reimbursement of the amounts shown in the table below for each position level:

 

 

The Company also provides employer-paid term life insurance with a maximum value of $770,000. We provide additional coverage in these two areas so that our total benefit package is competitive and supports our ability to recruit and retain talented executives.

 

Fiscal 2008:  Beyond the annual recalibration of benefit costs and the associated premiums, there were no significant changes made to the health and welfare benefits during fiscal 2008.

 

Perquisites

 

Purpose:  The Committee believes it is important to provide a limited number of selected perquisites that enhance our ability to compete for executive talent. The value of each perquisite is provided in the Summary Compensation Table.

 

Considerations:  The Committee periodically reviews the prevalence of perquisites in our comparative benchmark group and the business justification for providing them. The perquisites we provide our executive officers are shown in the table below.

 

 

 

 

Retirement Plans

 

Purpose:  The Company’s retirement plans provide the opportunity for our employees, including our named executive officers, to achieve retirement income security. These plans also reward them for service and provide an additional incentive to build a long-term career at Jack in the Box.

 

Qualified Retirement Plan:  Our named executive officers, along with our employees generally, are participants in a tax-qualified defined benefit plan (“Retirement Plan”).

 

Non Qualified Retirement Plan:  In addition to the qualified retirement plan, our named executive officers and certain other officers and employees are participants in a Supplemental Executive Retirement Plan (“SERP”). The SERP is a non-tax qualified pension plan and was established in response to the Internal Revenue Code limitations on pension benefits (based on an annual compensation limit) that can be accrued under our tax-qualified defined benefit pension plan. The SERP compensates participants in an equitable fashion for the reductions in their pension benefits resulting from these limitations. The Company has purchased corporate-owned life insurance policies to offset its obligations under the SERP, which represents an unsecured claim against the Company.

 

In September 2007, the Committee evaluated the retirement benefits provided to participants in the SERP and the long term costs the Company bears in maintaining such a plan. Subsequent to this evaluation, the Committee approved freezing the SERP for new participants effective January 1, 2007. In lieu of the SERP, new officers receive an additional contribution of 4% of base salary and bonus to their non-qualified executive deferred compensation account for up to 10 years, as described below.

Non-qualified Deferred Compensation Plan.  The Executive Deferred Compensation Plan (“EDCP”) is available to all executive officers and other employees who are excluded from participating in our qualified 401(k) plan in order to meet the Internal Revenue Code (“IRC”) requirements. Participants may defer up to 50% of base salary and up to 100% of their annual cash bonus. The matching contribution and vesting provisions are as follows:

 

 

All of the named executive officers are participants in the EDCP. Prior to 1990, executive officers were eligible to participate in the qualified Jack in the Box Inc. Easy$aver Plus (the “E$P”) Plan which includes a cash-or-deferred arrangement under Section 401(k) of the Internal Revenue Code. Our Chairman and CEO and COO participated in the E$P Plan at that time. Our executive officers and certain other highly compensated employees were excluded from participating in the E$P Plan after 1989. Executive officers with existing cash balances in the E$P Plan are able to maintain their balances in the E$P Plan; however, they can no longer make deferrals into the E$P Plan.

 

Benchmarking Executive Compensation

 

Each component of compensation for our executive officers discussed above is based on external market comparisons and internal comparisons of positions with similar scope of responsibility. For most executive positions, two primary sources of compensation survey data are used from among three sources: (i) proxy compensation disclosures for named executive officers in the companies in our industry peer group, (ii) the Chain Restaurant Compensation survey for executive positions within our industry peer group, and (iii) the Towers Perrin executive compensation survey for general industry data. When analyzing the data, Towers Perrin uses regression analysis whenever possible to adjust the data for differences in company size.

