P.O. Box 1167 l Dayton, OH 45401

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

OF THE STANDARD REGISTER COMPANY

 

To All Shareholders:

 

The annual meeting of shareholders of The Standard Register Company, an Ohio corporation, will be held at our corporate headquarters located at 600 Albany Street, Dayton, Ohio 45408, on Thursday, April 24, 2008, at 11:00 a.m. Eastern Daylight Savings Time, for the following purposes:

 

(1) To set the number of directors at eight and to elect a board of directors;

 

(2) To transact such other business as may properly come before the annual meeting.

 

The board of directors has fixed the close of business on February 25, 2008, as the record date for determining the shareholders of Standard Register entitled to vote at the annual meeting.

 

A copy of Standard Register’s annual report for its fiscal year ended December 30, 2007, is enclosed. Although it is not a part of the official proxy soliciting material, we want each shareholder to have a copy of the annual report. If you have not received a copy of the annual report, please call us at 937.221.1506.

 

Kathryn A. Lamme
Senior Vice President, General Counsel
& Secretary

 

Dayton, Ohio

March 19, 2008

 

 

THE STANDARD REGISTER COMPANY

 

 

PROXY STATEMENT

 

FOR

 

ANNUAL MEETING

 

OF

 

SHAREHOLDERS

 

 

PRINCIPAL EXECUTIVE OFFICES:

600 Albany Street

Dayton, Ohio 45408

(937) 221-1000

 

Mailing Date: March 19, 2008

 

 

We are mailing this proxy statement along with the notice of annual meeting of shareholders of The Standard Register Company, to all holders of our stock as of February 25, 2008, which is the record date for the annual meeting. We had outstanding, on the record date, 24,057,188 shares of common stock (each share having one vote) and 4,725,000 shares of class A stock (each share having five votes). Shareholders as of the close of business on the record date are entitled to receive notice of and to vote at the annual meeting. The annual meeting will be held at our corporate headquarters, 600 Albany Street, Dayton, Ohio 45408, on Thursday, April 24, 2008, at 11:00 a.m. The proxies are solicited on behalf of our board of directors.

 

At the annual meeting, the shareholders will: (1) set the number of directors at eight and elect a board of directors; and (2) transact such other business as may properly come before the annual meeting.

 

VOTING YOUR SHARES

 

Standard Register offers electronic delivery of proxy materials and voting over the Internet to most shareholders. The enclosed proxy card describes how you may vote electronically and register to receive future shareholder communications electronically. You may also vote by completing the proxy card and mailing it in the envelope provided.

 

All shareholder votes, properly cast in person or by proxy and not revoked, will be counted in voting on the proposals at the annual meeting or any adjournment of the annual meeting. Your proxy will be voted in accordance with your instructions. If you do not specify how you wish your shares to be voted, they will be voted as recommended by the board of directors. Your proxy includes the authority to vote shares cumulatively for the election of directors. Cumulative voting is explained in the section dealing with Proposal 1. Your proxy also includes the authority for the persons serving as proxies to use their best judgment to vote on any other matters that may be properly presented at the annual meeting, including, among other things, a motion to adjourn the meeting to a future time.

 

You may revoke your proxy at any time before its exercise in two ways: (1) by timely delivery to us of a later-dated proxy, or (2) by notifying us of your revocation of proxy either in writing or in person at the annual meeting. Your presence at the meeting will not, by itself, serve to revoke your proxy.

 

PROPOSALS

 

PROPOSAL 1: Election of Directors

 

For many years, the board of directors had eight members. In December 2006, Paul H. Granzow, our long-time Chairman, died. This left the board at seven members. Given the short time between Mr. Granzow’s death and the 2007 proxy mailing, the Board was not able to conduct a thoughtful search for an additional director candidate. Therefore, in 2007, the board recommended the number of directors be set at seven, and the shareholders elect the seven incumbent directors.

 

In early 2007, the board requested its Corporate Governance and Nominating Committee commence a director candidate search, with the goal to present shareholders with eight director candidates at the 2008 annual meeting of shareholders. Description of the director nominee search process is included in the report of the Corporate Governance and Nominating Committee. During 2007, director Ann Scavullo informed the board she would not seek reelection as a director in 2008 due to personal health issues. Also, director Sherrill W. Hudson informed the board he would retire from the board at then end of his term, April 2008. Mr. Hudson’s retirement from the board is not due to any disagreement with management or any other board member.

 

The remaining incumbent directors, as well as three new nominees, totaling eight nominees, are nominated by the board of directors to be elected as directors and to serve until either the next annual election or until their successors are elected and qualified.

 

The board of directors does not expect that any of the nominees will be unavailable for election. However, if any of them is unavailable, the persons voting your proxy will use their best judgment to vote for substitute nominees.

 

Cumulative voting is permitted by the laws of Ohio in voting for the election of directors. In the event a shareholder wishes to vote his or her shares cumulatively, the shareholder must give notice in writing to the President, a Vice President or Secretary of Standard Register not less than 48 hours before the time scheduled for the annual meeting. Once any shareholder has given notice of intent to vote cumulatively, then all shareholders present at the annual meeting and the persons voting the proxies shall have full discretion and authority to cumulate the voting power they possess. This means they can give one candidate as many votes as the number of directors to be elected multiplied by the number of votes which the shareholder or proxy is entitled to cast, or to distribute such votes on the same principle among two or more candidates, as they determine in their judgment.

 

Nominees receiving the highest number of votes cast for the positions to be filled will be elected. Abstentions and shares not voted by brokers and other entities holding shares on behalf of beneficial owners will not be counted and will have no effect on the outcome of the election.

