Washington, D.C. 20549

SCHEDULE 14A INFORMATION

 

Abercrombie & Fitch Co.
6301 Fitch Path
New Albany, Ohio 43054
(614) 283-6500

 

May 8, 2009

 

Dear Fellow Stockholders:

 

You are cordially invited to attend the Annual Meeting of Stockholders to be held at 10:00 a.m., Eastern Daylight Saving Time, on Wednesday, June 10, 2009, at our executive offices located at 6301 Fitch Path, New Albany, Ohio 43054. I hope that you will all be able to attend and participate in the Annual Meeting, at which time we will have the opportunity to review the business and operations of our Company.

 

The formal Notice of Annual Meeting of Stockholders and Proxy Statement are attached, and the matters to be acted upon by our stockholders are described in them.

 

It is important that your shares be represented and voted at the Annual Meeting. Accordingly, after reading the attached Proxy Statement, please complete, date, sign and return the accompanying form of proxy. Alternatively, you may vote electronically through the Internet or by telephone in accordance with the instructions on your form of proxy. Your vote is important regardless of the number of shares you own.

 

Sincerely yours,

 

Michael S. Jeffries

Chairman and Chief Executive Officer

Abercrombie & Fitch Co.

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

 

May 8, 2009

TO OUR STOCKHOLDERS:

 

Notice is hereby given that the 2009 Annual Meeting of Stockholders (the “Annual Meeting”) of Abercrombie & Fitch Co. (the “Company”) will be held at the executive offices of the Company located at 6301 Fitch Path, New Albany, Ohio 43054, on Wednesday, June 10, 2009, at 10:00 a.m., Eastern Daylight Saving Time, for the following purposes:

 

 

Your Board of Directors recommends that you vote “FOR” the election of the director nominees listed in the Company’s Proxy Statement for the Annual Meeting under the section captioned “ELECTION OF DIRECTORS”, “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending January 30, 2010, “FOR” the Company-sponsored amendment to the Company’s Amended and Restated Bylaws to adopt majority voting in uncontested director elections and “AGAINST” the stockholder proposal described in the Company’s Proxy Statement for the Annual Meeting, if the stockholder proposal is properly presented for consideration at the Annual Meeting.

 

If you were a stockholder of record, as shown by the transfer books of the Company, at the close of business on April 15, 2009, you will be entitled to receive notice of and to vote at the Annual Meeting or at any adjournment or postponement of the Annual Meeting.

Our Investor Relations telephone number is (614) 283-6500 should you wish to obtain directions to our executive offices in order to attend the Annual Meeting and vote in person. Directions to our executive offices may also be found on our website (www.abercrombie.com) on the “Investors” page under the “Directions To A&F” link.

 

By Order of the Board of Directors,

 

Michael S. Jeffries

Chairman and Chief Executive Officer

 

 

Abercrombie & Fitch Co.

6301 Fitch Path

New Albany, Ohio 43054

(614) 283-6500

 

PROXY STATEMENT

 

Dated May 8, 2009

 

ANNUAL MEETING OF STOCKHOLDERS

 

To Be Held On June 10, 2009

 

This Proxy Statement is being furnished to stockholders of Abercrombie & Fitch Co. (the “Company”) in connection with the solicitation of proxies by the Company’s Board of Directors (the “Board”) for use at the Annual Meeting of Stockholders to be held on Wednesday, June 10, 2009 (the “Annual Meeting”), or at any adjournment or postponement. The Annual Meeting will be held at 10:00 a.m., Eastern Daylight Saving Time, at the Company’s executive offices located at 6301 Fitch Path, New Albany, Ohio 43054. This Proxy Statement and the accompanying form of proxy were first sent or given to stockholders on or about May 8, 2009.

 

A form of proxy for use at the Annual Meeting accompanies this Proxy Statement and is solicited by the Board. You may ensure your representation at the Annual Meeting by completing, signing, dating and promptly returning the accompanying form of proxy. A return envelope, which requires no postage if mailed in the United States, has been provided for your use. Alternatively, you may give voting instructions electronically via the Internet or by using the toll-free telephone number stated on the form of proxy. The deadline for stockholders to transmit voting instructions electronically via the Internet or telephonically is 11:59 p.m., Eastern Daylight Saving Time, on June 9, 2009. The Internet and telephone voting procedures are designed to authenticate stockholders’ identities, to allow stockholders to give their voting instructions and to confirm that stockholders’ voting instructions have been properly recorded. If you vote through the Internet, you should understand that there may be costs associated with electronic access, such as usage charges from Internet access providers and telephone companies, that will be borne by you.

 

Stockholders holding shares in “street name” with a broker/dealer, financial institution or other holder of record should review the information provided to them by the holder of record. This information will describe the procedures to be followed in instructing the holder of record how to vote the “street name” shares and how to revoke previously given instructions.

 

If you are a registered stockholder, you may revoke your proxy at any time before it is actually voted at the Annual Meeting by giving notice of revocation to the Company in writing, by accessing the designated Internet site prior to the deadline for transmitting voting instructions electronically, by using the toll-free number stated on the form of proxy prior to the deadline for transmitting voting instructions electronically, or by attending the Annual Meeting and giving notice of revocation in person. You may also change your vote by choosing one of the following options: executing and returning to the Company a later-dated form of proxy; submitting a later-dated vote through the designated Internet site or the toll-free telephone number stated on the form of proxy prior to the deadline for transmitting voting instructions electronically; or voting at the Annual Meeting. Attending the Annual Meeting will not, by itself, revoke your proxy.

The Company will pay the costs of preparing, assembling, printing and mailing this Proxy Statement, the accompanying form of proxy and any other related materials and all other costs incurred in connection with the solicitation of proxies on behalf of the Board, other than the Internet access and telephone usage charges mentioned above. Although the Company is soliciting proxies by mailing the proxy materials to stockholders, proxies may be solicited by Company employees or, as referred to by the Company, “associates”, via mail or by telephone, mailgram, facsimile, electronic transmission or personal contact without additional compensation. The Company has retained Georgeson Inc., New York, New York, to aid in the solicitation of proxies with respect to shares held by broker/dealers, financial institutions, and other custodians, fiduciaries and nominees for a fee of approximately $7,000, plus expenses. The Company will reimburse its transfer agent, broker/dealers, financial institutions, and other custodians, fiduciaries and nominees for their reasonable costs in sending proxy materials to stockholders.

 

The Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2009 (“Fiscal 2008”) is being delivered with this Proxy Statement.

 

VOTING AT THE ANNUAL MEETING

 

The shares entitled to vote at the Annual Meeting consist of shares of the Company’s Class A Common Stock, par value $0.01 per share (the “Common Stock”), with each share entitling the holder of record to one vote. There are no cumulative voting rights in the election of directors. At the close of business on April 15, 2009, the record date for the Annual Meeting, there were 87,839,016 shares of Common Stock outstanding. A quorum for the Annual Meeting is one-third of the outstanding shares of Common Stock.

 

The results of stockholder voting will be tabulated by the inspectors of election appointed for the Annual Meeting. Shares of Common Stock represented by properly executed proxies returned to the Company prior to the Annual Meeting or represented by properly authenticated Internet or telephone votes will be counted toward the establishment of a quorum for the Annual Meeting.

 

Those shares of Common Stock represented by properly executed proxies, or properly authenticated Internet or telephone votes, that are received prior to the Annual Meeting and not subsequently revoked, will be voted as directed by the stockholders. All valid proxies received prior to the Annual Meeting which do not specify how shares of Common Stock should be voted will be voted “FOR” the election as directors of the Company of the nominees of the Board listed under the section captioned “ELECTION OF DIRECTORS”, “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending January 30, 2010, and, except in the case of broker non-votes, “FOR” the approval of the Company-sponsored amendment to the Company’s Amended and Restated Bylaws to adopt majority voting in uncontested director elections and “AGAINST” the stockholder proposal, if the stockholder proposal is properly presented at the Annual Meeting. No appraisal rights exist for any action proposed to be taken at the Annual Meeting.

 

Under the applicable rules of the New York Stock Exchange (“NYSE”), the uncontested election of directors and ratification of the Company’s independent registered public accounting firm are considered “routine” items upon which broker/dealers, who hold their clients’ shares of Common Stock in street name, may vote the shares in their discretion on behalf of their clients if those clients have not furnished voting instructions within the required time frame before the Annual Meeting. The Company-sponsored majority vote proposal and the stockholder proposal are not considered routine, and broker/dealers may not vote on either without instructions from their clients.

 

NOTICE REGARDING INTERNET AVAILABILITY OF PROXY MATERIALS

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders of Abercrombie & Fitch Co. to Be Held on June 10, 2009: This Proxy Statement, the Notice of Annual Meeting of Stockholders, a sample form of the proxy sent or given to stockholders by the Company and the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2009 are available at www.proxyvote.com.