 

The Committee reviews the companies in the industry peer group annually and changes are made as necessary and appropriate. Our selected peer group represents companies with short and long-term growth potential, similar market capitalization, high level of brand recognition, and which are considered to be companies that we compete for business and executive talent. In May 2008, the Committee approved two changes to the compensation peer group for the fiscal 2009 compensation study conducted by Towers Perrin: a) replace Applebee’s with DineEquity, the corporate name for the operator of Applebee’s and IHOP, and b) eliminate Wendy’s from the peer group due to its acquisition by a private equity firm (thus eliminating public disclosure of pay for use in our benchmarking group). The revised industry peer group was used to establish target base, annual incentive, and long-term incentive targets for fiscal 2009. The median revenue of the fiscal 2009 industry peer group was $1.7 billion versus $2.7 billion in fiscal 2007 for Jack in the Box.

 

 

Tally Sheets

 

Each year, as the Committee determines named executive officer compensation, it reviews tally sheets that detail the various components of compensation at Jack in the Box Inc., including cash compensation, equity-based compensation, health and welfare benefits, retirement plans, and perquisites. The Committee uses these tally sheets to determine, for each named executive officer, the appropriate balance of the

components of compensation and competitiveness with our comparative benchmark group. Based on this review, the Committee believes that named executive officer compensation in fiscal 2008 was reasonable in its totality.

 

Executive Stock Ownership Requirements

 

A key objective of our executive compensation program is alignment with the long-term interests of our stockholders. To this end, in 2002, the Company adopted stock ownership guidelines for all named executive officers and other officers at the senior vice president level and above. The guidelines are intended to encourage retention and align the financial interests of these executives with those of our stockholders. Both shares directly owned by the executive and unvested restricted shares awarded to the executive apply toward fulfillment of stock ownership guidelines.

 

Each September, the Committee reviews the share ownership of each executive officer and grants restricted shares to facilitate meeting the ownership requirement. The value of each grant of restricted shares serves as an offset to grants of stock options over a five year period. For new hires and promotions to an eligible executive position, restricted stock grants are generally considered by the Committee at the next meeting following the date of hire or promotion.

 

Restricted shares are held in an escrow account maintained by the Company. Vesting is subject to the executive officer’s continued employment with the Company. Vested shares are determined and issued only upon the employee’s separation from the Company.

 

Company stock ownership guidelines are the lesser of a fixed number of shares or a multiple of salary, as follows:

 

 

Currently all named executive officers satisfy their respective stock ownership requirement.

 

Stock Ownership for the Named Executive Officers

 

 

Termination of Service

 

The named executive officers do not have employment or severance agreements, except in the event of a change of control. When a named executive officer terminates employment with the Company, the executive will receive amounts according to the specific terms and provisions of each compensation or benefits plan as described below.

 

 

If eligible to retire under a Company-sponsored retirement plan, in addition to the above, under the terms of the award agreement, the executive is entitled to the following:

 

 

If an executive dies while employed by the Company, under the terms of the stock award agreement, all outstanding options and stock awards will become 100% vested on the date the executive terminates employment with the Company on account of death.

 

The values of additional potential payments to the NEOs are provided in the section titled “Potential Payments Upon Termination or Change in Control” in this Proxy Statement.

 

Change in Control

 

Each of the NEOs, and three other executive officers, have a Compensation & Benefits Assurance Agreement that provides compensation in the form of a lump sum and other benefits for the coverage periods set forth in the section titled “Potential Payments Upon Termination or Change in Control” of this Proxy Statement. The list of covered executives is reviewed periodically by the Committee. We believe these agreements are important to provide continuity of management and provide the incentive to remain with the Company and continue to focus on running the business in the event of a pending or actual change in control event. Each agreement has a term of two years and is subject to automatic extension for additional two-year terms unless either party to the agreement gives notice of intent not to renew.

 

A detailed discussion of the provisions of the Compensation & Benefits Assurance Agreements and the associated monetary values is provided in the section titled “Compensation & Benefits Assurance Agreements” on page 30 of this Proxy Statement.

