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Examples of Disclosures Regarding Conflict Free Compensation Advisors

New S-K Item 407(e)(3)(iv) provides that if any compensation consultant has played a role in determining or recommending the amount or form of executive and director compensation, and the consultant’s work has raised any conflict of interest, then disclosure of the nature of the conflict and how the conflict is being addressed is required.  This rule is effective for any proxy or information statement for an annual meeting of shareholders at which directors will be elected occurring after January 1, 2013.

S-K Item 407(e)(3)(iv) does not require any disclosure if the compensation consultant’s work did not raise any conflict of interest.  Nonetheless, in a review of 20 proxy statements filed between January 23 and January 29, 12 companies (60%) made disclosures that their compensation consultant had no conflict of interest.  Some of the disclosures we reviewed are set forth below.  The disclosures also contain interesting discussions of procedures and practices companies are using in this area.

Raymond James Financial, Inc.

The CGN&C Committee engaged Pay Governance, LLC in 2011 in connection with the redesign of the Company’s senior executive compensation architecture, including development of initial compensation targets. That engagement concluded in January 2012.

Although Pay Governance had been initially engaged by management in 2010 to perform the preliminary analysis, for which it was paid $130,000, the CGN&C Committee did not view engaging Pay Governance to be the Committee’s consultant going forward to be a conflict of interest given the relatively small portion of Pay Governance’s revenues that the preliminary management engagement represented and the fact that Pay Governance had not previously performed any work for the Company. The initial work for management did not entail compiling recommendations of pay structure or levels, but merely was a comparison of pay methodologies and levels across a wide spectrum of competitor companies based upon public information and industry studies and did not entail a recommendation of a new or different compensation structure for the company.

Cabot Corporation

The Compensation Committee has assessed the independence of PM&P pursuant to SEC rules and concluded that no conflict of interest exists that would prevent PM&P from independently representing the Compensation Committee.

Sanmina Corporation

As a result of new SEC rules, Sanmina is required to disclose whether the work of its compensation consultant raises any conflict of interest issues and, if so, the nature of the conflict and how the conflict was addressed. The Committee does not believe that the retention of Compensia to advise it concerning executive compensation matters creates a conflict of interest. The Committee’s belief in this regard is informed by the following:

(i)  According to Compensia, revenue from Sanmina represented less than 1% of Compensia’s total revenue for fiscal 2012;

(ii)  Compensia has adopted and disclosed to the Committee its conflicts of interest policy concerning client engagements and the Committee believes such policy provides reasonable assurance that conflicts of interest with Compensia will not arise;

(iii)  There are no business or personal relationships between Compensia and any member of the Committee; and

(iv)  Compensia has represented to the Committee that, per its conflicts of interest policy, no Compensia employee is a stockholder of Sanmina.

In addition, Compensia reported solely to the Committee, Sanmina’s management was not involved in the negotiation of fees charged by Compensia or in the determination of the scope of work performed by Compensia and the Committee has the sole authority to hire and terminate compensation consultants. As a result of the foregoing, the Committee believes that Compensia is independent of Sanmina.

Starbucks Corporation

In connection with its engagement of F.W. Cook, the Committee considered various factors bearing upon F.W. Cook’s independence including, but not limited to, the amount of fees received by F.W. Cook from Starbucks as a percentage of F.W. Cook’s total revenue, F.W. Cook’s policies and procedures designed to prevent conflicts of interest, and the existence of any business or personal relationship that could impact F.W. Cook’s independence. After reviewing these and other factors, the Committee determined that F.W. Cook was independent and that its engagement did not present any conflicts of interest. F.W. Cook also determined that it was independent from management and confirmed this in a written statement delivered to the Chair of the Committee.

Concur Technologies, Inc.

Compensia is directly accountable to the Compensation Committee. To maintain the independence of the firm’s advice, Compensia does not provide any services for Concur other than those described above. In addition, the Compensation Committee conducted a conflict of interest assessment by using the factors applicable to compensation consultants under SEC rules, and no conflict of interest was identified.

WGL Holdings, Inc.

The HR Committee concluded that its compensation adviser had no conflicts of interest during fiscal year 2012. In reaching this conclusion, the HR Committee considered all relevant factors, including the six independence factors relating to committee advisers that are specified in SEC Rule 10C-1. These factors are:

(i) The provision of other services to the company by an adviser’s employer;

(ii) The amount of fees received from the company by an adviser’s employer as a percentage of the total revenue of the adviser’s employer;

(iii) The policies and procedures of an adviser’s employer that are designed to prevent conflicts of interest;

(iv) Any business or personal relationship of an adviser with a member of the committee;

(v) Any stock of the company owned by an adviser; and

(vi) Any business or personal relationship of an adviser or the adviser’s employer with an executive officer of the company.

In addition, the HR Committee retains the individual adviser as well as the adviser’s firm, and the adviser reports directly to the HR Committee.

The Pantry, Inc.

Cook & Co. reports directly to the CO Committee and all work conducted by Cook & Co. for us is on behalf of the CO Committee. Cook & Co. provides no services to the Company other than executive and non-employee director compensation consulting services and has no other direct or indirect business relationships with the Company or any of its affiliates. All executive compensation services provided by Cook & Co. are conducted under the direction and authority of the CO Committee. In addition, in its consulting agreement with the CO Committee, Cook & Co. agrees to advise the Chair of the CO Committee if any potential conflicts of interest arise that could cause Cook & Co.’s independence to be questioned, and to undertake no projects for management except at the request of the CO Committee Chair and as an agent for the CO Committee.

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