 

Our Investor Relations telephone number is (614) 283-6500 should you wish to obtain directions to our executive offices in order to attend the Annual Meeting and vote in person. Directions to our executive offices may also be found on our website (www.abercrombie.com) on the “Investors” page under the “Directions To A&F” link.

 

ELECTION OF DIRECTORS

 

There are currently eight directors — three in the class whose terms expire at the Annual Meeting, three in the class whose terms expire in 2010 and two in the class whose terms expire in 2011. On March 14, 2008, Russell M. Gertmenian notified the Company that he had decided not to stand for re-election to the Board. Mr. Gertmenian’s term as a director expired immediately prior to the Annual Meeting of Stockholders on June 11, 2008. The Board reduced the size of the Board from nine to eight upon the expiration of Mr. Gertmenian’s term as a director on June 11, 2008. On April 2, 2008, John A. Golden notified the Company that he intended to retire from the Board. Mr. Golden retired from the Board following the Annual Meeting of Stockholders on June 11, 2008. Upon the recommendation of the Nominating and Board Governance Committee, the Board elected Robert A. Rosholt as a director on June 11, 2008. On August 31, 2008, Allan A. Tuttle, who served in the class whose terms expire in 2011, passed away suddenly. Upon the recommendation of the Nominating and Board Governance Committee, the Board elected Craig R. Stapleton as a director on February 12, 2009.

 

Nominees

 

Three directors will be elected at the Annual Meeting. Directors elected at the Annual Meeting will hold office for a three-year term expiring at the annual meeting of stockholders in 2012 or until their successors are elected and qualified. The nominees of the Board for election as directors at the Annual Meeting, each of whom was recommended by the Nominating and Board Governance Committee, are identified below. The individuals named as proxies in the form of proxy solicited by the Board intend to vote the shares of Common Stock represented by the proxies received under this solicitation for the Board’s nominees, unless otherwise instructed. If any nominee who would otherwise receive the required number of votes becomes unable or unwilling to serve as a candidate for election as a director, the individuals designated to vote as proxies will have full discretion to vote the shares of Common Stock represented by the proxies they hold for the election of the remaining nominees and for the election of any substitute nominee designated by the Board upon recommendation by the Nominating and Board Governance Committee. The Board has no reason to believe that any of the Board’s nominees will be unable or unwilling to serve as a director if elected.

 

The three nominees receiving the greatest number of votes will be elected as directors. Shares of Common Stock as to which the authority to vote is withheld will not be counted toward the election of directors or toward the election of the individual nominees specified on the form of proxy. Proxies may not cast votes for more than three nominees.

The information set forth in the table below concerning the principal occupation, other affiliations and business experience of each nominee for re-election as a director, as of April 15, 2009, has been furnished to the Company by each nominee. All three of the nominees are directors standing for re-election.

 

 

THE BOARD RECOMMENDS A VOTE “FOR” EACH OF

THE NOMINEES IDENTIFIED ABOVE.

Continuing Directors

 

The information set forth in the table below concerning the principal occupation, other affiliations and business experience of each continuing director, as of April 15, 2009, has been furnished to the Company by each director.

 

Certain Relationships and Related Transactions

 

Review, Approval or Ratification of Transactions with Related Persons

 

The Board has adopted the Abercrombie & Fitch Co. Related Person Transaction Policy (the “Policy”), which is administered by the Nominating and Board Governance Committee and the Company’s General Counsel. A copy of the Policy is posted on the “Corporate Governance” page of the Company’s website at www.abercrombie.com, accessible through the “Investors” page. The Policy applies to any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which the Company or one of its subsidiaries participates, the amount involved exceeds or is expected to exceed $120,000, and a “related person” had, has or will have a direct or indirect interest. Pursuant to the Policy, a “related person” is any person:

 

 

Each director, director nominee or executive officer of the Company must notify the Company’s General Counsel in writing of any interest that such individual or an immediate family member of such individual had, has or may have, in a related person transaction. Each director, director nominee and executive officer will also complete a questionnaire on an annual basis designed to elicit information about potential related person transactions. In addition, any related person transaction proposed to be entered into by the Company or one of its subsidiaries must be reported by the Company’s management to the Company’s General Counsel. Any potential related person transaction that is raised will be analyzed by the Company’s General Counsel, in consultation with management and with outside counsel, as appropriate, to determine whether the transaction, arrangement or relationship does, in fact, constitute a related person transaction requiring compliance with the Policy.

 

Pursuant to the Policy, all related person transactions (other than those deemed to be pre-approved or ratified under the terms of the Policy) will be referred to the Nominating and Board Governance Committee for approval (or disapproval), ratification, revision or termination. Whenever practicable, a related person transaction is to be reviewed and approved or disapproved by the Nominating and Board Governance Committee prior to the effective date or consummation of the transaction. If the Company’s General Counsel determines that advance consideration of a related person transaction is not practicable, the Nominating and Board Governance Committee will review and, in its discretion, may ratify the transaction at the Committee’s next meeting. If the Company becomes aware of a related person transaction not previously approved under the Policy, the Nominating and Board Governance Committee will promptly review the transaction, including the relevant facts and circumstances, and evaluate all options available to the Company, including ratification, revision, termination or rescission of the transaction, and take the course of action the Committee deems appropriate under the circumstances.

 

No director may participate in any approval or ratification of a related person transaction in which the director or an immediate family member of the director is involved. The Nominating and Board Governance Committee may only approve or ratify those transactions that the Committee determines to be in the

Company’s best interests. In making this determination, the Nominating and Board Governance Committee will review and consider all relevant information available to it, including:

 

 

Any related person transaction previously approved or ratified by the Nominating and Board Governance Committee or otherwise already existing that is ongoing in nature is to be reviewed by the Nominating and Board Governance Committee annually.

 

Pursuant to the terms of the Policy, the following related person transactions are deemed to be pre-approved or ratified (as appropriate) by the Nominating and Board Governance Committee even if the aggregate amount involved would exceed $120,000:

 

 

The Code of Business Conduct and Ethics adopted by the Board also addresses the potential conflicts of interest which may arise when a director, officer or associate has an interest in a transaction to which the

Company or one of its subsidiaries is a party. If a potential conflict of interest arises concerning an officer or director of the Company, all information regarding the issue is to be reported to the Company’s General Counsel for review and, if appropriate or required under the Company’s policies (including the Company’s Related Person Transaction Policy), submitted to the Nominating and Board Governance Committee for review and disposition.

 

Transactions with Related Persons

 

Mr. Gertmenian, who served as a director of the Company for a portion of Fiscal 2008, is a partner in the law firm of Vorys, Sater, Seymour and Pease LLP, and serves as the presiding partner of the firm. Vorys, Sater, Seymour and Pease LLP rendered legal services to the Company and its subsidiaries during Fiscal 2008, for which the Company paid fees in excess of $120,000. Mr. Gertmenian decided not to stand for re-election to the Board and his term expired on June 11, 2008.

 

Mr. Kessler, a director of the Company, has a son-in-law, Thomas D. Lennox, who was employed by the Company in a non-executive officer position as Vice President, Corporate Communications through July 19, 2008 and who received compensation (including a restricted stock unit grant) and benefits not in excess of $325,000 in Fiscal 2008.

 

Pursuant to the indemnification provisions contained in the Company’s Amended and Restated Bylaws, the Company is paying the legal fees incurred by current and former executive officers and directors in connection with the lawsuits against the Company and the derivative lawsuits on behalf of the Company described in the text under the section captioned “Certain Legal Proceedings”. During Fiscal 2008, the Company advanced approximately $600,000 for such fees on behalf of such current and former executive officers and directors. Each such current or former executive officer or director has undertaken to repay to the Company any expenses advanced by the Company should it be ultimately determined that the executive officer or director was not entitled to indemnification by the Company. The Company expects to be reimbursed for most of these fees under one or more of its insurance policies.

 

Director Independence

 

The Board has reviewed, considered and discussed each director’s relationships, both direct and indirect, with the Company and its subsidiaries in order to determine whether such director meets the independence requirements of the applicable sections of the NYSE Listed Company Manual (the “NYSE Rules”). The Board has determined that a majority of the incumbent directors qualify as independent under the NYSE Rules. Specifically, the Board has determined that each of James B. Bachmann, Lauren J. Brisky, Archie M. Griffin, John W. Kessler, Edward F. Limato, Robert A. Rosholt and Craig R. Stapleton has no commercial, industrial, banking, consulting, legal, accounting, charitable, familial or other relationship with the Company, either directly or indirectly, that would be inconsistent with a determination of independence under the NYSE Rules. Additionally, the Board determined that during his period of service as a director which ended on June 11, 2008, Mr. Golden had no commercial, industrial, banking, consulting, legal, accounting, charitable, familial or other relationship with the Company, either directly or indirectly, that would be inconsistent with a determination of independence under the NYSE Rules. Also, during his period of service as a director, which ended on August 31, 2008, Allan A. Tuttle had no commercial, industrial, banking, consulting, legal, accounting, charitable, familial or other relationship with the Company, either directly or indirectly, that would be inconsistent with a determination of independence under the NYSE Rules. The Board specifically considered a number of circumstances in the course of reaching these conclusions, including the relevant

relationships described above in the section captioned “Certain Relationships and Related Transactions — Transactions with Related Persons” as well as the facts that:

 

 

Mr. Jeffries does not qualify as independent because he is an executive officer of the Company. During his period of service as a director, which ended on June 11, 2008, Russell M. Gertmenian did not qualify as independent because he is a partner in a law firm that performed various services for the Company and its subsidiaries and continues to perform such services.