 

The board of directors recommends that you vote FOR setting the number of directors at eight and FOR each of the following named nominees to serve as directors of Standard Register:

 

Nominees

 

Information concerning each nominee follows:

 

 

 

VOTING SECURITIES AND PRINCIPAL HOLDERS

 

Owners of More than 5% of the Common and Class A Stock of Standard Register

 

This table gives information regarding all of the persons known by us to own, in their name or beneficially, 5% or more of the outstanding class A stock and common stock of Standard Register as of December 30, 2007.

 

 

 

Security Ownership of Directors, Nominees and Executive Officers

 

Each director, nominee and executive officer listed in the Summary Compensation Table and all directors, nominees and executive officers as a group own, in their own name or beneficially, class A stock and common stock of Standard Register on December 30, 2007, as follows:

 

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934 requires directors, executive officers, and holders of 10% or more of our common stock to report certain transactions in the common stock to the Securities and Exchange Commission. Based on our records, we believe all Securities and Exchange Commission filings with respect to directors, executive officers, and holders of 10% or more of our common stock have been made in a timely manner with the exception of two filings for our Corporate Controller and three filings for our Vice President, Chief Supply Chain Officer & General Manager, Document Label Solutions. These filings all involved the automatic repurchase by the company of certain shares of restricted stock upon vesting to pay applicable taxes and occurred in February and May of 2007.

 

CORPORATE GOVERNANCE

 

Corporate Governance Guidelines

 

The board has adopted Corporate Governance Guidelines to provide principles for the company’s governance processes. These Guidelines address, among other topics, director selection and qualifications, director responsibilities, and board and committee structure. The Corporate Governance Guidelines are reviewed periodically and updated as deemed appropriate.

 

Code of Ethics

 

The board has adopted a Code of Ethics and emphasized that directors, and all company employees, including principal executive officers and senior financial officers, are subject to the letter and spirit of the Code. The Code of Ethics covers such topics as conflicts of interest, confidentiality, compliance with legal requirements, and other business ethics subjects. It has been distributed to all employees and is made available on the company’s Web site, www.standardregister.com by clicking on the “About SR” section. Printed copies of the Code of Ethics are available by contacting the Corporate Secretary’s office, The Standard Register Company, 600 Albany Street, Dayton, Ohio 45408.

 

Director Independence

 

The board, assisted by the Corporate Governance and Nominating Committee, annually assesses the independence status of all directors for purposes of board and committee memberships. Using the “Independence Criteria” adopted by the board in conformity with New York Stock Exchange Listing Standards, as amended, the board adopted findings with respect to the independence of each director. Directors Roy W. Begley, Jr., F. David Clarke, III, Sherrill W. Hudson, Ann Scavullo, John J. Schiff, Jr., and John Q. Sherman, II, were determined to be independent. CEO Dennis L. Rediker was considered not independent since he is an employee of the company.

 

The Committee performed the same independence assessment with respect to the three nominees for director. The board adopted the Committee’s findings that the director nominees David P. Bailis, Michael E. Kohlsdorf, and R. Eric McCarthey are independent.

 

All members of the Audit, Compensation, and Corporate Governance and Nominating Committees are independent directors.

 

The Corporate Governance and Nominating Committee and board also considered commercial ordinary-course transactions with respect to several directors, and director nominees as it assessed independence status, and concluded these transactions did not impair director independence. The transactions examined were:

 

 

 

The Independence Criteria used by the Corporate Governance and Nominating Committee and full board is available on the company’s Web site, www.standardregister.com, by clicking “About SR” and following the link to Independence Criteria.

 

Related Party Transaction Policy

 

The company is required to report certain related party transactions between the company and certain related parties, including directors, executive officers, nominees for the board, beneficial owners of 5% or more of any class of the company’s voting securities, and any of the foregoing person’s immediate family members. The board, assisted by the Corporate Governance and Nominating Committee, has adopted a written policy which establishes an approval process for related party transactions. The policy prohibits all related party transactions unless the company’s Audit Committee determines in advance of the company entering into any such related party transaction that the transaction is conducted on terms that are fair to the company. In order for the Audit Committee to approve a related party transaction, the Audit Committee must be satisfied that it has been fully informed as to the direct and indirect interests, relationships and conflicts or potential conflicts present in the proposed transaction. The Audit Committee must determine that, being fully apprised of the proposed transaction, it believes that the transaction is fair to the company and, if necessary, the company has developed an appropriate plan to manage any conflicts or potential conflicts of interest. In the event an Audit Committee member or his or her immediate family member is a related person with respect to a transaction presented to the Audit Committee, such Audit Committee member will not participate in the determination whether to approve the transaction.

 

In the event that the company enters into a related party transaction that has not received approval by the Audit Committee, or a transaction that was not originally a related party transaction becomes a related party transaction, the Audit Committee must review such transaction promptly, and may ratify such transaction, provided that, in such case, unless there is otherwise a compelling business or legal reason for the company to continue with the transaction, the Audit Committee may only ratify the transaction if it determines that (i) the transaction is fair to the company, and (ii) any failure to comply with the policy was not due to fraud or deceit. The General Counsel of the company is responsible for ensuring that the Policy is distributed to all officers, directors, nominees for the board, and beneficial owners of 5% or more of any class of the company’s voting securities. Such officers, directors, nominees for the board, and beneficial owners are responsible for informing their immediate family members of the Policy. The General Counsel is also responsible for requiring that any proposed transaction be presented to the Audit Committee for consideration before the company enters into any such transactions.

 

The Fifth Third Bank’s trust department holds shares in the company as disclosed in the “Voting Securities and Principal Holders” table and as such beneficially owns more than 5% of the outstanding class A stock and common stock of the company. The company provides a broad range of services to Fifth Third Bank including purchasing, inventory management, fulfillment, distribution and other services and also sells Fifth Third Bank printed products and banking documents, all in the ordinary course of business and on terms and conditions similar to those offered to other company customers. The revenue received by the company from Fifth Third Bank in 2007 in connection with providing these products and services was approximately $10.3 million.

 

Board Meetings and Director Attendance at Annual Meeting of Shareholders

 

In 2007, the board met eight times. All current directors attended at least 75% of the board meetings, and the meetings of committees on which each director served.

Directors all stand for election or reelection at each annual meeting of shareholders. Directors make every effort to attend the annual meetings, and, in fact, all directors have been in attendance at the last three annual meetings of shareholders, with the exception of Ms. Scavullo, who was unable to attend the 2007 annual meeting of shareholders due to health reasons. While the board does not have a formal “policy” in this regard, its clear practice is for directors to be present at the annual meeting of shareholders.

 

Board and Committee Structure

 

The board has three standing committees: Corporate Governance and Nominating, Compensation, and Audit. In addition, in 2007, as in other years as deemed desirable, the Board authorized formation of an Executive Committee.

 

Corporate Governance and Nominating Committee

 

The Corporate Governance and Nominating Committee met nine times in 2007. All members of the Committee attended at least 75% of Committee meetings held in 2007. The Committee is chaired by John Q. Sherman, II. Other Committee members are Roy W. Begley, Jr., and Ann Scavullo. All members of the Committee are independent.

 

The board has adopted a Charter for this Committee. It is reviewed annually and updated as appropriate. It is available on the company’s Web site, www.standardregister.com, at “About SR.”

 

The Corporate Governance and Nominating Committee assists the board in defining board roles and developing processes to optimize board functioning. It also studies and recommends adoption by the board of directors of corporate governance processes intended to comply with applicable legal, regulatory, and listing standard requirements. In addition, the Committee oversees the company’s succession planning process and director nomination process. The Committee provides leadership to the board of directors and other committees in performing annual self-assessments. These self-assessments give the board and Committees insight into how they are performing their roles in the corporate governance process. The Corporate Governance and Nominating Committee conducted an assessment of its own performance as part of this process.

 

Director Nominating Process

 

The Corporate Governance and Nominating Committee and the board, in performing their director-nomination function, identify director candidates from a range of sources. Historically, these have included recommendations from current directors and major shareholders. In 2007, the board requested the Committee conduct a search for three director candidates. The Committee engaged the services of Korn Ferry International, a recognized leader in executive and board recruitment, to identify potential candidates and assist in the search process. Korn Ferry assisted the Committee with the following services: finalizing the director position profile and criteria; identifying a slate of potential candidates who had qualifications consistent with the profile and criteria; conducting initial interviews with select candidates; facilitating meetings between candidates and Committee members, corporate executives, and board Chairman; and providing professional counsel regarding specific candidate qualifications. Korn Ferry was paid a professional fee for its services. All three new director nominees were identified and selected through the process facilitated by Korn Ferry.

 

Director candidates are generally evaluated by reference to criteria such as integrity, candor, judgment, skills and experience with respect to the industry in which the company operates, leadership, strategic understanding, and independence. These factors are considered in the context of the current composition of the board, and in 2007, with reference to the complimentary skills and backgrounds of the other selected candidates. A candidate is evaluated against these criteria regardless of the source of the recommendation. There are no “minimum requirements” as such, although integrity and judgment are considered absolute requirements. Rather, the board examines all capabilities, skills, and experience in evaluating director candidates.

 

The policy of the Committee and board is to consider recommendations for director candidates from any interested party, especially shareholders. Shareholders and other interested persons who wish to recommend a director candidate should submit the recommendation in writing addressed to The Standard Register Company Corporate Governance and Nominating Committee, in care of the Corporate Secretary, The Standard Register Company, 600 Albany Street, Dayton, Ohio 45408. The communication should state the name of the candidate, his or her qualifications, and contact information for the shareholder or interested party, and the candidate. Such candidates will be evaluated using the same criteria as candidates proposed from other sources. There have been no material changes to the process by which shareholders and interested parties may recommend nominees to the board.

Five of the nominees recommended by the board for election at the 2008 Annual Meeting of Shareholders are standing for reelection. Three of the nominees were selected through the process described above, and are recommended by the board of directors for election at the 2008 Annual Meeting of Shareholders.

 

Audit Committee

 

The board has established a separately-designated standing Audit Committee for purposes of overseeing the accounting and financial reporting processes of the company and audits of its financial statements.

 

The Audit Committee met five times in 2007. All members of the Committee attended at least 75% of the meetings held in 2007. Sherrill W. Hudson is Chair of the Audit Committee. The others members of the Committee are F. David Clarke, II, Ann Scavullo, and John J. Schiff, Jr. The board has determined that all members of the Committee are independent directors and meet the financial literacy requirements of the New York Stock Exchange.

 

The board adopted an Audit Committee Charter in April 2000. It is reviewed annually and updated as appropriate. A copy of the Audit Committee Charter is attached at the end of this proxy statement. It is also available on the company’s Web site, www.standardregister.com, at “About SR.”

 

The Audit Committee is responsible for monitoring and assuring the integrity of Standard Register’s financial reporting process. It accomplishes this function by assessing the internal accounting and auditing practices of the company, and the independent auditor’s fulfillment of its role in the financial reporting process. The Committee has sole authority for appointing and assessing the independent auditors, and setting their fees. Additionally, the Committee administers compliance with the company’s Code of Ethics. To that end, the Committee has established procedures for the receipt, retention and investigation of complaints regarding accounting, internal accounting controls or auditing matters. Any interested person may contact the Audit Committee directly through the company’s external Web site by clicking on “About SR,” as more fully described in the later section “Contact Information.” Company employees may contact the Audit Committee, anonymously if they wish, through a toll-free telephone number linked to a third party who will record complaints related to accounting and auditing matters and forward such complaints directly to the Audit Committee.

 

The board has determined that independent director Sherrill W. Hudson satisfies the “Audit Committee financial expert” qualifications contained in regulations issued pursuant to the Sarbanes-Oxley Act of 2002. Specifically, the board has concluded that Mr. Hudson’s 37-year career with Deloitte & Touche, a firm of certified public accountants, qualifies him as an “Audit Committee financial expert.” Mr. Hudson’s experience with respect to audits of financial statements of publicly held companies, internal controls, application of generally accepted accounting principles, and audit committee functions, and his independence as a board member, meet the criteria for “Audit Committee financial expert”.

 

Compensation Committee

 

The Compensation Committee met five times in 2007. All members attended at least 75% of Committee meetings held in 2007. The Committee is chaired by Roy W. Begley, Jr. Other members are F. David Clarke, II, Sherrill W. Hudson, Ann Scavullo, and John Q. Sherman, II. All members of the Committee are independent directors.

 

The board has adopted a Charter for the Compensation Committee. It is reviewed annually and updated as appropriate. It is available on the company’s Web site, www.standardregister.com, at “About SR.”

 

The Compensation Committee has sole responsibility for determining compensation for the Chief Executive Officer, and it recommends compensation for other executive officers to the board for approval. The Committee administers the equity and other compensation plans described in the executive compensation disclosures included in this proxy statement. It is responsible for reviewing and recommending to the board the annual retainer and other fees and grants for directors in connection with service on the board and Committees.

 

The Compensation Committee is authorized to establish and review the compensation strategy of the company in order to align organizational strategies, goals, and performance with appropriate compensation rewards to executive officers and directors. It accomplishes this by evaluating components of total compensation and assessing performance against goals, market competitive data, and other appropriate factors. The Committee also has authority to make grants of stock awards to executive officers and senior management. It may recommend to the board, and to shareholders, new equity incentive plans or amendments to existing plans. The Committee has sole authority to select and retain independent experts and consultants in the field of executive compensation, to advise with respect to market data, competitive information, executive compensation trends, and other matters as requested.

 

In most years, the Committee has established a discretionary pool of equity awards and delegated to the Chief Executive Officer and General Counsel the granting of such awards for purposes of new hire incentives, spot awards and recognition, and the like. The General Counsel provides the Committee with an accounting of any discretionary grants

made during the year. In 2007, the Chief Executive Officer and General Counsel made grants of 8,420 shares. None of these discretionary grants have been to executive officers or directors.

 

The Committee has not delegated any other of its accountabilities to any persons.

 

Executive officers work with the Committee and its independent compensation consultant to propose compensation features that provide appropriate incentives to meet company goals and reward performance. The primary role of executive officers in this regard is to identify and discuss components of the company’s business plan that are critical to execution. Further, executive officers provide context regarding the degree of difficulty in attaining certain goals. Mr. Rediker discusses with the Committee his evaluation of the performance of each executive officer, which the Committee takes into account in recommending compensation for executive officers other than the CEO. Executive officers participate and give input into the work valuation analysis undertaken by the Committee with respect to each executive officer role. In 2007, Mr. Rediker, Chief Executive Officer, recommended that annual bonus targets for executive officers be reduced by half for meeting plan. In past years, and for 2007, he recommended no salary increases for executive officers, other than for the Chief Financial Officer, whose compensation was below market according to competitive market data.

 

The Committee has directly retained an independent compensation consultant, Semler Brossy Consulting Group LLC to assist in its duties. Semler Brossy is not otherwise engaged to perform work for the company. Semler Brossy is retained for a number of purposes, including: to perform an annual competitive assessment of compensation programs and practices, build and maintain an internal work valuation tool for Committee decision-making, construct an appropriate peer group, provide market competitive compensation data, recommend appropriate mix of compensation elements, assist the Committee in performing the Chief Executive Officer performance evaluation, review and comment on management recommendations such as proposed grants of stock awards to non-officer management, and update the Committee on emerging trends. Semler Brossy’s representative, who has worked with the Committee for three years, attends all Committee meetings.

 

The Compensation Committee of the board is composed solely of independent directors named above, none of whom have any interlocking relationships with the company that are subject to disclosure. No committee member is, or was during 2007, a current or former executive officer or employee of the company.

 

Executive Committee

 

The Executive Committee has the authority to act on behalf of the board of directors during the time between meetings, in all matters except for filling vacancies on the board of directors or any of its committees. The Executive Committee met twice in 2007. F. David Clarke, II is Chairman of the Executive Committee, and Messrs. Hudson and Rediker are the other members. The Committee has no separate charter, but its authority is established by resolution of the board of directors. Of the Executive Committee members, Messrs. Clarke and Hudson are considered independent, and Mr. Rediker is not considered independent.

 

Contact Information and Corporate Governance Document Availability

 

The board and its committees have established processes for shareholders and interested parties to contact the Presiding Director, Audit Committee, and board. Director John Q. Sherman, II, has been selected to preside at the meetings of non-management directors of the board of directors to be held in 2008.

 

Shareholders and interested parties may communicate with Mr. Sherman and with the Audit Committee through the company’s Web site, www.standardregister.com, at the “About SR” section by clicking on “Corporate Governance.” Communications for the board, the presiding director and the Audit Committee may also be sent to the Corporate Secretary, The Standard Register Company, 600 Albany Street, Dayton, Ohio 45408. All communications to the board, the presiding director, and the Audit Committee will be forwarded by the Corporate Secretary to the appropriate director(s).

 

The Charters of all board committees, the Corporate Governance Guidelines, the Code of Ethics, and the Independence Criteria, may be accessed on the company’s Web site, www.standardregister.com at the “about SR” section by clicking on “Corporate Governance.” Printed copies of these documents are available on request by contacting the Corporate Secretary’s office at the address noted above.

 

AUDIT COMMITTEE REPORT

 

During 2007, the Audit Committee reviewed interim quarterly financial statements with management and the independent auditors. This review was conducted prior to filing of the company’s 10-Q reports containing the respective interim quarterly financial statements. In addition, the Committee reviewed and discussed the 2007 year-end audited financial statements with executive management, including the chief financial officer and the independent auditors. This review took place prior to publication of the audited financial statements in the 10-K filing and annual report to shareholders. Each review was conducted with the understanding that management is responsible for preparing the company’s financial statements and the independent auditors are responsible for examining the statements.

 

In further discharge of its responsibilities, the Audit Committee met with the independent auditors, both in the presence of management and privately. The Committee and independent auditors discussed those matters described in Statement of Auditing Standards No. 61, “Communication with Audit Committee.” These discussions included review of the scope of the audit performed with respect to the company’s financial statements. The company’s internal auditor also met with the Committee, both in the presence of management and privately, in order to review the effectiveness of the company’s internal controls and the internal auditor’s responsibilities in that regard and other compliance and audit matters. The company has maintained an internal audit function for many years. In addition, the Committee conducted regular private meetings with General Counsel, and with management, including the chief financial officer and corporate controller.

 

The Audit Committee received and discussed periodic reports of management and the internal auditor, with respect to design and assessment of the company’s internal controls over the financial reporting process. The Committee further received and discussed the report of the independent auditors with respect to their audit of internal controls over financial reporting performed by the independent auditors in conjunction with the audit of the company’s financial statements, as set forth in Public Company Accounting Oversight Board Auditing Standard No. 5.

 

The Audit Committee received the independent auditor’s written statement required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees.” This written statement described any relationships between the independent auditors and the company that may reasonably be thought to bear on independence. Following receipt of this written statement and discussions of the matters described in it, the Committee was satisfied as to the auditor’s independence.

 

Based on the foregoing, the Audit Committee recommended to the board of directors that the audited financial statements be included in the company’s annual report on Form 10-K, for fiscal year ending December 30, 2007, for filing with the Securities and Exchange Commission.

 

Sherrill W. Hudson, Chair

F. David Clarke, II

Ann Scavullo

John J. Schiff, Jr.

 

Independent Registered Public Accounting Firm Information

 

With respect to the 2007 and 2006 fiscal years, the company paid fees to Battelle & Battelle, LLP, its independent auditors, as follows:

 

 

The Audit Committee has adopted a procedure for pre-approval of all fees charged by Battelle & Battelle. Under the procedure, the Audit Committee approves the engagement letter with respect to audit and review services noted on the table above. Audit-related, tax and other fees are subject to pre-approval by the entire Committee, or, in the period between meetings, by a designated member of the Audit Committee. Any such approval by the designated member is disclosed to the entire Audit Committee at the next meeting. All audit-related fees paid to Battelle & Battelle, LLP, with respect to the 2007 audit year were approved by the Audit Committee.

The category of audit fees includes the audit of Standard Register’s annual consolidated financial statements, the audit of internal control over financial reporting, the review of financial statements included in our quarterly reports on Form 10-Q and services that are normally provided by Battelle & Battelle, LLP, in connection with statutory and regulatory filings or engagements.

 

Audit-related fees consist of assurance and related services provided by Battelle & Battelle, LLP, that were reasonably related to the performance of the audit or review of our financial statements. It included fees billed in 2007 and 2006 for the audit of our benefit plans and accounting consultation regarding accounting literature. In 2007, it also included review of the company’s response to a Securities and Exchange Commission comment letter. The audit-related fees are for services generally required to be performed by Battelle & Battelle, LLP, because they follow upon and are linked to Battelle & Battelle, LLP’s audit of the company’s consolidated financial statements.

 

The Audit Committee has determined that the provision of audit-related services by Battelle & Battelle, LLP, is compatible with maintaining such firm’s independence.

 

EXECUTIVE COMPENSATION

 

Named Executive Officers

 

This section provides information concerning each of the executive officers named in the Summary Compensation Table with the exception of Mr. Rediker, who is a nominee for director. Similar information regarding Mr. Rediker may be found in the section dealing with Proposal 1.

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

The following discussion of our executive compensation policies and practices includes:

 

 

Compensation Committee Overview and General Philosophy

 

Our Compensation Committee is composed solely of independent directors. They have the overall responsibility for establishing and implementing our compensation program for executive officers, including monitoring and approval of compensation program design, performance goals, and compensation levels. Neither our Chief Executive Officer nor any other member of management votes on matters before the Compensation Committee; however, the Compensation Committee may request the views of our Chief Executive Officer on compensation matters, particularly as they relate to compensation of the other named executive officers and in establishing incentive goals.

 

Our Compensation Committee has the authority under its charter to engage the services of outside advisors and currently uses an independent consulting firm, Semler Brossy Consulting Group LLC, to advise on matters related to executive compensation and to assist in designing our executive compensation program. As independent consultants, they help our Compensation Committee determine the relevant competitive market value for our executive officers by providing relevant market data and alternatives to consider when making compensation decisions. They also assist with linking the appropriate drivers of successful strategy execution to each executive officer role and setting the appropriate compensation levels. Semler Brossy does not perform other consulting services for the company.

 

As a company, our fundamental objective is to create shareholder value through both stock price appreciation and dividends to our shareholders. Our executive officer compensation program is designed to serve this objective by aligning management incentives with the interests of our shareholders. The philosophy of our Compensation Committee is that the design of our executive compensation program should:

 

 

Our Compensation Committee used Semler Brossy to help establish the following guiding principles under which the committee analyzes and establishes executive officer compensation and incentives:

 

 

Compensation Components and Analysis

 

We compensate our executive officers through a mix of base salary, annual cash incentive awards, and long-term equity compensation, designed to be externally competitive, internally fair, and linked to the company’s strategy and financial performance.

 

Semler Brossy also helped our Compensation Committee design and implement a process to be used in setting executive officer compensation. Our process uses the following multi-step approach in which, working closely with the independent compensation consultant, our Compensation Committee:

 

 

Benchmarking — First, for competitive market value comparisons, our Compensation Committee benchmarks against the following sources to identify and make comparisons of market values of the executive officer’s total compensation and individual components. We utilize this information primarily in establishing base salary and equity-based compensation.

 

 

 

 

The Compensation Committee’s practice is to consider both sources in developing competitive values, determining on a position-by-position basis which comparison had the most relevance. Only the general industry survey data was used in setting compensation for 2007 because consolidation in our industry has resulted in changes in peer incumbents and practices that contributed to distortions in the primary peer group competitive data. For positions other than the Chief Executive Officer and Chief Financial Officer, the market data was adjusted up or down based on how the primary responsibilities of the role were different than those of the market comparisons.

 

Target Positioning — Next, the Compensation Committee assesses the degree of strategic influence of each executive role using an internal “Work Valuation” rating system that was developed in 2005. In 2007, the Compensation Committee evaluated the degrees of importance of an executive officer’s role, related to various factors of company performance, as shown in the table below:

 

 

The Compensation Committee analyzes and rates the degree to which a role maintains, enables, or optimizes the company’s ability to meet the strategic objectives and financial goals for each factor. Based on the overall internal rating assigned to each executive officer role, compensation levels for the roles are targeted between the 35th and 75th percentiles of the competitive market value. We have found that the use of the 50th-to-75th percentile range is common for benchmarking, and we want to make sure that our compensation levels are competitive for those roles most critical to strategy achievement. The strategic assessments are reviewed each year for possible changes and updated upon appointment of a new executive officer or a significant change in the executive officer role.

 

Overall internal “Work Valuation” ratings and how they equate to strategy achievement and competitive market targeted percentiles are shown in the table below.

 

The following chart indicates the overall competitive market target positioning levels for the named executive officer roles in 2007. The target percentile is intended to be reached over time. Bradley Cates, Vice President, Sales and Marketing, was appointed an officer in April 2007; however, a work valuation was not performed for his role at that time and is not included in the table below. The Compensation Committee reviewed his compensation level as well as the responsibilities of the role and determined that his current level of compensation was in line with his role.

 

 

Note that target can and does vary by compensation component, particularly for the annual cash incentive award, which was set at a uniform level for all executive officers (other than the CEO) to reinforce a team orientation.

 

Performance Evaluations — As a final step, our Chief Executive Officer evaluates each executive officer’s performance taking into account the following factors: performance relative to job responsibilities (including legal and regulatory compliance in the case of the CFO and General Counsel), key financial achievements, contributions to the leadership team, overall leadership, and retention risk. Based on these factors, he rates each officer as one of the following: “Exceeds”, “Meets”, or “Meets Minus”. These ratings are used in conjunction with each officer’s positioning relative to the market to determine recommendations for compensation increases. There is no specific formula used to weigh these two inputs. Generally, “exceeds” performers who are currently much less than the market will receive larger than market increases, “meets” performers who are at their target market positioning will receive market median increases, and “meets minus” performers receive lower increases.

 

In determining the Chief Executive Officer’s compensation, our Compensation Committee considers the results of the Board’s annual evaluation of his performance and his achievement versus goals for the year. The performance review evaluates the Chief Executive Officer’s management and leadership including contributions to strategic planning and execution, financial acumen in running the business, board relations, overall leadership, management development, and management of operations.

 

Allocation of Compensation Components

 

Our Compensation Committee believes that compensation of our senior-most levels of management should be influenced by competitive market levels, but most significantly determined by performance. Three components comprise the Target Total Direct Compensation opportunities for our executive officers: base salary, annual cash incentive awards, and long-term equity-based awards. The mix of components is not the result of a targeted mix, but rather a result of our financial and stock price performance and compensation decisions that have been made over time separately for each individual element of compensation. The Compensation Committee relies in part upon the advice of Semler Brossy and the results of their benchmarking to make these compensation decisions.

The following table represents the mix of target compensation components for 2007.

 

 

 

The mix of compensation varies by executive officer due in part to the following:

 

 

As a result of the above factors, an analysis of compensation by component against our target positioning reveals that:

 

 

Long-term incentives are equity-based to reinforce alignment with shareholder interests. Equity compensation is weighted to award more value through performance-based restricted shares than stock options because we believe performance-based restricted stock better reinforces the urgency of achieving financial performance goals over the next few years. In an effort to balance the motivational aspects of the performance-based restricted stock plan with retention, grantees of restricted stock receive dividends during the vesting period and may vote these shares. Stock options continue to reinforce the importance of increasing stock price over the long-term.

 

Performance-based restricted stock and stock option awards are intended to complement one another. The performance-based restricted stock award builds value in two ways: 1) company financial performance determines whether the shares are earned or not; and 2) stock price performance determines the ultimate value of the awards. If performance-based restricted stock targets are achieved and the stock price increases, over time, the stock options will have value.

 

Section 162(m) of the Internal Revenue Code (the “Code”) limits the tax deduction for compensation paid to a company’s Chief Executive Officer and certain other executives. An exception is provided for “performance-based” compensation. Our annual cash incentive awards, stock options and restricted stock awards all qualify as performance-based compensation under the Code.

COMPENSATION OBJECTIVES

 

The objective of each compensation component is summarized below.

 

Base Salary

 

Our Compensation Committee reviews and approves executive officer base salaries annually, setting salaries for each executive officer at levels considered to be reasonable, fair, and reflective of the importance of the role and individual performance. The Compensation Committee uses the results of the benchmarking process, taking into consideration competitive industry salary levels, role criticality, individual job responsibilities, level of experience, and job performance.

 

The base salary of the named executive officers was increased for 2007 as follows:

 

 

The base salary for Mr. Brown, our Chief Financial Officer, was increased by $29,000 in 2007 to address a shortfall versus targeted competitive pay levels. The base salary of Mr. Cates was increased by $20,000 prior to his becoming an executive officer and was based on his assuming leadership of the sales organization in addition to his responsibility as Vice President of Marketing. Given company financial performance in 2006, our Chief Executive Officer recommended the base salaries for all other executive officers, including his, remain the same for 2007 despite good performance by the executive officers versus their individual goals, and despite some shortfalls versus competitive pay. However, each executive officer’s base salary was adjusted for the $18,000 value of the discontinued “cash perquisite accounts” that were eliminated at the end of 2006.

 

Annual Cash Incentive Awards

 

Annual cash incentive award levels are established for each position’s level within the company based on a percentage of base salary (award level). For 2007, annual cash incentive award levels for all executive officers other than our Chief Executive Officer equaled 50% of base salary. Uniform award levels are intended to promote teamwork and therefore were not necessarily benchmarked against our peer group analysis or general industry survey. The annual cash incentive award level for our Chief Executive Officer is equal to 75% of base salary, due to the significantly higher degree of responsibility associated with the position.

 

Our practice is to award annual cash incentive awards to executive officers under the Management Incentive Compensation Plan (Incentive Plan) based upon objective performance goals approved by the Compensation Committee. Goals are established each year, depending on the relevant business focus of the company for the year. In 2007, the performance goal established was an adjusted pre-tax earnings from continuing operations amount. The calculation begins with pre-tax earnings from continuing operations, before payout of the award, and is adjusted to eliminate asset impairments, restructuring charges, amortization of net actuarial pension losses, and pension settlement charges due to the non-operational nature of these items. The Compensation Committee can, at its discretion, exclude other items from the calculation or approve awards in the event that the established goal is not achieved. No such discretion was used in 2007.

 

We do not believe that an “all or nothing” approach is appropriate for the annual cash incentive awards. Rather, the performance goals are scaled so that the executive officer can receive part of an award in the event that acceptable, but not the desired, results are achieved. As shown in the table below, a threshold level of adjusted pre-tax earnings from continuing operations must be attained in order for executive officers to earn any annual cash incentive award (Minimum). Typically, the company’s budgeted performance would constitute the Target and pay out 100% of the annual cash incentive award. However, for 2007, at executive management’s recommendation, the 2007 budgeted financial performance was set to yield a 50% payout of the Target award. This level of financial performance would be equivalent to an adjusted earnings amount of approximately $.92 cents per share, on an after tax basis, equal to the current annual dividend amount. “Stretch goals” are also established for higher payout rates, up to 150%, if actual performance significantly exceeds the Target.

 

Upon completion of the fiscal year, the Compensation Committee assesses the financial performance of the company against the pre-determined amounts, and an overall payout percentage amount is calculated. The table below shows the

approximate potential payout levels, stated as a percentage of the award level. In 2007, the company’s financial performance generated a 40% payout of the Target award.

 

2007 Annual Cash Incentive Goals

 

 

Our Compensation Committee has not implemented any additional clawback provisions that would adjust or attempt to recover incentive compensation paid to any or all of our executive officers if the performance objectives upon which such compensation were based were to be restated or otherwise adjusted in a manner that would have the effect of reducing the amounts payable or paid. However, in accordance with Section 304 of the Sarbanes-Oxley Act of 2002, if we are required to restate our financial statements due to any material noncompliance with any financial reporting requirement under the federal securities laws, as a result of misconduct, our Chief Executive Officer and Chief Financial Officer are legally required to reimburse us for any bonus or other incentive-based or equity-based compensation he or they receive from us during the 12-month period following the first public issuance or filing with the Securities and Exchange Commission of the financial document embodying such financial reporting requirement, as well as any profits they realize from the sale of our securities during this 12-month period.

 

Equity Compensation

 

Our Compensation Committee also administers the 2002 Equity Incentive Plan (Equity Incentive Plan). Our practice is to grant equity-based awards to attract, retain, motivate, and reward our executive officers, and to encourage their ownership of an equity interest in the company. The company encourages stock ownership by executives, but does not have any formal stock ownership guidelines.

 

Beginning in November 2006, fair value was calculated using the closing price for our stock on the date of grant. With the exception of significant promotions, new hires, and other discretionary awards, grants of restricted stock and stock options for all employees are generally awarded by the Compensation Committee annually at its first meeting of the year in February. This timing allows the Compensation Committee to take into account the availability of audited financial results for the prior year and determine grants to individual employees based in some part on individual performance. Awards for executive officers are approved at the same time. As a general rule, this meeting occurs one or two days before the prior year financial results are released to the public. This timing is not designed to take advantage of material inside information. Rather it is a function of the Compensation Committee and Board of Directors’ meeting schedules, which are determined months in advance, and the availability of fiscal year-end financial results for use in recommending specific grant levels. On occasion, the Compensation Committee makes grants at other times during the year, but did not do so in 2007. Our Compensation Committee adopted a new stock grant policy to time stock option grants after release of financial results and any other material inside information. The 2008 grants will be the first stock options granted under this policy.

 

In prior years, executive officers received grants of restricted stock that were service-based. To further focus executive officers’ efforts on the company’s financial results and continue to align executive and shareholder interests, we awarded performance-based restricted stock in early 2005 to executive officers. The grants were part of an incentive plan award for a three-year performance period (2005-2007). The value of the grants was split 60%/40% between a one-time grant of performance-based restricted stock and annual stock option grants awarded between 2005 and 2007. This split allows the Compensation Committee to adjust for changes in individual performance and contributions. The three-year time period corresponded with company business plans. Ms. Lamme and Mr. Brown received additional performance-based restricted stock awards and stock option grants in 2006 to better align their compensation with an increase in competitive compensation levels. Mr. Furey also received a supplemental grant of performance-based restricted stock in 2006 as a result of his promotion to executive officer.

 

The annualized value of the performance-based grants, taken together with the expected value of the annual stock option awards, was intended to provide each executive officer with a target grant that was consistent with our competitive benchmarking and based on internal strategic value, retention risk, individual performance, and individual stage in role. All of these factors influence individual grants, which vary from officer to officer.

 

Vesting of all of the performance-based restricted stock awards was contingent upon the achievement of the same adjusted earnings from continuing operations amount of $50,170,000 that would yield a 50% payout of the 2007 annual cash incentive award, except it is after payout of the award. Portions (30%) of an individual’s award would have vested in 2006 if the adjusted operating earnings target had been achieved by 2006. However, this was an “all or nothing” award.

Since the financial goal was not met by the end of 2007, these performance-based shares were forfeited and were canceled in the first quarter of 2008 following the first quarter dividend record date.

 

2008 Awards

 

On February 20, 2008, our Compensation Committee approved awards of performance-based restricted stock to executive officers as a long-term incentive compensation plan for the years 2008-2009. Except for the CEO, the value of the grants will be split 70%/30% between a one-time grant in 2008 of performance-based restricted stock and annual time-vesting stock option grants to be awarded in 2008 and 2009. The grant for the CEO will be entirely performance-based restricted stock.

 

The performance-based restricted stock awards were granted effective February 26, 2008, in the total amount of 312,600 shares, allocated among the named executive officers. These shares will be entitled to receive dividends during the performance period and have voting rights. The performance-based shares will vest upon achievement of a pre-determined cumulative adjusted earnings from continuing operations amount over the two-year period. The adjusted earnings calculation begins with pre-tax earnings from continuing operations, after payout of the annual cash incentive award, and is adjusted to eliminate asset impairments, restructuring charges, amortization of net actuarial pension losses, and pension settlement charges.

 

Threshold, target, and maximum financial goals will result in vesting of some or all of the target performance-based restricted stock awards granted and possible grants of additional shares. The amount of shares that ultimately vest will range from 50% to 150% of the target-level grant. If the financial goal is not met at the threshold level or greater by the end of fiscal year 2009, all of the shares previously granted will be forfeited. Additional shares will be granted and automatically vested upon performance above target.

 

The executive officer must remain an executive officer of the company until our Compensation Committee approves achievement of performance goals, anticipated to be in February 2010, at which time the grants will vest. If the executive officer retires after the first year, but before the conclusion of the performance period, and the performance goals are met at the end of 2009, a pro-rata portion of the shares will vest.

 

Perquisites

 

In prior years, executive officers received $18,000 per year in cash perquisite accounts to be used for car expenses, memberships, and financial and tax planning. In December 2006, the cash perquisite accounts were eliminated and their value was added to base salary compensation for 2007. Executive officers participate in healthcare and other benefit programs on the same terms as other employees.

 

Retirement Plans

 

Executive officers participate in the same defined benefit pension and defined contribution 401(k) plans as do other salaried employees of the company.

 

Because the Internal Revenue Code limits the amount of compensation used in determining the benefits earned by our executive officers under our tax-qualified defined benefit plan, the company maintains various supplemental retirement benefit plans for our executive officers to provide additional retirement benefits to them. The supplemental retirement opportunities are also benchmarked to provide provisions generally consistent with industry practices. You may read the description of these plans and the executive officers that participate in each plan under the Pension Benefits table. The company provides these supplemental retirement benefits to our executive officers in order to remain competitive, attract key personnel, and retain existing executive officers. The supplemental plans focus on rewarding long-service officers who have made important contributions to the company over time. This is accomplished through a 10-year cliff vesting provision that only rewards those who have remained as an officer with the company for that time.

 

Mr. Rediker’s employment contract provides him with a supplemental retirement benefit equal to 50% of the average of his final three years of base salary, offset by amounts earned under our current plans and payments from a past employer.

 

The company also provides executive officers the ability to defer a portion of their base salary and annual cash incentive awards on a tax-deferred basis. There is no provision for any matching contribution to this plan.

 

As discussed in more detail under “Potential Payments upon Termination or Change in Control,” Mr. Rediker’s employment agreement, as well as a number of the retirement plans and other benefit plans, provides for payments and/or vesting of benefits under certain circumstances in connection with termination of employment and a change in control. The triggering events for payments and vesting of benefits in the various agreements and plans are relatively

common for plans of this nature, and are designed to provide for fair treatment of the participants under the various circumstances and to reasonably reward the participants for their loyalty and commitment to the company.

 

Summary Compensation Table

 

The following table contains information regarding compensation earned in, or with respect to, 2007 and 2006 by:

 

 

We refer to these officers collectively as our named executive officers. In determining our most highly compensated executive officers for 2007, our Senior Vice President, General Counsel and Secretary would have been included had it not been for the forfeiture of performance-based restricted stock and the reversal of compensation cost. Therefore, we have included information for this executive officer in 2007, in addition to the five most highly compensated executive officers, because most likely this position will be included in the summary compensation table in future years.

 

 

 

 

 

 

Grants of Plan-Based Awards in 2007

 

The following table contains information related to:

 

 

 

 

 

The service-based restricted stock awards received by Mr. Cates in February 2007, prior to his becoming an executive officer, vest 25% each year upon the anniversary of the grant date. Restricted stock awards include the right to receive dividends at the rate paid to all shareholders, and the right to vote the stock.

 

Grants of stock options were made to executive officers in February 2007. These options vest 25% each year upon the anniversary of the grant date. The term of these options is ten years. Other material terms of restricted stock and stock option awards are described in the section “Potential Payments upon Termination and Change in Control.”

 

As reflected in the summary compensation table, the salary received by each of our named executive officers as a percentage of their total compensation for 2007 was as follows: Mr. Rediker, 80.5%; Mr. Brown 67.5%; Ms. Lamme 47.3%; Mr. Morgan 77.2%, Mr. Furey 69.4%, and Mr. Cates 72.5%.

Outstanding Equity Awards

 

The following table contains information related to unexercised stock option awards and nonvested restricted stock awards held by each of our named executive officers at December 30, 2007.