 

Executive Compensation Recovery Policy

 

During fiscal 2008, the Committee adopted an executive compensation recovery policy with language to be inserted in appropriate documents and award agreements going forward. The policy states that in the event Jack in the Box Inc. materially restates all or a portion of its financial statements due to fraud or intentional misconduct either committed by a Corporate Officer or knowingly permitted by a Corporate Officer, the Committee may take action to recover incentive cash compensation and performance-based equity awards that were based on the achievement of financial results that were subsequently restated. For purposes of this policy, a Corporate Officer is defined as an employee with the title of Corporate Vice President or above, and includes the CEO, COO and CFO of the Company’s subsidiary Qdoba Restaurant Corporation, as well as former Corporate Officers who were employed by the Company at the time of the fraud or intentional misconduct.

 

Executive compensation subject to recovery may include a) bonus or incentive cash compensation paid to the Corporate Officer, plus a reasonable rate of interest, b) economic gains realized from the sale of stock awarded under a performance-based equity plan, c) cancellation of restricted stock or units, deferred stock awards or units, and outstanding stock options to the extent vesting of such awards is performance-based.

 

The Compensation Committee has the sole discretion to determine what action to take in the event of a restatement, including soliciting recommendations from the Audit Committee and the full Board and retaining outside advisors to assist in making its determinations. The actions taken by the Compensation Committee are independent of any action imposed by law enforcement agencies, regulators or other authorities.

 

Tax and Accounting Information

 

Compensation decisions for executive officers are made with consideration of the Internal Revenue Code Section 162(m) implications. Section 162(m) places a limit of one-million ($1.0M) dollars on the amount of compensation that Jack in the Box can deduct in any one year for each named executive officer. As performance-based pay is excluded from this limit, we have designed our compensation program to provide

the largest portion of an executive’s compensation through our annual cash incentive plan and long-term incentive plan in the form of stock options. Restricted stock awards are not considered performance-based under Section 162(m) and, accordingly, are subject to the $1.0 million limit on deductibility. Under Internal Revenue Code Section 409A, amounts deferred by an employee under a non-qualified deferred compensation plan (such as the SERP and EDCP) may be included in gross income when deferred and subject to a 20% additional federal tax, unless the plan complies with certain requirements related to the timing of deferral election and distribution decisions. Stock options may be exempt from Section 409A if the exercise price is not less than the fair market value on the grant date, the number of shares subject to option is fixed on the grant date, and there is no subsequent deferral feature under the option. We administer the SERP, the EDCP and stock option awards consistent with Section 409A requirements.

 

We account for option expensing under Statement of Financial Accounting Standards (“SFAS”) 123R and use a binomial valuation model prepared annually by AON Consulting to determine the “fair value” of our stock options at grant.

 

Management of the Company has prepared the Compensation Discussion and Analysis of the Company’s compensation programs. The Compensation Committee of the Board of Directors has reviewed and discussed with management and the Board, the Compensation Discussion and Analysis contained in this Proxy Statement. On the basis of that review, the Committee approved on behalf of the Board that the Compensation Discussion and Analysis be included in this Proxy Statement for fiscal year 2008, ending September 28, 2008.

 

THE COMPENSATION COMMITTEE

Michael W. Murphy, Chair

Anne B. Gust

Murray H. Hutchison

 

The Summary Compensation Table below provides compensation information for the named executive officers serving at the end of fiscal 2008 (September 28, 2008). The table includes compensation paid, stock and option awards, non-equity incentive plan compensation earned, change in pension value and non-qualified deferred compensation earnings and all other compensation, whether paid or deferred.

 

 

 

 

 

 

All Other Compensation Table

 

 

 

 

 

 

 

 

The following table provides information on all outstanding option awards and unvested stock awards held by each of the named executive officers at the end of fiscal 2008. Each option grant is shown separately and the vesting schedule is shown as a footnote (2) to the table. The market value of the restricted stock awards is based on the closing price of Jack in the Box Inc. common stock as of the last trading day of the fiscal year, September 26, 2008, which was $22.06.