 

There are no family relationships among any of the directors and executive officers of the Company. Please see the text under the caption “SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT” in Part I of the Company’s Annual Report on Form 10-K for Fiscal 2008 filed on March 27, 2009 for information about the Company’s executive officers.

 

Meetings of and Communications with the Board

 

The Board held seven meetings and took one action by written consent during Fiscal 2008. All of the directors attended 75% or more of the total number of meetings of the Board and of committees of the Board on which they served that were held during the period they served.

 

Although the Company does not have a formal policy requiring members of the Board to attend annual meetings of the stockholders, the Company encourages all incumbent directors and director nominees to attend each annual meeting of stockholders. All incumbent directors attended the Company’s last annual meeting of stockholders held on June 11, 2008.

In accordance with the Company’s Corporate Governance Guidelines and applicable NYSE Rules, the non-management directors of the Company meet (without management present) at regularly scheduled executive sessions at least twice per year and at such other times as the directors deem necessary or appropriate. Each executive session is presided over by one of the non-management directors, as determined prior to or at the beginning of each executive session by the non-management directors. In addition, if the non-management directors include directors who are not independent, then at least once a year the independent directors of the Company will meet in executive session.

 

The Board believes it is important for stockholders and other interested parties to have a process to send communications to the Board and its individual members. Accordingly, stockholders and other interested parties who wish to communicate with the Board, the non-management directors as a group or a particular director may do so by sending a letter to such individual or individuals, in care of the Company’s Secretary, to the Company’s executive offices at 6301 Fitch Path, New Albany, Ohio 43054. The mailing envelope must contain a clear notation indicating that the enclosed letter is a “Stockholder/Interested Party — Non-Management Director Communication,” “Stockholder/Interested Party — Board Communication” or “Stockholder/Interested Party — Director Communication,” as appropriate. All such letters must identify the author as a stockholder or other interested party and clearly state whether the intended recipients are all members of the Board, all non-management directors or certain specified individual directors. Copies of all such letters will be circulated to the appropriate director or directors. Correspondence marked “personal and confidential” will be delivered to the intended recipient without opening. There is no screening process in respect of communications from stockholders or other interested parties.

 

Committees of the Board

 

The Board has four standing committees — the Compensation Committee, the Executive Committee, the Audit Committee and the Nominating and Board Governance Committee.

 

Compensation Committee

 

The Compensation Committee provides overall guidance for the Company’s executive compensation policies and approves the amounts and elements of compensation for the Company’s executive officers. The Compensation Committee is currently comprised of Lauren J. Brisky (Chair), John W. Kessler, Edward F. Limato and Craig R. Stapleton. Ms. Brisky and Messrs. Kessler and Limato served as members of the Compensation Committee throughout Fiscal 2008. Mr. Stapleton was appointed to the Compensation Committee on February 12, 2009 in conjunction with his election to the Board. The Board has determined that each current member of the Compensation Committee qualifies as an independent director under the applicable NYSE Rules. The Compensation Committee is organized and conducts its business pursuant to a written charter which was most recently revised by the Board on August 21, 2007, a copy of which is posted on the “Corporate Governance” page of the Company’s website at www.abercrombie.com, accessible through the “Investors” page, or available in print from the Company by sending a request to the Investor Relations Department, 6301 Fitch Path, New Albany, Ohio 43054. The Compensation Committee periodically reviews and reassesses the adequacy of its charter in consultation with the Nominating and Board Governance Committee and recommends changes to the full Board as necessary to reflect changes in regulatory requirements, authoritative guidance and evolving practices.

The Compensation Committee’s charter sets forth the duties and responsibilities of the Compensation Committee, which include:

 

 

The Compensation Committee held 14 meetings and took four actions by written consent during Fiscal 2008. The Compensation Committee’s processes and procedures to determine executive compensation, including the use of compensation consultants and the role of executive officers in making recommendations relating to executive compensation, are described in the section captioned “COMPENSATION DISCUSSION AND ANALYSIS” beginning on page 25.

Executive Committee

 

The Executive Committee is comprised of Michael S. Jeffries (Chair), John W. Kessler and Edward F. Limato. Mr. Jeffries served throughout Fiscal 2008. Messrs. Kessler and Limato were appointed to the Executive Committee on June 11, 2008. Russell M. Gertmenian served on the Executive Committee until June 11, 2008, when his term as a director expired. John A. Golden served on the Executive Committee until June 11, 2008, when he retired from the Board. The Executive Committee may exercise, to the fullest extent permitted by law and not delegated to another committee of the Board, all of the powers and authority granted to the Board. The Executive Committee held one meeting during Fiscal 2008.

 

Audit Committee

 

The Audit Committee was established in accordance with Section 3(a)(58)(A) of the Exchange Act and is currently comprised of James B. Bachmann (Chair), Lauren J. Brisky and Robert A. Rosholt. Mr. Bachmann and Ms. Brisky served as members of the Audit Committee throughout Fiscal 2008. Mr. Rosholt was appointed as a member of the Audit Committee on June 11, 2008 in conjunction with his election to the Board. John A. Golden served on the Audit Committee until June 11, 2008, when he retired from the Board. Allan A. Tuttle served on the Audit Committee until he passed away on August 31, 2008. The Board has determined that each current member of the Audit Committee qualifies as an independent director under the applicable NYSE Rules and under SEC Rule 10A-3 and that each of Messrs. Golden and Tuttle so qualified during his period of service on the Audit Committee. The Board has also determined that each of the current members of the Audit Committee is “financially literate” under the applicable NYSE Rules and that each of Messrs. Golden and Tuttle so qualified during his period of service on the Audit Committee. In addition, the Board has determined that each of Mr. Bachmann, Ms. Brisky and Mr. Rosholt qualifies as an “audit committee financial expert” under applicable SEC Rules by virtue of their experience described above, in the section captioned “ELECTION OF DIRECTORS”. The Board believes that each member of its Audit Committee is highly qualified to discharge his or her duties on behalf of the Company and its subsidiaries.

 

The Audit Committee is organized and conducts its business pursuant to a written charter which was most recently revised by the Board on August 14, 2008, a copy of which is posted on the “Corporate Governance” page of the Company’s website at www.abercrombie.com, accessible through the “Investors” page, or available in print from the Company by sending a request to the Investor Relations Department, 6301 Fitch Path, New Albany, Ohio 43054. At least annually, the Audit Committee, in consultation with the Nominating and Board Governance Committee, reviews and reassesses the adequacy of its charter and recommends any proposed changes to the full Board as necessary to reflect changes in regulatory requirements, authoritative guidance and evolving practices.

 

The Audit Committee’s duties and responsibilities are set forth in its charter. The primary functions of the Audit Committee are to assist the Board in its oversight of:

 

 

 

The Audit Committee’s specific responsibilities include:

 

 

The Audit Committee held ten meetings during Fiscal 2008. The Audit Committee’s annual report relating to Fiscal 2008 is on page 65.

 

Nominating and Board Governance Committee

 

The Nominating and Board Governance Committee is currently comprised of John W. Kessler (Chair), James B. Bachmann, Archie M. Griffin and Robert A. Rosholt. Messrs. Kessler and Griffin served as members of the Nominating and Board Governance Committee throughout Fiscal 2008. Each of Mr. Bachmann and Mr. Rosholt was appointed as a member of the Nominating and Board Governance Committee on June 11, 2008. John A. Golden also served as Chair of the Nominating and Board Governance Committee until his retirement from the Board on June 11, 2008. The Board has determined that each current member of the Nominating and Board Governance Committee qualifies as an independent director under the applicable

NYSE Rules, and that Mr. Golden so qualified during his period of service on the Nominating and Board Governance Committee. The Nominating and Board Governance Committee is organized and conducts its business pursuant to a written charter which was most recently revised by the Board on August 21, 2007, a copy of which is posted on the “Corporate Governance” page of the Company’s website at www.abercrombie.com, accessible through the “Investors” page, or available in print from the Company by sending a request to the Investor Relations Department, 6301 Fitch Path, New Albany, Ohio 43054. The Nominating and Board Governance Committee periodically reviews and reassesses the adequacy of its charter and recommends any proposed changes to the full Board as necessary to reflect changes in regulatory requirements, authoritative guidance and evolving practices.

 

The purpose of the Nominating and Board Governance Committee is to provide oversight on a broad range of issues surrounding the composition and operation of the Board. The primary responsibilities of the Nominating and Board Governance Committee include:

 

 

 

The Nominating and Board Governance Committee held six meetings during Fiscal 2008.

 

Director Qualifications and Consideration of Director Candidates

 

As described above, the Company has a standing Nominating and Board Governance Committee that has responsibility for providing oversight on a broad range of issues surrounding the composition and operation of the Board, including identifying candidates qualified to become directors and recommending director nominees to the Board.

 

When considering candidates for the Board, the Nominating and Board Governance Committee evaluates the entirety of each candidate’s credentials and does not have specific eligibility requirements or minimum qualifications that must be met by a candidate. The Nominating and Board Governance Committee considers those factors it deems appropriate, including independence, judgment, skill, diversity, strength of character, ethics, integrity, experience with businesses and organizations of comparable size or scope, experience as an executive of or adviser to public and private companies, experience and skill relative to other Board members, specialized knowledge or experience, and the desirability of the candidate’s membership on the Board and any committees of the Board. Depending on the current needs of the Board, the Nominating and Board Governance Committee may weigh certain factors more or less heavily. The Nominating and Board Governance Committee does, however, believe that all members of the Board should have the highest character and integrity, a reputation for working constructively with others, sufficient time to devote to Board matters and no conflict of interest that would interfere with performance as a director.

 

The Nominating and Board Governance Committee considers candidates for the Board from any reasonable source, including stockholder recommendations, and does not evaluate candidates differently based on the source of the recommendation. Pursuant to its charter, the Nominating and Board Governance Committee has the authority to retain consultants and search firms to assist in the process of identifying and evaluating candidates and to approve the fees and other retention terms for any such consultant or search firm.

 

Director Nominations

 

The Board, taking into account the recommendations of the Nominating and Board Governance Committee, selects nominees for election as directors at each annual meeting of stockholders. Stockholders may recommend director candidates for consideration by the Nominating and Board Governance Committee by giving written notice of the recommendation to the Chair of the Nominating and Board Governance Committee, in care of the Company, at the Company’s executive offices at 6301 Fitch Path, New Albany, Ohio 43054. The recommendation should include the candidate’s name, age, business address, residence address and principal occupation. The recommendation should also describe the qualifications, attributes, skills or other qualities possessed by the recommended director candidate. A written statement from the candidate consenting to serve as a director, if elected, should accompany any such recommendation.

 

In addition, stockholders wishing to formally nominate a candidate for election as a director may do so provided they comply with the nomination procedures set forth in the Company’s Amended and Restated Bylaws. Each stockholder nomination must be delivered in person or mailed by United States certified mail to

the Secretary of the Company and received not less than 120 days nor more than 150 days before the first anniversary date of the Company’s proxy statement in connection with the last annual meeting of stockholders, which, for purposes of the Company’s 2010 Annual Meeting of Stockholders, means no later than January 8, 2010 nor earlier than December 9, 2009. The Secretary of the Company will deliver any stockholder nominations received in a timely manner for review by the Nominating and Board Governance Committee. Each stockholder nomination must contain the following information:

 

 

Each nomination must be accompanied by the written consent of the proposed nominee to be named in the proxy statement and to serve if elected. No person may be elected as a director unless he or she has been nominated by a stockholder in the manner just described or by the Board or a committee of the Board.

 

Compensation of Directors

 

Officers who are directors receive no additional compensation for services rendered as directors. Directors who are not associates of the Company or its subsidiaries (“non-associate directors”) receive:

 

 

The annual restricted stock unit grant is subject to the following provisions:

 

 

 

Non-associate directors are also reimbursed for their expenses for attending Board and committee meetings and receive the discount on purchases of the Company’s merchandise extended to all Company associates.

 

The Company has maintained the Directors’ Deferred Compensation Plan since October 1, 1998. The Directors’ Deferred Compensation Plan was split into two plans (Plan I and Plan II) as of January 1, 2005 to comply with Internal Revenue Code Section 409A. The terms of Plan I govern “amounts deferred” (within the meaning of Section 409A) in taxable years beginning before January 1, 2005 and any earnings thereon. The terms of Plan II govern “amounts deferred” in taxable years beginning on or after January 1, 2005 and any earnings thereon. Voluntary participation in the Directors’ Deferred Compensation Plan enables a non-associate director of the Company to defer all or a part of his or her retainers, meeting fees (which are no longer paid) and stock-based incentives (including options, restricted shares of Common Stock and restricted stock units relating to shares of Common Stock). The deferred compensation is credited to a bookkeeping account where it is converted into a share equivalent. Stock-based incentives deferred pursuant to the Directors’ Deferred Compensation Plan are credited as shares of Common Stock. Amounts otherwise payable in cash are converted into a share equivalent based on the fair market value of the Company’s Common Stock on the date the amount is credited to a non-associate director’s bookkeeping account. Dividend equivalents will be credited on the shares of Common Stock credited to a non-associate director’s bookkeeping account (at the same rate as cash dividends are paid in respect of outstanding shares of Common Stock) and converted into a share equivalent. Each non-associate director’s only right with respect to his or her bookkeeping account (and the amounts allocated thereto) will be to receive distribution of the amount in the account in accordance with the terms of the Directors’ Deferred Compensation Plan. Distribution of the deferred amount is made in the form of a single lump sum transfer of the whole shares of Common Stock represented by the share equivalents in the non-associate director’s bookkeeping account (plus cash representing the value of fractional shares) or annual installments in accordance with the election made by the non-associate director. Shares of Common Stock will be distributed under the 2005 Long-Term Incentive Plan in respect of deferred compensation allocated to non-associate directors’ bookkeeping accounts on or after August 1, 2005, under the 2003 Stock Plan for Non-Associate Directors in respect of deferred compensation allocated to non-associate directors’ bookkeeping accounts between May 22, 2003 and July 31, 2005 and under the 1998 Restatement of the 1996 Stock Plan for Non-Associate Directors in respect of deferred compensation allocated to non-associate directors’ bookkeeping accounts prior to May 22, 2003.

 

The following table summarizes the compensation paid to, awarded to or earned by, the non-associate directors for Fiscal 2008. The Company’s Chairman and Chief Executive Officer Michael S. Jeffries is not included in this table as he is an officer of the Company and thus receives no compensation for his services as director. The compensation received by Mr. Jeffries as an officer of the Company is shown in the Fiscal 2008 Summary Compensation Table on page 40 and discussed in the text and tables included under the section captioned “EXECUTIVE OFFICER COMPENSATION” beginning on page 40. There are no amounts shown in the following table for Craig R. Stapleton as he did not join the Board until February 12, 2009.

 

Director Compensation for Fiscal 2008

 

 

 

 

 

Corporate Governance Guidelines

 

In accordance with applicable NYSE Rules, the Board has adopted the Abercrombie & Fitch Co. Corporate Governance Guidelines to promote the effective functioning of the Board and its committees and to reflect the Company’s commitment to the highest standards of corporate governance. The Board, with the assistance of the Nominating and Board Governance Committee, periodically reviews the Corporate Governance Guidelines to ensure they are in compliance with all applicable requirements. The Corporate Governance Guidelines are available on the “Corporate Governance” page of the Company’s website at www.abercrombie.com, accessible through the “Investors” page, or available in print from the Company by sending a request to the Investor Relations Department, 6301 Fitch Path, New Albany, Ohio 43054.

 

Code of Business Conduct and Ethics

 

In accordance with applicable NYSE Rules, the Board has adopted the Abercrombie & Fitch Co. Code of Business Conduct and Ethics, which is available on the “Corporate Governance” page of the Company’s website at www.abercrombie.com, accessible through the “Investors” page, or available in print from the Company by sending a request to the Investor Relations Department, 6301 Fitch Path, New Albany, Ohio 43054. The Code of Business Conduct and Ethics, which is applicable to all associates, includes a Code of Ethics applicable to the Chief Executive Officer, Chief Financial Officer, Controller, Treasurer, all Vice Presidents in the Finance Department and other designated financial associates. The Company intends to

satisfy any disclosure requirements regarding any amendment, or waiver from, a provision of the Code of Business Conduct and Ethics by posting such information on the “Corporate Governance” page of the Company’s website at www.abercrombie.com, accessible through the “Investors” page.

 

Compensation Committee Interlocks and Insider Participation

 

The Compensation Committee is currently comprised of Lauren J. Brisky (Chair), John W. Kessler, Edward F. Limato and Craig R. Stapleton. Ms. Brisky and Messrs. Kessler and Limato served as members of the Compensation Committee throughout Fiscal 2008. Mr. Stapleton was appointed to the Compensation Committee on February 12, 2009 in conjunction with his election to the Board.

 

Mr. Kessler, a director of the Company, has a son-in-law, Thomas D. Lennox, who was employed by the Company in a non-executive officer position as Vice President, Corporate Communications through July 19, 2008 and who received compensation (including a restricted stock unit grant) and benefits not in excess of $325,000 in Fiscal 2008.