 

 

 

 

 

 

Option Exercises and Stock Vested in Fiscal 2008

 

The table below provides information on stock option exercises and shares acquired on the vesting of stock awards by the named executive officers:

 

 

Retirement Plan. The Company offers retirement benefits under a company-funded defined benefit plan. The Retirement Plan provides the same benefits to named executive officers as are made available to other employees employed in an administrative, clerical, or restaurant hourly position who have reached age 21 and completed one year of service with at least 1,000 hours of service. The Plan provides that a participant retiring at age 65 will receive an annual benefit, as follows:

 

 

Benefits are subject to grandfathered minimum benefit accruals under the previous plan as of December 31, 1988. Final Average Pay is defined as the highest five consecutive calendar years of pay (base and bonus) out of the last ten years of eligible service as an eligible employee. Pay excludes deferrals into the Executive Deferred Compensation Plan. Pay that can be taken into account for purposes of the formula is subject to an annual limit under the federal tax laws; the limit for 2008 is $230,000. Benefit Service is defined as the entire period of employment in calendar years and months while an eligible employee. Participants are credited with one full year of vesting service for a plan year during which 1,000 hours are worked. Participants are 100% vested after completing 5 years of vesting service or reaching normal retirement age. Participants are 0% vested until they are 100% vested.

The Employee Retirement Income Security Act of 1974 (“ERISA”) and various tax laws may cause a reduction in the annual retirement benefit payable under the Retirement Plan. Although normal retirement age is 65, benefits may begin as early as age 55 if participants meet the service requirements defined in the Retirement Plan; benefits payable are reduced 5/12 of 1% for each month benefits begin before normal retirement age. As of January 1, 2008, the plan was amended to allow plan participants that terminate prior to age 55 with 20 years of benefit service or more to begin collecting benefits as early as age 55; benefits payable are reduced 5/12 of 1% for each month benefits begin before age 65. Retirement Plan benefits are not permitted to be paid to participants while they are actively employed with Jack in the Box Inc. Retirement Plan benefits are typically paid in the form of a monthly annuity. Participants may not elect a lump sum payment under the Retirement Plan.

 

Supplemental Executive Retirement Plan.  The SERP was established in 1990 for selected executives in response to legislation restricting qualified plan benefits for “highly compensated employees.” The SERP provides for a percentage of replacement income based on Service and Final Average Compensation. Final Average Compensation for purposes of the SERP is defined as the average of the five highest calendar years of pay (base salary and bonus) out of the last ten years of employment with the Company. Benefit Service is defined as the entire period of employment in calendar years and months while an eligible employee.

 

The SERP provides that a participant retiring at age 62 will receive an annual benefit, as follows:

 

 

In order to be eligible for a retirement benefit under the SERP, the participant must attain the earlier of age 62 or age 55 and ten years of service while employed at Jack in the Box Inc. or while disabled. Death benefits are payable if the participant dies while employed. Although normal retirement age is age 62, benefits may begin as early as age 55 reduced 5/12 of 1% for each month benefits begin before age 62. SERP benefits are not permitted to be paid to participants before their termination of employment with Jack in the Box Inc. Benefits are typically paid in the form of a monthly annuity. Participants may not elect a lump sum payment under the Plan. The SERP is unfunded and represents an unsecured claim against the Company.

 

Before January 1, 2007, each of the executive officers, including the named executive officers, could participate in the Company’s defined benefit plan and Supplemental Executive Retirement Plan if they met certain eligibility requirements. In 2007, the Committee evaluated the retirement benefits provided to participants in the SERP and the long-term costs the Company bears in maintaining such a plan. Based on this evaluation, the Committee approved freezing the SERP to new participants effective January 1, 2007, and instead providing that new officers will receive an additional Company contribution of 4% of base salary and bonus to their EDCP account for up to ten years.

 

The pension table below shows the actuarial present value of the accumulated benefits of each named executive officer as of the end of the measurement year (June 30, 2008), including years of credited service, under the Retirement Plan and Supplemental Executive Retirement Plan. Present values were calculated using the interest rate and mortality assumptions used in the Company’s financial statements.

 

 

 

 

The table below shows the contributions for each named executive officer made into the Executive Deferred Compensation Plan, including Company contributions, aggregate earnings and aggregate distributions for last fiscal year. All NEOs in the table below, with the exception of Mr. Rudolph, are 100% vested in the Company contributions. Mr. Rudolph was not yet vested in any of the Company contributions on September 28, 2008.