 

Certain Legal Proceedings

 

On September 2, 2005, a purported class action, styled Robert Ross v. Abercrombie & Fitch Company, et al., was filed against the Company and certain of its officers in the United States District Court for the Southern District of Ohio on behalf of a purported class of all persons who purchased or acquired shares of the Company’s Common Stock between June 2, 2005 and August 16, 2005. In September and October of 2005, five other purported class actions were subsequently filed against the Company and other defendants in the same Court. All six securities cases allege claims under the federal securities laws related to sales of Common Stock by certain defendants and to a decline in the price of the Company’s Common Stock during the summer of 2005, allegedly as a result of misstatements attributable to the Company. Plaintiffs seek unspecified monetary damages. On November 1, 2005, a motion to consolidate all of these purported class actions into the first-filed case was filed by some of the plaintiffs. The Company joined in that motion. On March 22, 2006, the motions to consolidate were granted, and these actions (together with the federal court derivative cases described in the following paragraph) were consolidated for purposes of motion practice, discovery and pretrial proceedings. A consolidated amended securities class action complaint (the “Complaint”) was filed on August 14, 2006. On October 13, 2006, all defendants moved to dismiss that Complaint. On August 9, 2007, the Court denied the motions to dismiss. On September 14, 2007, defendants filed answers denying the material allegations of the Complaint and asserting affirmative defenses. On October 26, 2007, plaintiffs moved to certify their purported class. After briefings and argument, the motion was submitted on March 24, 2009.

 

On September 16, 2005, a derivative action, styled The Booth Family Trust v. Michael S. Jeffries, et al., was filed in the United States District Court for the Southern District of Ohio, naming the Company as a nominal defendant and seeking to assert claims for unspecified damages against nine of the Company’s present and former directors, alleging various breaches of the directors’ fiduciary duty and seeking equitable and monetary relief. In the following three months (October, November and December of 2005), four similar derivative actions were filed (three in the United States District Court for the Southern District of Ohio and one in the Court of Common Pleas for Franklin County, Ohio) against present and former directors of the Company alleging various breaches of the directors’ fiduciary duty allegedly arising out of the same matters alleged in the Ross case and seeking equitable and monetary relief on behalf of the Company. The Company is also a nominal defendant in each of the four later derivative actions. On November 4, 2005, a motion to consolidate all of the federal court derivative actions with the purported securities law class actions described

in the preceding paragraph was filed. On March 22, 2006, the motion to consolidate was granted, and the federal court derivative actions were consolidated with the aforesaid purported securities law class actions for purposes of motion practice, discovery and pretrial proceedings. A consolidated amended derivative complaint was filed in the federal proceeding on July 10, 2006. The Company filed a motion to stay the consolidated federal derivative case and that motion was granted. The state court action was also stayed. On February 16, 2007, the Company announced that its Board of Directors had received a report of the Special Litigation Committee established by the Board to investigate and act with respect to claims asserted in the previously disclosed derivative lawsuits brought against current and former directors and management, including Chairman and Chief Executive Officer Michael S. Jeffries. The Special Litigation Committee concluded that there was no evidence to support the asserted claims and directed the Company to seek dismissal of the derivative actions. On September 10, 2007, the Company moved to dismiss the federal derivative cases on the authority of the Special Litigation Committee report and on October 18, 2007, the state court stayed further proceedings until resolution of the consolidated federal derivative cases. The Company’s motion was granted on March 12, 2009, and, on April 10, 2009, plaintiffs filed an appeal from the order of dismissal.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table furnishes, as of April 15, 2009 (unless otherwise noted below), with respect to each person who is known to the Company to be the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company (other than Mr. Jeffries, whose beneficial ownership is described in the next table), the name and address of such beneficial owner, the number of shares of Common Stock beneficially owned (as determined in accordance with Rule 13d-3 under the Exchange Act) and the percentage such shares comprised of the outstanding shares of Common Stock of the Company.

 

 

 

 

 

 

The following table furnishes the number of shares of Common Stock of the Company beneficially owned (as determined in accordance with Rule 13d-3 under the Exchange Act) by each of the current directors, by each of the named executive officers, and by all of the current directors and executive officers as a group, as of April 15, 2009.

 

 

 

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

To the Company’s knowledge, based solely on a review of the forms furnished to the Company and written representations that no other forms were required, during Fiscal 2008, all directors, officers and beneficial owners of greater than 10% of the outstanding shares of Common Stock timely filed the reports required by Section 16(a) of the Exchange Act except: John A. Golden, a former director of the Company, filed one late Form 4, reporting five transactions.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Summary

 

Fiscal 2008 has brought with it one of the most challenging retail environments in decades. The Company did not escape the significant decrease in consumer spending during the second half of the year. The compensation earned by the individuals addressed in this disclosure recognizes both the Company’s significant growth from 2005 through 2007 as well as a slowdown in 2008. Much of the accounting cost of the equity awards granted during 2005 through 2007 is reflected in Fiscal 2008 compensation levels in the tables presented below. As sales slowed in the second half of Fiscal 2008, compensation programs worked as planned, slowing down incentive compensation to align with the Company’s performance. As the Company’s Common Stock price fell, the current value of previously granted equity awards was significantly reduced. Further, the tables show compensation for the entire fiscal year; however, most compensation decisions were made during the first quarter of Fiscal 2008 based primarily on Fiscal 2007 performance, and valued for accounting purposes when the Common Stock price was near its 52-week high. Equity-based charges will be lower in Fiscal 2009, a reflection of the slowing of the business and the corresponding reduction in compensation levels.

Building enduring brands remains critical to the Company’s long-term success and management takes a long-term view in operating the business to ensure the equity in its brands is never sacrificed. Despite the recent downturn in sales, management believes that the brands remain strong both in the United States and abroad. The Company still has opportunity both domestically and internationally. The Company is committed to investing strategically in key international markets as a means of achieving long-term growth potential.

 

The Company’s named executive officers (“NEOs”) include the following individuals who are currently serving as executive officers of the Company:

 

Michael S. Jeffries, Chairman and Chief Executive Officer (“CEO”)

 

Jonathan E. Ramsden, Executive Vice President and Chief Financial Officer

 

Diane Chang, Executive Vice President — Sourcing

 

Leslee K. Herro, Executive Vice President — Planning and Allocation

 

Charles F. Kessler, Executive Vice President — Female Merchandising

 

Michael S. Jeffries’ previous employment contract was set to expire on December 31, 2008. On December 19, 2008, the Company entered into a subsequent agreement pursuant to which Mr. Jeffries agreed to continue leading the Company as Chairman and CEO. The term of the new agreement expires on February 11, 2014. Refer to page 46 for additional details.

 

Effective August 18, 2008, Michael W. Kramer, Executive Vice President and Chief Financial Officer resigned from his positions with the Company. At the time of his resignation, Michael M. Nuzzo, who was then serving as the Company’s Senior Vice President — Finance, was appointed the Company’s principal financial and accounting officer, and the Company prosecuted an external search to fill the principal financial officer role. Mr. Nuzzo resigned from the Company effective September 25, 2008. Upon Mr. Nuzzo’s departure, Brian P. Logan, who was then serving as the Company’s Vice President — Controller, assumed the responsibilities of principal financial and accounting officer until Jonathan E. Ramsden commenced his services as Executive Vice President and Chief Financial Officer. Because each of Mr. Kramer, Mr. Nuzzo and Mr. Logan served as principal financial officer for some portion of Fiscal 2008, they are all NEOs for Fiscal 2008. Thus, this Compensation Discussion and Analysis will include discussion applicable to all three, as well as the other NEOs listed above.

 

Compensation Objectives

 

The compensation programs are governed by the Compensation Committee of the Company’s Board, which is comprised solely of independent, non-associate directors of the Company. See the description of the Compensation Committee beginning on page 11.

 

The Company operates in the fast-paced and highly competitive arena of specialty retail. To be successful, the Company must attract and retain key creative and management talents that thrive in this environment. The Company identifies and recruits elite candidates to join the organization — it sets high goals and expects superior performance. The Company’s executive compensation structure is designed to support this culture. As such, the Company’s executive compensation and benefit programs are designed to:

 

 

 

Working with management and outside advisors (described below), the Compensation Committee has developed a compensation and benefits strategy that rewards the performance, behaviors and culture the Company believes will drive long-term success.

 

 

Role of the Compensation Committee

 

In making executive compensation decisions, the Compensation Committee is advised by both independent counsel, Gibson, Dunn & Crutcher LLP (“Gibson Dunn”), and an independent compensation consultant, Pearl Meyer & Partners, LLC (“Pearl Meyer”). The only services that Pearl Meyer and Gibson Dunn perform for the Company are at the direction of the Compensation Committee. Pearl Meyer and Gibson Dunn did not provide any services to the Company other than executive and director compensation consulting

in Fiscal 2008. In this regard, the Compensation Committee has adopted a policy regarding the use of outside compensation consultants that provides as follows:

 

If the Committee retains a compensation consultant to provide advice, information and other services to the Committee relating to the compensation of the Company’s Chief Executive Officer, its officers identified in Rule 16a-1(f) under the Exchange Act or its non-employee directors or other matters within the responsibility of the Committee, such consultant may only provide services to, or under the direction of, the Committee and is prohibited from providing any other services to the Company.

 

The Compensation Committee has the right to terminate the services of counsel and the compensation consultant at any time. While the Compensation Committee retains Gibson Dunn and Pearl Meyer directly, in carrying out assignments, Gibson Dunn and Pearl Meyer interact with the Company’s Senior Vice President of Human Resources, the Company’s office of General Counsel and the Company’s Chief Financial Officer and their respective staffs in order to obtain compensation and performance data for the executive officers and the Company. In addition, the Compensation Committee’s advisors may, at their discretion, seek input and feedback from management regarding their work product prior to presentation to the Compensation Committee in order to confirm information or address other similar issues. Representatives from Gibson Dunn and Pearl Meyer are present at all Compensation Committee meetings. Both firms provide independent perspectives on any management proposals. Gibson Dunn and Pearl Meyer representatives may remain during “executive session” for open dialogue on proposals.

 

Only Compensation Committee members vote on its decisions regarding executive compensation. The Compensation Committee consults with the CEO to discuss his own goals and targets, and to obtain his recommendations for compensation of other executive officers, but ultimately decisions of the Compensation Committee regarding compensation for the CEO and other executive officers are made solely by the Compensation Committee, with input from management and its advisors. The Compensation Committee often requests certain Company executive officers to be present at Compensation Committee meetings where executive compensation and Company and individual performance are discussed and evaluated so they can provide input into the decision-making process. Executive officers may provide insight, suggestions or recommendations regarding executive compensation during periods of general discussion, but do not have a vote in any decision-making.

 

Compensation and Benefits Structure

 

Pay Level — determination of the appropriate pay opportunity

 

Pay levels for all associates of the Company, including the NEOs listed in the Fiscal 2008 Summary Compensation Table on page 40, are determined based on a number of factors, including the individual’s roles and responsibilities within the Company, current compensation, experience and expertise, pay levels in the marketplace for similar positions, as well as internal pay equity relationships between the executive officers and the CEO and the performance of the individual, his/her business unit and the Company as a whole. The Compensation Committee approves the pay levels for all the executive officers. In determining the pay levels, the Compensation Committee considers all forms of compensation and benefits.

 

In determining the “competitive market,” the Compensation Committee uses a number of sources. The primary data source used in setting competitive market levels for the NEOs is information publicly disclosed by the peer group of retail companies listed below. Annually, the compensation consultant to the Compensation Committee reviews the list of peer companies with the Committee. The annual review takes into consideration

such factors as revenue, market capitalization and geographic location. The Compensation Committee reviews information on all forms of compensation — (e.g., salary, bonus, short and long-term incentives). In 2007, this list was expanded from 11 to 20 companies. The decision to expand the list in 2007 was made so that year-to-year findings were less volatile and less likely to be subject to single year “aberrations” in pay among the comparator companies. The list remained unchanged for 2008. The public information for the peer companies is supplemented with survey data, which provides position-based compensation levels across broad industry segments. The compensation consultant to the Compensation Committee utilizes survey data from multiple providers, including Mercer, Hay Group, ICR Limited, Hewitt Associates, Inc., and Watson Wyatt Worldwide, Inc. The Compensation Committee does not make any of the decisions on the exact companies that participate in these surveys, and therefore the Committee views the name of each such company as immaterial to its decision-making process. For corporate staff positions, such as the Chief Financial Officer, the Compensation Committee considers survey data based on companies of similar size, without regard to industry. For industry specific positions, such as the Executive Vice Presidents of Sourcing and Planning & Allocation, the Compensation Committee considers retail industry survey data for companies of a similar size.

 

Peer Companies Used by the Compensation Committee:

 

 

Financial Performance Measures of the Company as compared to the Peer Companies:

 

 

 

 

Relative to the competitive market data, the Compensation Committee intends that the overall total compensation opportunity for the executive group will be approximately the 75^th percentile of identified comparator companies for the achievement of target performance. This same market positioning is used for other professionals within the Company. In view of the Company’s competitive industry, its high profile, its need for highly qualified individuals in creative areas, and its geographic location, the Compensation Committee believes that this top quartile positioning is both necessary and appropriate. Furthermore, the Company has a history of setting challenging performance targets, and the top quartile target compensation levels are consistent with this goal-setting.

 

As noted above, notwithstanding the Company’s overall pay positioning objectives, pay opportunities for specific individuals vary based on a number of factors. The Compensation Committee does not precisely

benchmark each executive officer’s compensation to market levels on an annual basis, but does review market information and, in a given year, may engage in a more detailed review which may result in significant adjustments to a given executive officer’s compensation. Actual total compensation in a given year will vary above or below the target compensation levels based primarily on the attainment of overall Company financial goals and the creation of stockholder value. In some instances, the amount and structure of compensation are affected by negotiations with executive officers, which reflect an increasingly competitive market for quality managerial talent.

 

 

The Company’s compensation program consists of the following elements:

 

 

Base Salary

 

Executive officer base salaries reflect the Company’s operating philosophy, culture and business direction, with each salary determined by an annual assessment of a number of factors, including the individual’s current base salary, job responsibilities, impact on development and achievement of business strategy, labor market compensation data, individual performance relative to job requirements, the Company’s ability to attract and retain critical executive officers and salaries paid for comparable positions within an identified compensation peer group. The Compensation Committee intends that base salary, together with other principal components of compensation at target opportunity levels, will approximate the 75^th percentile of identified comparator companies’ levels and the Compensation Committee periodically evaluates market base salaries for comparable roles among retailers and general industry. Nevertheless, no specific weighting is applied to the factors considered in setting the level of base salary, and thus the process relies on the subjective exercise of the Compensation Committee’s judgment.

 

Annual Incentive Compensation Plan

 

The Incentive Compensation Performance Plan (the “Incentive Plan”), approved by stockholders at the 2007 Annual Meeting, is designed to focus on and reward short-term operating performance. It is the broadest of the Company’s management incentive programs, covering approximately 939 participants, including the CEO and the other NEOs. The Incentive Plan has target incentive levels, expressed as a percentage of base salary, for each level of associate. Each participant in the Incentive Plan is assigned to an incentive level based on his/her position within the Company, with higher levels of associates having more pay at risk. The short-term incentive level for each associate is determined in conjunction with the other principal elements of

compensation (base salary and long-term incentives). All elements combined should approximate the 75^th percentile of identified comparator companies’ levels.

 

 

The Company’s Incentive Plan is divided into two six-month periods that correspond to the Company’s selling seasons, February through July (the “Spring” season) and August through January (the “Fall” season). The participant’s annual opportunity is divided into two performance periods — the target incentive payout for the Spring season equals 40% of the annual target incentive opportunity and the target incentive payout for the Fall season equals 60% of the annual target incentive opportunity. The split in the annual target incentive opportunity is based on historical seasonality of operating results going back several years. Actual awards under the Incentive Plan vary based upon actual performance of the Company relative to the goals set by the Compensation Committee at the beginning of each season (as discussed in the section captioned “Pay-for-Performance”, below). The maximum incentive opportunity that can be earned under the Incentive Plan is two times the target award, for the achievement of “outstanding” performance. For performance falling in between the “threshold,” “target” and “maximum” performance levels, the Company awards bonus amounts on an interpolated basis.

 

The Compensation Committee administers the Incentive Plan so that payments under the Incentive Plan will qualify as “performance-based” compensation under Section 162(m) of the Internal Revenue Code.

 

Long-Term Incentive Program for NEOs other than the CEO

 

Long-term incentives are used to balance the short-term focus of the annual cash incentive compensation program by tying a significant portion of total compensation to performance achieved over multi-year periods. Under the 2005 Long-Term Incentive Plan (the “2005 LTIP”), which was approved by stockholders at the 2005 Annual Meeting, and the 2007 Long-Term Incentive Plan (the “2007 LTIP”), which was approved by stockholders at the 2007 Annual Meeting, the Compensation Committee may grant a variety of long-term incentive vehicles, including options, stock appreciation rights (“SARs”), restricted stock units, and performance shares. For NEOs other than the CEO, the Company currently relies on a combination of restricted stock units, options and SARs. The combination of the types of awards provides a balance between retention (through restricted stock units) and long-term performance (through options and SARs), as described below. Furthermore, the use of stock-based compensation in the long-term incentive program balances the cash-based short-term incentive pay (i.e., base salary and annual cash incentive payouts).

In general, the restricted stock unit grants have historically vested according to the schedule below, provided that the associate continues to work for the Company through the vesting dates. The weighting of the vesting toward the later years rewards retention.

 

 

Beginning with awards made to Executive Vice Presidents who were NEOs on the Fiscal 2008 grant date, the Company added a performance component to the vesting schedule for restricted stock units. The restricted stock units will vest 25% a year if net income grows at 2% or more over the previous year’s net income achievement. If this performance hurdle is not met, the restricted stock unit award will not vest in accordance with the vesting schedule for that year. The executive officer has the opportunity to earn back this unvested portion of the award if cumulative performance hurdles are met in subsequent years. The Compensation Committee retains the right to adjust equity vesting schedules for specific circumstances. For example, the Compensation Committee offered an inducement grant to Mr. Ramsden to secure employment, a portion of which had strictly time based vesting, as described in the Fiscal 2008 Grants of Plan-Based Awards Table on page 44.

 

In general, option and SAR grants vest according to the schedule below, provided that the associate continues to work for the Company through the vesting dates.

 

 

While the Company believes that both retention and long-term performance are important objectives for a long-term incentive program, the Company also believes that the “at risk” component of the long-term incentive program should be higher for the more senior executive officers. Therefore, the ratio of restricted stock units to options varies by level of participant. When compared to the percentage of the total long-term award value received by a majority of the associates in the form of restricted stock units versus options, the more senior executive officers receive a relatively lower percentage of their long-term award value in the form of restricted stock units and a relatively higher percentage in the form of options. For the current NEOs (other than the CEO), approximately 70% of their total long-term incentive award is in the form of restricted stock units and 30% in the form of options. This split is calculated based on the number of shares of Common Stock underlying the awards granted and the grant price.

 

Equity awards for the CEO are established by the terms of his employment agreement and described beginning on page 46.

 

Target long-term incentive award levels are set to generally fall at or above the 75^th percentile of identified comparator companies’ levels. The Compensation Committee also assesses aggregate share usage and dilution levels in comparison to the peer group companies and general industry norms. Within these general grant guidelines, individual awards may be adjusted up or down to reflect the performance of the executive officer and his or her potential to contribute to the success of the Company’s initiatives to create stockholder value and other individual considerations.

The Compensation Committee has adopted an Equity Grant Policy pursuant to which it reviews and approves individual grants for the NEOs, as well as the total number of options, SARs and restricted stock unit grants made to all associates. The annual grants are reviewed and approved at the Compensation Committee’s scheduled March meeting. The grant date for these annual grants is the date of the Compensation Committee meeting at which they are approved. Administration of restricted stock unit, option and SAR awards is managed by the Company’s human resources department and specific instructions related to timing of grants are given directly by the Compensation Committee. The Company has no intention, plan or practice to select annual grant dates for NEOs in coordination with the release of material, non-public information, or to time the release of such information because of award dates.

 

Benefits

 

As associates of the Company, the NEOs are eligible to participate in all of the broad-based Company-sponsored benefits programs on the same basis as other full-time associates.

 

In addition to the qualified Abercrombie & Fitch Co. Savings and Retirement Plan (the “401(k) Plan”), the Company has a nonqualified deferred compensation plan, the Abercrombie & Fitch Nonqualified Savings and Supplemental Retirement Plan (the “Nonqualified Savings and Supplemental Retirement Plan”), that allows executive officers to defer a portion of their compensation over-and-above the Internal Revenue Service (“IRS”) limits imposed on the Company’s 401(k) Plan. The Company also makes matching and retirement contributions to the Nonqualified Savings and Supplemental Retirement Plan on behalf of the participants. Company contributions have a five-year vesting schedule. The Nonqualified Savings and Supplemental Retirement Plan allows participants the opportunity to save and invest their own money on the same basis (as a percentage of their pay) as other associates under the 401(k) Plan. Furthermore, the Nonqualified Savings and Supplemental Retirement Plan is competitive, and the Company’s contribution element provides retention value. The Company’s Nonqualified Savings and Supplemental Retirement Plan is further described and Company contributions and the individual account balances for the NEOs are included under the section captioned “Nonqualified Deferred Compensation” beginning on page 51. The Company provides a separate Supplemental Executive Retirement Plan to the Company’s Chairman and CEO, the material provisions of which are described under the section captioned “Pension Benefits” beginning on page 50.

 

The Company offers a life insurance benefit for all full-time employees equal to two-times base salary. For Vice Presidents and above, the death benefit is set at four-times base salary.

 

The Company offers a long-term disability benefit to all full-time associates which covers 60% of base salary for the disability period. In addition, the Company offers an executive long-term disability plan for all employees earning over $200,000 in base salary which covers an additional 15% of base salary and 75% of target bonus for the disability period.

 

The Company does not offer perquisites to its executive officers that are not widely available to all full-time associates, with the exception of the CEO, who is provided certain perquisites, including private air travel and life insurance, pursuant to the terms of his employment agreement, as more fully described in the footnotes to the Fiscal 2008 Summary Compensation Table on page 40. The Compensation Committee has carefully considered the provision of these benefits, including private air travel and personal security, and approved those benefits out of concern for the CEO’s safety. In approving the private air travel, the Compensation Committee also took into account the CEO’s extensive travel schedule, which, whether primarily for personal or business purposes, nearly always includes a business element (for example, visits to Company stores or potential store locations).

While the Company supports equity ownership by management through the granting of options, SARs and restricted stock units, it does not have formal stock ownership guidelines. The Company believes its management team has been sufficiently motivated to long-term equity ownership without the need to adopt such requirements.

 

Employment Agreements, Severance and Change-in-Control Benefits

 

The Compensation Committee carefully considers the use and conditions of employment agreements. The Compensation Committee recognizes that, in certain circumstances, formal written employment contracts are necessary in order to successfully recruit senior executive officers. Currently, only Mr. Jeffries, the CEO, has such an employment contract, the material provisions of which are described in the section captioned “Employment Agreement with Mr. Jeffries” beginning on page 46. The Compensation Committee believes it is in the best interest of the Company to ensure that Mr. Jeffries’ employment is secured through the use of a contract. Although the Company has existed for more than 100 years, Mr. Jeffries’ role is more akin to founder or lead creative talent than a typical CEO. His vision has transformed the Company into one of the most successful and widely known teen retailers of today.

 

All associates, including the NEOs (other than the CEO with respect to awards granted to him pursuant to his employment agreement) are entitled to certain benefits in the event of termination due to death or disability or a change in control as set forth in the plan documents for the Company’s stock-based compensation plans. The foregoing arrangements are discussed in further detail in the section captioned “Potential Payments Upon Termination or Change in Control” beginning on page 54.

 

Other Compensation Considerations

 

As a general matter, the Compensation Committee considers the various tax and accounting implications of compensation vehicles employed by the Company.

 

When determining amounts of long-term incentive grants to executive officers and associates, the Compensation Committee examines the accounting cost associated with the grants. Under SFAS No. 123(R), grants of options, SARs, restricted stock, restricted stock units and other share-based payments result in an accounting charge for the Company. Share-based compensation expense is recognized, net of estimated forfeitures, over the requisite service period on a straight line basis. The Company estimates the fair value of options and SARs granted using the Black-Scholes option-pricing model. In the case of restricted stock units, the Company calculates the fair value of the restricted stock units granted as the market price of the underlying Common Stock on the date of issuance adjusted for anticipated dividend payments during the vesting period.

 

Section 162(m) of the Internal Revenue Code generally prohibits any publicly-held corporation from taking a federal income tax deduction for compensation paid in excess of $1,000,000 in any taxable year to the chief executive officer and the other named executive officers (excluding the chief financial officer). Exceptions are made for qualified performance-based compensation, among other things. It is the Compensation Committee’s policy to maximize the effectiveness of the executive compensation plans in this regard. However, the Compensation Committee believes that compensation and benefits decisions should be primarily driven by the needs of the business, rather than by tax policy. Therefore, the Compensation Committee may make pay decisions (such as the determination of the CEO’s base salary) that result in compensation expense that is not fully deductible under Section 162(m). For Fiscal 2008, the lost deduction was approximately $37.4 million. This lost deduction related primarily to tax expense as a result of the Chairman and CEO’s new employment agreement, which pursuant to Section 162(m) results in the exclusion

of previously recognized tax benefits. Under the previous employment agreement, the Company recorded deferred tax assets based on the anticipated delivery of benefits to the CEO in the calendar year following the year of his retirement. As a result of the new employment agreement, the CEO receives the benefits during his employment; therefore, the expected tax benefits will no longer be available. In addition, a portion of the Fiscal 2008 lost deduction related to restricted stock unit awards to Ms. Chang and Ms. Herro, which were made prior to Fiscal 2008. Beginning in Fiscal 2008, restricted stock unit grants made to these NEOs have a performance-based vesting schedule that would qualify any compensation recognized from the grants as performance-based compensation under Section 162(m).

 

Pay-for-Performance — determination of the performance measures and goals used in the pay programs

 

The Company uses several vehicles to create a strong link between pay and performance:

 

The Incentive Plan rewards participants for the achievement of short-term, operational goals. As mentioned above, the Company has used the Incentive Plan as a means to focus the organization on the achievement of seasonal financial performance goals. For Fiscal 2008, the Company performance measure for both the Spring and Fall seasons was Net Income. The metrics for each period were as follows:

 

 

The threshold was set to be equal to 96% of Spring 2007 actual performance in light of economic conditions. The target was set to be 1% above Spring 2007 actual performance. The performance band was asymmetrical with maximum payout set 12% above target and a minimum payout 5% below target to provide greater incentive for outstanding performance.

 

 

The threshold was set to be approximately 12% below Fall 2007 actual performance. The target was set to be approximately 2% below actual Fall 2007 performance. The performance band had a maximum payout set 10% above target and a minimum payout 10% below target.

Performance measures for the Incentive Plan have “threshold” requirements, below which no awards are earned or paid. The maximum amount that can be earned under the Incentive Plan is two times the target award opportunity. The Compensation Committee reviews and approves these performance levels on a semi-annual basis. In setting the threshold, target and maximum performance levels, the Compensation Committee considers a number of factors, including the Company’s historical performance, the current budget and the long-term forecasts, peer company performance, and general economic trends and conditions. As noted earlier, the Compensation Committee intends target performance levels to represent challenging, but achievable, performance, consistent with the 75^th percentile of identified comparator companies’ target pay levels. Fiscal Spring 2008 target was set to be greater than Fiscal Spring 2007 actual performance. When the performance measures for Fiscal Fall 2008 were established, the beginning of the economic downturn was becoming evident across the retail sector. The Compensation Committee tried to balance the incentive value of the Incentive Plan with the desire to constantly improve performance. The target for Fiscal Fall 2008 was set slightly lower than Fiscal Fall 2007 actual performance. The Compensation Committee believed that given the significant drop off in consumer spending, achieving Fiscal 2007 performance would be a substantial accomplishment. Maximum performance levels are intended to represent superior performance.

 

The Incentive Plan gives the Compensation Committee members discretion to adjust cash incentive payouts downward based on their business judgment. However, the Compensation Committee may not adjust cash incentive payouts upward under the terms of the Incentive Plan.

 

Clawback Policy

 

The plans pursuant to which short-term and long-term incentive compensation is paid to Company executive officers (i.e., the Company’s Incentive Plan, 2005 LTIP and 2007 LTIP) each include a stringent “clawback” provision, which allows the Company to seek repayment of any incentive amounts that were erroneously paid. Each of the plans provides that if (i) a participant (including one or more NEOs) has received payments under the plan pursuant to the achievement of a performance goal, (ii) the Compensation Committee determines that the earlier determination as to the achievement of the performance goal was based on incorrect data and in fact the performance goal had not been achieved or had been achieved to a lesser extent than originally determined and a portion of such payment would not have been paid, given the correct data, then such portion of any such payment paid to the participant must be repaid by such participant to the Company. This provision provides significant protection to the Company since there is no requirement of misconduct on the part of the plan participant before the policy is triggered.

 

Fiscal 2008 Compensation Actions

 

CEO Employment Agreement

 

As noted above, the Compensation Committee believes it is in the best interest of the Company to secure Mr. Jeffries’ employment through the use of a contract since it is his role and vision that have transformed the Company into one of the strongest retailers in the country. Mr. Jeffries and the Company were party to an employment agreement that was scheduled to expire on December 31, 2008. Given his role and vision for the Company, the Compensation Committee was keenly interested in keeping Mr. Jeffries engaged in the Company’s business and thus desired a long-term employment contract that would motivate Mr. Jeffries’ performance, while simultaneously seeking to implement best practices with respect to executive compensation and corporate governance. The Compensation Committee believes that these goals were attained and reflected in the new employment agreement entered into as of December 19, 2008. In particular:

 

 

 

As noted above, additional details of the employment agreement and the vesting and other terms of the semi-annual grants and the retention grant made and to be made to Mr. Jeffries under the terms of the employment agreement are provided beginning on page 46.

 

Other Actions

 

In establishing the aggregate base salary increase budget, the Company reviewed market data on projected base salary increases published by numerous sources including WorldatWork and Towers Perrin. Increases for the NEOs during the annual salary review (excluding the CEO) averaged 7.0%. The CEO received no salary increase. The current NEOs’ salary increases were determined based on their performance rating. With the exception of Messrs. Nuzzo and Logan, the performance rating was determined subjectively by the CEO. The performance rating of Messrs. Nuzzo and Logan was determined subjectively by the Chief Financial Officer, as neither individual was a NEO at the time performance ratings were given.

 

The Incentive Plan goals are set seasonally. For the Spring 2008 season, the Company made total cash incentive payouts of approximately $5.3 million to a total of 894 associates, including NEOs, under the Incentive Plan. This payout represented 67% of target, based on performance relative to the goals established at the beginning of the year. For the Fall 2008 season, the Company did not achieve the threshold level performance and no payouts were made to any associates, including NEOs.

 

In Fiscal 2008, the Company granted a total of 734,369 restricted stock unit awards to a total of 1,028 associates, including the NEOs. In addition, the Company granted a total of 460,800 options to a total of 68 associates, including the NEOs. The grant levels are based on long-term equity value necessary to achieve the Company’s desired 75^th percentile of identified comparator companies positioning for the participants. As outlined in the 2008 employment agreement with Michael Jeffries as described beginning on page 46, the Company granted the first portion of the retention grant (40% of the 4,000,000 SARs) in December 2008.

Before the Compensation Committee approves the equity grants in total, the Committee reviews the overall dilution represented by the awards to ensure that the overall share usage is consistent with competitive practice. The total number of shares subject to awards granted in Fiscal 2008, represented 3.2% of the Company’s shares of Common Stock outstanding as of January 31, 2009. The Company’s three-year average burn rate is well within industry standards under the burn rate policy of the proxy advisory firm Risk Metrics Group, Inc.* The Company’s equity usage is well below the median on a trailing three-year average basis for the 20 comparator companies. For the Fiscal 2008 grant of restricted stock units with performance-based vesting, described in further detail on page 32, the first year’s net income metric of 2% growth over the previous fiscal year’s net income was not achieved (as of the first anniversary of the grant in March 2009); thus, the shares allocated to the first year did not vest (but will potentially be earned back subject to the satisfaction of future performance hurdles).

 

In the Form 8-K filed on July 24, 2008, the Company announced that Michael W. Kramer would be terminating employment as Executive Vice President and Chief Financial Officer of the Company on August 18, 2008. The Company entered into a separation agreement with Mr. Kramer to secure certain employee covenants (i.e., non-solicitation, confidentiality, non-competition, non-disclosure, non-disparagement and cooperation). In exchange for Mr. Kramer’s entering into these covenants, the Company agreed to the following consideration:

 

 

 

 

* The Risk Metrics burn rate policy converts full-value shares to option equivalents based on the company stock price volatility. For the Company, converting each full-value award to 1.5 option equivalents yields a three-year average burn rate of 2.27%. This compares to the Risk Metrics maximum allowable burn rate for the Company’s retail industry grouping of 3.12%.

 

On November 7, 2008, the Company announced that after a nation-wide search, Jonathan Ramsden had accepted an offer of employment to become Executive Vice President and Chief Financial Officer. Mr. Ramsden’s compensation package was determined through negotiations with Mr. Ramsden. The proposed offer was reviewed with the Compensation Committee prior to extending the offer to Mr. Ramsden. Pearl Meyer reviewed the proposed package against relevant market data for similarly sized companies, as well as the Company’s retail comparators, and discussed their findings with the Compensation Committee. The Compensation Committee approved the offer. The offer was then extended by the Company and accepted by Mr. Ramsden.

 

REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION

 

The Compensation Committee of the Board reviewed the “COMPENSATION DISCUSSION AND ANALYSIS” and discussed it with management. Based on such review and discussions, the Compensation Committee recommended to the Board that the “COMPENSATION DISCUSSION AND ANALYSIS” be included in this Proxy Statement.

 

Submitted by the Compensation Committee of the Board*:

 

 

 

* Craig R. Stapleton did not become a member of the Compensation Committee until February 12, 2009 and, as a result, did not participate in the compensation decisions discussed in the “COMPENSATION DISCUSSION AND ANALYSIS.”

 

EXECUTIVE OFFICER COMPENSATION

 

Summary Compensation Table

 

The following table summarizes the compensation paid to, awarded to or earned by the NEOs for Fiscal 2008, the fiscal year ended February 2, 2008 (“Fiscal 2007”) and the fiscal year ended February 3, 2007 (“Fiscal 2006”). Since the amounts shown in the Stock Awards and Option Awards columns of the table, as required, represent expense recognized by the Company during Fiscal 2008, Fiscal 2007 and Fiscal 2006, the total compensation amount shown may be significantly different from the compensation that was actually paid to the Company’s NEOs during the periods shown.

 

 

Fiscal 2008 Summary Compensation Table

 

 

 

 

 

 

All Other Compensation Table

 

 

 

 

 

 

 

 

 

Grants of Plan-Based Awards

 

The following table sets forth information regarding cash and stock-based incentive awards granted to the NEOs during Fiscal 2008.

 

Fiscal 2008 Grants of Plan-Based Awards