 

Non-Qualified Deferred Compensation Plan Table

 

 

 

 

 

Executive Deferred Compensation Plan.  The EDCP was adopted in 1990 for all executive officers and other highly compensated employees excluded from participation in the Easy$aver Plus 401k Plan (“E$P Plan”) and is a non-qualified deferred compensation plan. The EDCP is unfunded, and participants’ accounts represent unsecured claims against the Company.

 

Participants may defer up to 50% of base salary and up to 100% (less applicable taxes) of bonus pay. The Company matches 100% of the first 3% of the participant’s compensation that is deferred into the EDCP. Participants receive full and immediate vesting of their own contributions and vest in the matching contributions at the rate of 25% per year, becoming fully vested only after they have completed four full years of service with the Company.

 

As described above, beginning in January 1, 2007, new officers who otherwise would have been eligible for the SERP, receive an additional Company contribution for up to ten years of 4% of base salary and bonus in their EDCP account. Participants vest 25% per year in the additional Company contributions.

 

The EDCP provides for a choice of 24 investment funds in an array of asset classes made available by the Company and selected by the participant. Benefits under this plan include an earnings component based upon theoretical investment options (they are designed to match the performance of actual investments). Investment options do not provide preferential earnings.

 

A participating officer elects when plan year balances are distributed, while employed and/or upon separation from service. All deferrals and distributions are subject to the requirements of Section 409A of the Internal Revenue Code. In general, the following refers to non-vested balances and amounts deferred after January 1, 2005:

 

 

Amounts deferred and vested before January 1, 2005, are grandfathered and are not subject to IRC Section 409A (including the five year delay rule on election changes and the “specified employee” six month delay on termination rule).

 

Compensation and Benefits Assurance Agreements.  The Company considers Compensation & Benefits Assurance (“CIC”) agreements it has entered into with key executives to be in the best interest of its stockholders to foster the continuous employment of key management without potential distraction or personal concern if the Company were to be acquired by another company (“change in control”). These agreements help facilitate successful performance by key executive officers during an impending change in control, by protecting them against the loss of their positions following a change in the ownership or control of the Company, and ensuring that their expectations for long-term incentive compensation arrangements will be fulfilled. Generally, under the agreements, a change in control is defined to include (i) the acquisition by any person or group of 50% or more of the combined voting power of the Company (excluding acquisitions by the Company benefit plans or certain affiliates), (ii) circumstances in which individuals

constituting our Board of Directors generally cease to constitute a majority of the Board, and (iii) certain mergers, consolidations, sales of assets or a stockholder-approved liquidation of the Company.

 

These CIC agreements provide certain specified benefits to key executives if, within twenty-four full (24) calendar months from the effective date of a change in control event, their employment is terminated (i) involuntarily other than for cause, death, or disability or (ii) voluntarily for good reason. Voluntary termination for good reason is defined as (i) the assignment of the executive officer to duties or responsibilities inconsistent with the executive’s status or a reduction or alteration in the nature or status of the executive’s duties or responsibilities in effect as of ninety (90) days prior to the change in control event, (ii) the acquiring company’s requirement that an executive be based at a location in excess of fifty (50) miles from the executive’s location immediately prior to a change in control, (iii) a reduction in base salary in effect on the effective date of the change in control or failure by the company to increase annual base salary from time to time, (iv) failure of the acquiring Company to keep in effect any of the Company’s compensation, health and welfare, or retirement benefit plans, or any perquisites unless an alternative plan is provided of at least a comparable value, or (v) any breach by the acquiring Company of its obligations under this agreement. These terms are defined as a “Qualifying Termination.” CIC agreement benefits are not provided for terminations by reason of death, disability, voluntary termination without good reason, or the Company’s involuntary termination of the Executive’s employment for Cause.

 

In the event of a change in control of the Company and Qualifying Termination of an executive covered under a Compensation & Benefits Assurance agreement, the executive is entitled to the following severance benefits: