UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

o  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to 240.14a-12

 

THE SHERWIN-WILLIAMS COMPANY

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Sherwin-Williams Company

 

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

To Be Held April 16, 2008

 

 

The Annual Meeting of Shareholders of The Sherwin-Williams Company will be held in the Landmark Conference Center, 927 Midland Building, 101 Prospect Avenue, N.W., Cleveland, Ohio on Wednesday, April 16, 2008 at 9:00 A.M., local time, for the following purposes:

 

 

Shareholders of record at the close of business on February 29, 2008 are the only shareholders entitled to notice of and to vote at the Annual Meeting.

 

Your vote is important. Whether or not you plan to attend the Annual Meeting, please promptly vote by the Internet, by telephone or by completing and returning the enclosed proxy card. Voting early will help avoid additional solicitation costs and will not prevent you from voting in person at the Annual Meeting if you wish to do so.

 

L. E. Stellato

Secretary

 

101 Prospect Avenue, N.W.

Cleveland, Ohio 44115-1075

March 5, 2008

 

ADMISSION TO THE 2008 ANNUAL MEETING.

 

You are entitled to attend the Annual Meeting only if you were a Sherwin-Williams shareholder at the close of business on February 29, 2008, the record date. We may ask you to present evidence of share ownership and valid photo identification to enter the Annual Meeting. Please refer to the section entitled “How can I attend the Annual Meeting?” on page 3 for further information.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON APRIL 16, 2008.

 

Our Proxy Statement and 2007 Annual Report to Shareholders are available at http://proxymaterials.sherwin.com.

 

TABLE OF CONTENTS

 

 

THE SHERWIN-WILLIAMS COMPANY

 

101 Prospect Avenue, N.W.

 

Cleveland, Ohio 44115-1075

 

PROXY STATEMENT

 

March 5, 2008

 

PRELIMINARY

 

We are providing the enclosed proxy materials to you in connection with the solicitation by the Board of Directors of proxies to be voted at the Annual Meeting of Shareholders to be held on April 16, 2008. We began mailing these proxy materials to our shareholders on March 5, 2008. The use of the terms “we,” “us” and “our” throughout this Proxy Statement refers to Sherwin-Williams and/or its management.

 

ANNUAL REPORT

 

We are enclosing our Annual Report to Shareholders for the year ended December 31, 2007 with these proxy materials. We may submit additional financial and other reports at the Annual Meeting, but we do not intend to take any action relating to those reports.

 

What is the purpose of the Annual Meeting?

 

At the Annual Meeting, shareholders will act upon the proposals outlined in the Notice of Annual Meeting of Shareholders. These proposals include:

 

• the election of directors;

 

 

In addition, our management will report on Sherwin-Williams’ performance and respond to questions from shareholders. We are not aware of any other matters that will be brought before the Annual Meeting for action.

 

Who is entitled to vote?

 

Only record holders of our common stock and our ESOP serial preferred stock at the close of business on February 29, 2008, the record date, are entitled to vote at the Annual Meeting. At the close of business on the record date, 120,283,045 shares of common stock and 274,477 shares of ESOP serial preferred stock were outstanding. Each share owned on the record date is entitled to one vote.

 

How do I vote?

 

Voting by mail.  If you are a shareholder of record, you may vote by signing, dating and returning your proxy card in the enclosed prepaid envelope. The proxy holders will vote your shares in accordance with your directions. If you sign and return your proxy card, but do not properly direct how your shares should be voted on a proposal, the proxy holders will vote your shares “FOR” Proposals 1 and 2 and “AGAINST” Proposal 3. If you sign and return your proxy card, the proxy holders will vote your shares according to their discretion on any other proposals and other matters that may be brought before the Annual Meeting.

 

If you hold shares in an account through a broker or other nominee in “street name,” you should complete, sign and date the voting instruction card provided to you by your broker or nominee.

 

Voting on the Internet or by Telephone.  If you are a shareholder of record, detailed instructions for Internet and telephone voting are attached to your proxy card. Your Internet or telephone vote authorizes the proxy holders to vote your shares in the same manner as if you signed and returned your proxy card by mail. If you are a shareholder of record and you vote by the Internet or telephone, your vote

must be received by 5:00 p.m. E.D.T. on April 15, 2008; you should not return your proxy card.

 

If you hold shares through a broker or other nominee in “street name,” you may be able to vote by the Internet or telephone as permitted by your broker or nominee.

 

Voting in Person. All shareholders may vote in person at the Annual Meeting. Shareholders of record may also be represented by another person present at the Annual Meeting by signing a proxy designating such person to act on your behalf. If you hold shares through a broker or nominee, you may vote in person at the Annual Meeting only if you have obtained a signed proxy from your broker or nominee giving you the right to vote your shares.

 

Who tabulates the vote?

 

Representatives of The Bank of New York will tabulate the votes and act as inspectors of election at the Annual Meeting.

 

How do I vote if I am a participant in the Stock Ownership and Automatic Dividend Reinvestment Plan or the Employee Stock Purchase and Savings Plan?

 

If you are a participant in one of these plans, your proxy card also serves as voting instructions for the number of shares which you are entitled to direct the vote under each plan. You may vote your shares in the same manner outlined above. If you are a participant in our Employee Stock Purchase and Savings Plan, your voting instructions must be received by the close of business on April 11, 2008 in order to allow the trustee sufficient time for voting.

 

If you are a participant in our Employee Stock Purchase and Savings Plan and you do not timely provide your voting instructions, the trustee will vote your shares in the same proportion as the trustee votes those shares for which it receives proper instructions. The trustee will vote any unallocated shares held in our Employee Stock Purchase and Savings Plan in the same proportion as the trustee votes those shares for which it receives proper instructions.

 

What are the voting recommendations of the Board of Directors?

 

The Board of Directors recommends that you vote:

 

 

What constitutes a quorum for the Annual Meeting?

 

A “quorum” of shareholders is necessary for us to hold a valid Annual Meeting. For a quorum, there must be present, in person or by proxy, or by use of communications equipment, shareholders of record entitled to exercise not less than fifty percent of the voting power of Sherwin-Williams.

 

Proxy cards marked as withholding authority, as well as proxy cards containing abstentions and “broker non-votes,” will be treated as present for purposes of determining a quorum. A “broker non-vote” occurs when a broker or other nominee holding shares for a beneficial owner does not vote on a particular “non-routine” proposal because the broker or nominee does not have discretionary voting power for that proposal and has not received voting instructions from the beneficial owner. If you are a beneficial owner and a broker holds your shares, it is expected that your broker will be permitted to vote your shares on Proposals 1 and 2 even if your broker does not receive voting instructions from you.

 

What vote is required to approve each proposal?

 

Election of Directors (Proposal 1).  Proposal 1 to fix the number of directors at 11 requires the affirmative vote of the holders of a majority of the shares present, in person or by proxy, and entitled to vote on this proposal. To be elected as a director, a nominee must receive the affirmative vote of a plurality of the votes

cast. Under the plurality voting standard, the nominees receiving the most “for” votes will be elected. A proxy card marked as withholding authority with respect to the election of one or more directors will be counted for quorum purposes.

 

Under our Majority Voting Policy, in an uncontested election, any nominee for director who receives a greater number of “withheld” votes than “for” votes is required to tender his or her resignation for consideration by the Nominating and Corporate Governance Committee of the Board of Directors. We have provided more information about our Majority Voting Policy under the heading “Corporate Governance — Majority Voting Policy.”

 

Ratification of Independent Registered Public Accounting Firm (Proposal 2).  Proposal 2 to ratify the appointment of Ernst & Young LLP as Sherwin-Williams’ independent registered public accounting firm requires the affirmative vote of a majority of the votes cast. A proxy card marked as abstaining with respect to this proposal will be counted for quorum purposes, but will not be counted as a vote cast, and therefore will have no effect on the vote.

 

Shareholder Proposal (Proposal 3).  Proposal 3 requires the affirmative vote of a majority of the votes cast. A proxy card marked as abstaining with respect to this proposal and any broker non-votes with respect to this proposal will be counted for quorum purposes, but will not be counted as a vote cast, and therefore will have no effect on the vote.

 

Other Items.  All other proposals and other business as may properly come before the Annual Meeting require the affirmative vote of a majority of the votes cast, except as otherwise required by statute or our Amended Articles of Incorporation or Regulations.

 

Can I revoke or change my vote after I submit my proxy?

 

Yes. You can revoke or change your vote before the proxy holders vote your shares by timely:

 

 

How can I attend the Annual Meeting?

 

You are entitled to attend the Annual Meeting only if you were a shareholder at the close of business on February 29, 2008, the record date. We may ask you to present evidence of share ownership and valid photo identification to enter the Annual Meeting.

 

 

What are the costs of this proxy solicitation?

 

The enclosed proxy is solicited by the Board of Directors, and Sherwin-Williams will pay the entire cost of solicitation. We have retained Georgeson Inc. to aid in the solicitation of proxies, for which it will receive a fee estimated at $15,000 plus reasonable expenses.

 

In addition, we may reimburse banks, brokers and other nominees for costs reasonably incurred by them in forwarding proxy materials to beneficial owners of our common stock. Our officers and other employees may also solicit the return of proxies. Proxies will be solicited by personal contact, mail, telephone and electronic means.

 

How can I access this Proxy Statement and the 2007 Annual Report to Shareholders electronically?

 

This Proxy Statement and our 2007 Annual Report to Shareholders are available at
http://proxymaterials.sherwin.com.

 

You may help us save money in the future by accessing your proxy materials online, instead of receiving paper copies in the mail. If you would like to access proxy materials on the Internet beginning next year, please follow the instructions located under “Access Proxy Materials Online” in the “Corporate Governance” section of our website at www.sherwin.com.

 

We have a long history of good corporate governance practices that has greatly aided our long-term success. The Board of Directors and management have recognized for many years the need for sound corporate governance practices in fulfilling their respective duties and responsibilities to shareholders.

 

Corporate Governance Guidelines. The Board of Directors has adopted Corporate Governance Guidelines, which provide the framework for the governance of our company. The Board of Directors reviews our Corporate Governance Guidelines at least annually. From time to time, the Board of Directors may revise our Corporate Governance Guidelines to reflect new regulatory requirements and evolving corporate governance practices.

 

Business Ethics Policy.  We have operated under a Business Ethics Policy for many years and are committed to conducting business in an ethical and legal manner throughout the world. Our Business Ethics Policy applies to all of our directors, officers and employees and outlines the broad principles of ethical and legal conduct embraced by Sherwin-Williams to guide our business related conduct. Under our Business Ethics Policy, any director or employee who reasonably believes or suspects that Sherwin-Williams or any director or employee has engaged or is engaging in improper or illegal activities, fraud or activities that appear to be inconsistent with or in violation of the Business Ethics Policy is responsible for reporting such activities. We do not permit retaliation of any kind against any person who, in good faith, reports any known or suspected improper activities pursuant to our Business Ethics Policy.

 

Our Business Ethics Policy includes additional ethical obligations for our senior financial management (which includes our chief executive officer, our chief financial officer, and the controller, treasurer and principal financial and accounting personnel in our operating groups and corporate departments). Our senior financial management is responsible for creating and maintaining a culture of high ethical standards throughout our company to ensure the fair and timely reporting of our financial results and financial condition.

 

Communications with Directors.  The Board of Directors has adopted a process by which shareholders and other interested parties may communicate with the non-management directors or the chairperson of any of the committees of the Board of Directors. You may send communications by regular mail to the attention of the Chairperson, Audit Committee; Chairperson, Compensation and Management Development Committee; or Chairperson, Nominating and Corporate Governance Committee; or to the non-management directors as a group to the Non-Management Directors, each c/o Corporate Secretary, The Sherwin-Williams Company, 101 Prospect Avenue, N.W., 12th Floor, Midland Building, Cleveland, Ohio 44115.

 

Sherwin-Williams’ management will review all communications received to determine whether the communication requires immediate action. Management will pass on all communications received, or a summary of such communications, to the appropriate director or directors.

 

Complaint Procedures for Accounting, Auditing and Financial Related Matters.  The Audit Committee has established procedures for receiving, retaining and treating complaints from any source regarding accounting, internal accounting controls and auditing matters. The Audit Committee has also established procedures for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. Interested parties may communicate such complaints by following the procedures described under the heading “Communications with Directors,” above. Employees may report such

complaints by following the procedures outlined in our Business Ethics Policy. We do not permit any retaliation of any kind against any person who, in good faith, submits a complaint or concern under these procedures.

 

Independence of Directors.  Under our Director Independence Standards (a copy of which is attached as Appendix A), 10 of our current 11 directors are independent and 10 of our 11 director nominees are independent. In addition, all members of the Audit Committee, the Compensation and Management Development Committee, and the Nominating and Corporate Governance Committee are independent.

 

Majority Voting Policy.  The Board of Directors has adopted a Majority Voting Policy. Any nominee for director in an uncontested election who receives a greater number of “withheld” votes than “for” votes shall promptly tender his or her resignation. The Nominating and Corporate Governance Committee will promptly consider the tendered resignation and will recommend to the Board of Directors whether to accept the tendered resignation or to take some other action, such as rejecting the tendered resignation and addressing the apparent underlying causes of the “withheld” votes.

 

In making this recommendation, the Committee will consider all factors deemed relevant by its members. These factors may include the underlying reasons why shareholders “withheld” votes for election from such director (if ascertainable), the length of service and qualifications of the director whose resignation has been tendered, the director’s contributions to Sherwin-Williams, whether by accepting such resignation Sherwin-Williams will no longer be in compliance with any applicable law, rule, regulation or governing document, and whether or not accepting the resignation is in the best interests of Sherwin-Williams and our shareholders.

 

In considering the Committee’s recommendation, the Board of Directors will consider the factors considered by the Committee and such additional information and factors that the Board of Directors believes to be relevant. We will promptly publicly disclose the Board of Directors’ decision and process in a periodic or current report filed with the SEC.

 

Executive Sessions.  The non-management members of the Board of Directors meet at least twice each year in regularly scheduled executive sessions. Additional executive sessions may be scheduled by the non-management directors. The chairpersons of the Audit Committee, the Compensation and Management Development Committee, and the Nominating and Corporate Governance Committee rotate presiding over these sessions.

 

Annual Board Self-Assessments.  The Board of Directors has instituted annual self-assessments of the Board of Directors, as well as the Audit Committee, the Compensation and Management Development Committee, and the Nominating and Corporate Governance Committee, to assist in determining whether the Board of Directors and its committees are functioning effectively. In early 2008, the Board and each of its committees completed self-evaluations and reviewed and discussed the results. The Nominating and Corporate Governance Committee oversees this evaluation process.

 

Board Committee Charters.  The Board of Directors has adopted written charters for the Audit Committee, the Compensation and Management Development Committee, and the Nominating and Corporate Governance Committee. Each committee reviews and evaluates the adequacy of its charter at least annually and recommends any proposed changes to the Board of Directors for approval.

 

Stock Ownership Guidelines.  The Board of Directors has established a minimum share ownership requirement for its directors, executive officers and operating presidents. Each director who has served on the Board for at least five years is expected to own a minimum of 10,000 shares of common stock. Each executive officer and operating president who has served in such capacity for at least five years is expected to own shares of common stock equal in value to a multiple of his base salary ranging from a low of three times to a high of five times for the Chairman and Chief Executive Officer. For purposes of meeting this minimum share ownership requirement, each equivalent share of common stock and each share of restricted stock held under our benefit plans is considered as a share of common stock.

Stock options are not considered towards meeting this requirement.

 

All directors, executive officers and operating presidents have either met our stock ownership guidelines or are pursuing plans to meet our guidelines within the time frames prescribed.

 

Executive Compensation Adjustment and Recapture Policy.  The Board of Directors has adopted a policy regarding the adjustment and recapture of compensation paid or payable to certain key employees and executives. Under the policy, employees who participate in our 2007 Executive Performance Bonus Plan are required to reimburse Sherwin-Williams for any award paid under this plan in the event:

 

 

The reimbursement will be equal to the difference in the amount of the award prior to the restatement and the amount of the award determined using the restated financial results.

 

In addition, under our 2006 Equity and Performance Incentive Plan, (a) all outstanding stock awards will be cancelled and (b) the employee will be required to reimburse Sherwin-Williams for any economic gains received by the employee pursuant to a stock award during the one-year period preceding the Board’s determination that the employee engaged in the conduct described above.

 

Availability of Corporate Governance Materials.  You may access all committee charters, our Corporate Governance Guidelines, our Director Independence Standards, our Business Ethics Policy, our Majority Voting Policy and other corporate governance materials in the “Corporate Governance” section on the “Investor Relations” page of our website at www.sherwin.com. You also may receive copies without charge by writing to us at: The Sherwin-Williams Company, 101 Prospect Avenue, N.W., Cleveland, Ohio 44115, Attention: Investor Relations.

 

 

 

At the Annual Meeting, the number of directors is to be fixed at 11, and 11 directors are to be elected to hold office until the next Annual Meeting of Shareholders and until their successors are elected.

 

Our Board of Directors currently has 11 members. All of these directors are standing for re-election as nominees. All of the nominees were elected by the shareholders at the 2007 Annual Meeting. All of the nominees are independent except for Mr. Connor. Mr. Connor is not considered to be independent because of his position as Chairman and Chief Executive Officer of Sherwin-Williams. There are no family relationships among any of the directors and executive officers.

 

Each of the nominees has agreed to serve if elected. If any nominee declines or is unable to accept such nomination or is unable to serve, an event which we do not expect, the Board of Directors reserves the right in its discretion to substitute another person as a nominee or to reduce the number of nominees. In this event, the proxy holders may vote in their discretion for any substitute nominee proposed by the Board of Directors unless you indicate otherwise.

 

The following is biographical information regarding each nominee:

 

Arthur F. Anton

President and
Chief Executive Officer,

Swagelok Company

Director of Sherwin-Williams since 2006

 

Arthur F. Anton, 50, has served as President and Chief Executive Officer of Swagelok Company (manufacturer and provider of fluid system products and services) since January 2004. Mr. Anton served as President and Chief Operating Officer of Swagelok from January 2001 to January 2004, Executive Vice President of Swagelok from July 2000 to January 2001, and Chief Financial Officer of Swagelok from August 1998 to July 2000. Mr. Anton is also a Director of University Hospitals Health System and is Chairman of the Manufacturing Advocacy & Growth Network.

 

James C. Boland

Retired, Former Vice Chairman,
Cavaliers Operating Company, LLC

Director of Sherwin-Williams since 1998

 

James C. Boland, 68, prior to his retirement in June 2007, served since 2003 as Vice Chairman of Cavaliers Operating Company, LLC (formerly known as Cavaliers/Gund Arena Company). Mr. Boland served as President and Chief Executive Officer of CAVS/Gund Arena Company from January 1998 to January 2003. Prior to his time with the Cavaliers, Mr. Boland served for 22 years as a partner of Ernst & Young LLP in various roles including Vice Chairman and Regional Managing Partner as well as a member of the firm’s Management Committee from 1988 to 1996 and as Vice Chairman of National Accounts from 1997 to his retirement from the firm in 1998. Mr. Boland is also a Director of The Goodyear Tire & Rubber Company and Invacare Corporation and is a Trustee of Bluecoats, Inc. and The Harvard Business School Club of Cleveland.

 

Christopher M. Connor
Chairman and

Chief Executive Officer,

Sherwin-Williams

Director of Sherwin-Williams since 1999

 

Christopher M. Connor, 51, has served as Chairman of Sherwin-Williams since April 2000 and Chief Executive Officer of Sherwin-Williams since October 1999. Mr. Connor served as President of Sherwin-Williams from July 2005 to October 2006, Vice Chairman of Sherwin-Williams from October 1999 to April 2000, and President, Paint Stores Group of Sherwin-Williams from August 1997 to October 1999. Mr. Connor has been with Sherwin-Williams since 1983 in roles of increasing responsibility. Mr. Connor is also a Director of Eaton Corporation and National City Corporation.

 

Daniel E. Evans

Retired, Former Chairman, Chief

Executive Officer and Secretary,

Bob Evans Farms, Inc.

Director of Sherwin-Williams since 1990

 

Daniel E. Evans, 71, prior to his retirement in April 2001, served as Chairman of Bob Evans Farms, Inc. (food products and restaurants) since 1971. Mr. Evans served as Chief Executive

Officer and Secretary of Bob Evans Farms from 1971 to April 2000. Mr. Evans is also a Director of Evans Enterprises, Inc. and Motorists Mutual Insurance Company.

 

David F. Hodnik

Retired, Former President and

Chief Executive Officer,

Ace Hardware Corporation

Director of Sherwin-Williams since 2005

 

David F. Hodnik, 60, prior to his retirement in April 2005, served as Chief Executive Officer of Ace Hardware Corporation (cooperative of independent hardware retail stores) since January 1997. Mr. Hodnik also served as President of Ace from January 1996 through December 2004. Mr. Hodnik joined Ace in October 1972 and held various financial, accounting and operating positions at Ace.

 

Susan J. Kropf

Retired, Former President and

Chief Operating Officer,

Avon Products, Inc.

Director of Sherwin-Williams since 2003

 

Susan J. Kropf, 59, prior to her retirement in January 2007, served as President and Chief Operating Officer of Avon Products, Inc. (global manufacturer and marketer of beauty and related products) since January 2001. Mrs. Kropf served as Executive Vice President and Chief Operating Officer, North America and Global Business Operations, of Avon from December 1999 to January 2001 and Executive Vice President and President, North America, of Avon from March 1997 to December 1999. Mrs. Kropf joined Avon in 1970 and held various positions in manufacturing, marketing and product development. Mrs. Kropf is also a Director of Coach, Inc., MeadWestvaco Corporation, The Kroger Co. and the Wallace Foundation.

 

Robert W. Mahoney

Retired, Former Chairman, Chief

Executive Officer and President,

Diebold, Incorporated

Director of Sherwin-Williams since 1995

 

Robert W. Mahoney, 71, prior to his retirement in April 2000, served as Chairman of Diebold, Incorporated (manufacturer of financial self-service transaction systems and security products) since April 1988. Mr. Mahoney served as Chief Executive Officer of Diebold from April 1988 to November 1999 and President of Diebold from July 1993 to November 1996. Mr. Mahoney is also a Director of Cincinnati Bell Inc. and The Timken Company, is Retired Chairman of the Federal Reserve Bank of Cleveland, Chairman of Ignite Sales, Inc. and Retired Chairman of Mercy Medical Center (Canton, Ohio), is a Trustee of the Professional Football Hall of Fame, is a Member of the Stark (County, Ohio) Development Board, Inc., and is Co-chair of the Ohio Business Alliance for Higher Education and the Economy, Ohio Business Roundtable.

 

Gary E. McCullough

President and

Chief Executive Officer,

Career Education Corporation

Director of Sherwin-Williams since 2002

 

Gary E. McCullough, 49, has served as President and Chief Executive Officer of Career Education Corporation (provider of post secondary education) since March 2007. Mr. McCullough served as Senior Vice President of Abbott Laboratories and President of its Ross Products Division from December 2003 to March 2007. Immediately prior to joining Abbott Laboratories, Mr. McCullough served as Senior Vice President – Americas of Wm. Wrigley Jr. Company from March 2000 to December 2003. Mr. McCullough also spent 13 years at the Procter & Gamble Company where he served in a variety of marketing and management positions. Mr. McCullough is also a Director of Career Education Corporation.

 

A. Malachi Mixon, III

Chairman and Chief Executive Officer,
Invacare Corporation

Director of Sherwin-Williams since 1993

 

A. Malachi Mixon, III, 67, has served as Chief Executive Officer of Invacare Corporation (manufacturer and distributor of home health care products) since January 1980 and Chairman of Invacare since September 1983. Mr. Mixon served as President of Invacare from January 1980 to November 1996. Mr. Mixon is also Chairman of The Cleveland Clinic Foundation and Cleveland Institute of Music and is a Director of the Harvard School of Business Administration.

Curtis E. Moll

Chairman and Chief Executive Officer,
MTD Holdings Inc

Director of Sherwin-Williams since 1997

 

Curtis E. Moll, 68, has served as Chairman and Chief Executive Officer of MTD Holdings Inc (manufacturer of outdoor power equipment and tools, dies and stampings for the automotive industry) since October 1980. Mr. Moll is also a Director of AGCO Corporation and is Chairman of the Board of Directors of Shiloh Industries, Inc.

 

Richard K. Smucker

President and Co-Chief Executive Officer,
The J.M. Smucker Company

Director of Sherwin-Williams since 1991

 

Richard K. Smucker, 59, has served as Co-Chief Executive Officer of The J.M. Smucker Company (makers of food products) since February 2001 and President of J.M. Smucker since January 1987. Mr. Smucker served as Chief Financial Officer of J.M. Smucker from June 2003 to January 2005. Mr. Smucker is also a Director of J.M. Smucker and Wm. Wrigley Jr. Company and is a Trustee of Miami University of Ohio and the Musical Arts Association (The Cleveland Orchestra).

 

The Board of Directors unanimously recommends that you vote “FOR” Proposal 1 relating to the election of directors.

 

The Board of Directors has adopted categorical Director Independence Standards to assist the Board of Directors in determining the independence of each director. To be considered independent, the Board of Directors must affirmatively determine that the director has no material relationship with Sherwin-Williams. In each case, the Board of Directors broadly considers all relevant facts and circumstances, including the director’s commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships, and such other criteria as the Board of Directors may determine from time to time.

 

During the Board of Directors’ annual review of director independence, the Board of Directors considers transactions, relationships and arrangements between each director or an immediate family member of the director and Sherwin-Williams. The Board of Directors also considers transactions, relationships and arrangements between each director or an immediate family member of the director and Sherwin-Williams’ senior management.

 

The following relationships will not be considered to be material relationships that would impair a director’s independence:

 

 

A complete copy of our Director Independence Standards is attached as Appendix A.

 

Early this year, the Board of Directors performed its annual director independence review for 2008. As part of this review, the Board of Directors considered club memberships

common among our directors, including Messrs. Anton, Boland, Connor, Mixon and Smucker. The Board of Directors also considered common public, private and charitable board memberships among our executive officers and directors, including Messrs. Anton, Boland, Connor, Mixon and Moll. The Board of Directors does not believe that any of these common club and board memberships impair the independence of our directors.

 

As a result of this review, the Board of Directors determined that 10 of our 11 current directors and director nominees are independent, and all members of the Audit Committee, the Compensation and Management Development Committee, and the Nominating and Corporate Governance Committee are independent. The Board of Directors determined that Mrs. Kropf and Messrs. Anton, Boland, Evans, Hodnik, Mahoney, McCullough, Mixon, Moll and Smucker meet these standards and are independent and, in addition, satisfy the independence requirements of the New York Stock Exchange. Mr. Connor is not considered to be independent because of his position as Chairman and Chief Executive Officer of Sherwin-Williams.

 

The following table sets forth information regarding the compensation of our nonemployee directors for 2007. Mr. Connor, who is our Chairman and Chief Executive Officer, does not receive any additional compensation for services as a director.

 

		Fees Earned								Option				All Other
		or Paid in				Stock Awards				Awards				Compensation				Total
Name		Cash ($)(4)				($)(5,6,7)				($)(8)				($)(9,10)				($)
A. F. Anton			76,750				53,814				-0-				-0-				130,564
J. C. Boland(1)			89,500				73,507				-0-				5,000				168,007
D. E. Evans			76,750				73,507				-0-				-0-				150,257
D. F. Hodnik			80,250				74,454				-0-				-0-				154,704
S. J. Kropf			80,250				73,507				-0-				-0-				153,757
R. W. Mahoney(2)			90,250				73,507				-0-				-0-				163,757
G. E. McCullough			82,000				73,507				-0-				-0-				155,507
A. M. Mixon, III			80,250				73,507				-0-				5,000				158,757
C. E. Moll			82,000				73,507				-0-				-0-				155,507
R. K. Smucker(3)			92,750				73,507				-0-				1,000				167,257

 

 

 

 

 

The Compensation and Management Development Committee is responsible for annually reviewing and approving the compensation for the nonemployee directors. All of the nonemployee directors are paid under the same compensation program. Officers of Sherwin-Williams who also serve as directors do not receive any additional compensation for services as a director.

 

We use a combination of cash and equity-based compensation to attract and retain our nonemployee directors. Compensation for the nonemployee directors consists of an annual cash retainer; an additional annual cash retainer for chairs of the Audit Committee, the Compensation and Management Development Committee, and the Nominating and Corporate Governance Committee; meeting fees; an annual grant of restricted stock; and other benefits.

 

Stock options are not currently a part of the nonemployee director compensation program. In addition, we do not provide retirement benefits to our nonemployee directors.

 

2008 Director Fees.  For 2008, the cash and equity compensation payable to the nonemployee directors is as follows:

 

 

 

We reimburse all directors for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of the Board of Directors and its committees. This includes travel expenses of spouses if they are invited for a specific business purpose.

 

2007 Director Fees.  During 2007, the annual cash retainer payable to the nonemployee directors was $75,000. In addition, the chair of the Audit Committee received an additional annual cash retainer of $12,500, the chair of the Compensation and Management Development Committee received an additional annual cash retainer of $10,000, and the chair of the Nominating and Corporate Governance Committee received an additional annual cash retainer of $7,500. Nonemployee directors were also eligible to receive a meeting fee of $1,750 for each Board or Committee meeting attended in excess of seven meetings. During 2007, each nonemployee director received a grant of 1,333 shares of restricted stock.

 

Other Benefits.  We also pay the premiums for liability insurance and business travel accident insurance for all directors, including $225,000 accidental death and dismemberment coverage and $225,000 permanent total disability coverage, while the directors are traveling on Sherwin-Williams’ business.

 

Directors may also receive the same discounts as our employees on the purchase of products at Sherwin-Williams’ stores and are eligible to participate in our matching gifts programs on the same basis as employees. These programs provide for annual matches in an equal amount of up to $5,000 under the matching gifts to education program and $1,000 under the matching gifts for volunteer leaders program, as well as annual grants of up to $200 under the grants for volunteers program.

 

Amounts received by the directors for these other benefits are included in the “All Other Compensation” column of the 2007 Director Compensation Table.

 

Deferral of Director Fees.  Directors may elect to defer all or a part of their retainer and meeting fees under our Director Deferred Fee Plan. Deferred fees may be credited to a common stock account, a shadow stock account or an interest bearing cash account. The value of the shadow stock account reflects changes in the market price of our common stock and the payment of dividend equivalents at the same rate as dividends are paid on our common stock. Amounts deferred may be distributed either in annual installments over a period up to ten years or in a lump sum on the date chosen by the director. Amounts credited to a shadow stock account are distributed in cash.

 

 

 

The Board of Directors held seven meetings during 2007. Each director attended at least 75% of the meetings of the Board of Directors and committees on which he or she served. Each director is expected to attend, absent unusual circumstances, all annual and special meetings of shareholders. All directors except one attended the 2007 Annual Meeting of Shareholders.

 

The Board of Directors has established an Audit Committee, a Compensation and Management Development Committee, and a Nominating and Corporate Governance Committee. The Board of Directors has adopted a written charter for each of these committees. You can find a complete copy of each committee charter in the “Corporate Governance” section on the “Investor Relations” page of our website at www.sherwin.com. The following table sets forth the current membership of these committees.

 

Compensation and

Nominating and

Management

Corporate

Name

Audit

Development

Governance

A. F. Anton

x

J. C. Boland

x

x

*

D. E. Evans

x

D. F. Hodnik

x

S. J. Kropf

x

R. W. Mahoney

x

*

x

G. E. McCullough

x

A. M. Mixon, III

x

x

C. E. Moll

x

x

R. K. Smucker

x

*

x

 

* Committee Chair

 

Audit Committee. The purpose of the Audit Committee is to assist the Board of Directors in fulfilling the Board of Directors’ oversight responsibilities on matters relating to:

 

 

The Committee met five times during 2007. Each member of the Committee is independent as defined in the corporate governance listing standards of the New York Stock Exchange, SEC regulations and our Director Independence Standards. The Board of Directors has determined that Messrs. Boland, Hodnik and Smucker are “audit committee financial experts,” as that term is defined by SEC regulations. No member of the Committee serves on the audit committees of three other public companies.

 

Compensation and Management Development Committee. The purpose of the Compensation and Management Development Committee is to assist the Board of Directors in fulfilling the Board of Directors’ oversight responsibilities on matters relating to:

 

 

 

The Committee met four times during 2007. Each member of the Committee is independent as defined in the corporate governance listing standards of the New York Stock Exchange and our Director Independence Standards.

 

Process for Determining Director and Executive Compensation.  The Committee reports to the Board of Directors on all compensation matters regarding our directors, executives and other key salaried employees. The Committee annually reviews and approves the compensation for our directors, executives and other key salaried employees. The Committee does not generally delegate any of its authority to other persons, although it has the power to delegate authority to subcommittees. The Committee relies upon our executives and other employees and an outside compensation consultant in order to assist the Committee in performing its duties.

 

We generally pay our directors and executives compensation that is competitive in the marketplace. In order to assist the Committee in determining compensation that is competitive, the Committee has engaged Towers Perrin, an outside consulting firm, as its compensation consultant. Towers Perrin annually compiles information regarding the compensation that similar companies are paying to their directors and executives. Our Senior Vice President — HR and his staff usually work directly with Towers Perrin to compile the market compensation information. We use that information as a starting point to set compensation levels for our directors and executives.

 

Role of the Compensation Consultant.  Towers Perrin serves as an advisor to the Committee on compensation matters relating to our directors and executives. Towers Perrin generally provides the Committee with market compensation data and makes recommendations with regard to the form and amount of director and executive compensation based on the market data. Towers Perrin typically makes recommendations with regard to the base salary, annual cash incentive compensation and long-term equity incentive compensation for our Chief Executive Officer.

 

Towers Perrin also from time to time identifies peer companies for benchmarking director and executive compensation, provides other market compensation information and analysis, assists with the development of, and changes to, compensation plans and programs, and attends Committee meetings.

 

Role of Management.  The Committee relies upon our Senior Vice President — HR and his staff for input in determining director and executive compensation levels. Towers Perrin typically provides the requested market compensation information to our Senior Vice President — HR, and our Senior Vice President — HR typically meets with Towers Perrin to discuss this information. Our Chief Executive Officer does not meet with Towers Perrin on an individual basis. With regard to director compensation, Towers Perrin also typically provides the Committee with recommendations of any changes to director compensation. Our Senior Vice President — HR may also make recommendations to the Committee of changes to director compensation based upon the market compensation information.

 

With regard to executive compensation, management generally makes recommendations to the Committee and plays a more active role in the compensation process. Management makes recommendations relating to the development of compensation plans and programs and changes to existing plans and programs. Management also makes recommendations with respect to:

 

 

Prior to providing recommendations to the Committee at its formal meetings, our Senior

Vice President — HR generally will meet with our Chief Executive Officer to review the recommendations, except for recommendations concerning our Chief Executive Officer’s compensation. Our Chief Executive Officer and our Senior Vice President — HR also will meet with the chair of the Committee prior to Committee meetings to review the agenda for the meetings and the compensation recommendations. Our Chief Executive Officer and our Senior Vice President — HR generally attend all Committee meetings. Our Chief Executive Officer does not have the ability to call Committee meetings. Our Senior Vice President — HR serves as secretary for the Committee at its meetings. Our Chief Executive Officer is excused from that part of the meeting during which the Committee discusses his annual performance evaluation and compensation.

 

Nominating and Corporate Governance Committee. The purpose of the Nominating and Corporate Governance Committee is to assist the Board of Directors in fulfilling the Board of Directors’ oversight responsibilities on matters relating to:

 

 

The Committee met twice in 2007. Each member of the Committee is independent as defined in the corporate governance listing standards of the New York Stock Exchange and our Director Independence Standards.

 

Director Qualifications.  The Committee seeks a diverse group of candidates who possess the appropriate characteristics, skills, experience and time to make a significant contribution to the Board of Directors, Sherwin-Williams and our shareholders. Each candidate will be evaluated in the context of the Board of Directors as a whole, with the objective that the Board of Directors can best perpetuate Sherwin-Williams’ success and represent shareholders’ interests through the exercise of sound business judgment using the directors’ diversity of experiences. Each candidate shall have the highest personal and professional character and integrity, and shall have demonstrated exceptional ability and judgment in their respective endeavors. Candidates must possess sufficient time to effectively carry out their duties and responsibilities.

 

In considering the composition of the Board of Directors as a whole, the Board of Directors considers the following characteristics, skills and experiences of each individual candidate:

 

 

In addition, the Board of Directors considers such other skills and experiences as it deems appropriate given the then-current needs of the Board of Directors and Sherwin-Williams.

 

The Committee may employ professional search firms (for which it would pay a fee) to assist it in identifying potential members of the Board of Directors with the desired skills and disciplines.

 

Consideration of Candidates Recommended by Shareholders.  The Committee’s policy with respect to the consideration of director candidates recommended by shareholders is that the Committee will consider such candidates on the same basis and in the same manner as it considers all director candidates.

Recommendations are required to include the following information:

 

 

You may find a complete description of these requirements under “Procedures for Shareholders to Recommend Director Candidates” in the “Corporate Governance” section on the “Investor Relations” page of our website at www.sherwin.com. Shareholders may submit recommendations, along with proof of shareholder status, in writing to Chairperson, Nominating and Corporate Governance Committee, c/o Corporate Secretary, The Sherwin-Williams Company, 101 Prospect Avenue, N.W., 12th Floor, Midland Building, Cleveland, Ohio 44115.

 

 

 

Management has the primary responsibility for the integrity of Sherwin-Williams’ financial information and the financial reporting process, including the system of internal control over financial reporting. Ernst & Young LLP, Sherwin-Williams’ independent registered public accounting firm, is responsible for conducting independent audits of Sherwin-Williams’ financial statements and management’s assessment of the effectiveness of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States) and expressing an opinion on the financial statements and management’s assessment based upon those audits. The Audit Committee is responsible for overseeing the conduct of these activities by management and Ernst & Young LLP.

 

As part of its oversight responsibility, the Committee has reviewed and discussed the audited financial statements, the adequacy of financial controls and the effectiveness of Sherwin-Williams’ internal control over financial reporting with management and Ernst & Young LLP. The Committee also has discussed with Ernst & Young LLP the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees). The Committee has received the written disclosures and the letter from Ernst & Young LLP required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and has discussed with Ernst & Young LLP that firm’s independence.

 

Based upon these reviews and discussions, the Committee recommended to the Board of Directors that the audited financial statements be included in Sherwin-Williams’ Annual Report on Form 10-K for the year ended December 31, 2007 for filing with the Securities and Exchange Commission.

 

AUDIT COMMITTEE

R. K. Smucker, Chairman

J. C. Boland

D. F. Hodnik

G. E. McCullough

C. E. Moll

 

The Compensation and Management Development Committee has reviewed and discussed with management the Compensation Discussion and Analysis contained in this Proxy Statement. Based upon this review and discussions, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in Sherwin-Williams’ Annual Report on Form 10-K for the year ended December 31, 2007 and this Proxy Statement.

 

COMPENSATION AND MANAGEMENT

DEVELOPMENT COMMITTEE

R. W. Mahoney, Chairman

A. F. Anton

D. E. Evans

S. J. Kropf

A. M. Mixon, III

 

 

 

Executive Summary.

 

 

Objectives.  We design and manage our company-wide compensation programs to maintain a performance and achievement-oriented environment in order to attract, hire, retain and motivate talented and skilled individuals at all levels of our company.

 

The Compensation Committee.  The Compensation and Management Development Committee assists our Board of Directors in fulfilling our Board’s oversight responsibilities to administer our executive compensation program. Each member of the Compensation Committee is independent as defined in the corporate governance listing standards of the New York Stock Exchange and our director independence standards.

 

The Compensation Committee reports to the Board of Directors on all compensation matters regarding our executives and other key salaried employees. You may learn more about the Compensation Committee’s responsibilities by reading the Compensation Committee’s Charter, which is available in the “Corporate Governance” section on the “Investor Relations” page of our website at www.sherwin.com. We have also included additional information about the Compensation Committee, including the role of compensation consultant and management in the compensation setting process, under the heading “Board Meetings and Committee Membership — Compensation and Management Development Committee.”

 

Components of Compensation.  The major components of our executive compensation program, the primary purpose of each component and the form of compensation for each component are described in the following table.

Component		Primary Purpose		Form of Compensation
Base Salary		Provides base compensation for the day-to-day performance of job responsibilities		Cash
Annual Cash Incentive Compensation		Rewards performance during the year based on the achievement of annual performance goals		Cash
Long-Term Equity Incentive Compensation		Encourages improvement in the long-term performance of our company, thereby aligning the interests of our executives with the interests of our shareholders		Stock options, which vest over a three-year period, and performance-based restricted stock, which vests at the end of a four-year period based upon the achievement of financial performance goals
Other Employee And Executive Benefits, Including Perquisites		Provides a broad-based executive compensation program for employee retention, retirement, health and financial security		Retirement and savings programs, health and welfare programs, and employee benefit plans, programs and arrangements generally available to all employees; perquisites, executive life insurance program, executive long-term disability program and grantor trust program

 

The Summary Compensation Table sets forth amounts for these components that we paid to our Chairman and Chief Executive Officer, our Senior Vice President — Finance and Chief Financial Officer and our three other highest paid executives for 2007. We refer to these five executives as our “named executives.” Our named executives are:

 

 

We compensate our executives principally by using a combination of short-term compensation (salary and annual cash incentive compensation) and long-term compensation (stock options and restricted stock). We determine the mix of short-term and long-term compensation by reviewing the mix available at the peer companies listed on the next page. Accordingly, we do not have a specific policy for the allocation of compensation between short-term and long-term compensation or cash and equity compensation.

 

The policies we use to make compensation decisions and the decisions we make are materially similar for all executives. These policies and decisions result in higher compensation levels for our Chairman and Chief Executive Officer primarily based upon the higher median compensation that is available for chief executive officers at the peer companies.

 

We tie our annual cash incentive compensation to the achievement of performance goals, and we tie our long-term equity incentive compensation to the achievement of performance goals or to the value of our common stock. We believe it is important that a portion of our executives’ incentive compensation is dependent upon the price of our common stock in order to align the interests of our executives with the interests of our shareholders. However, since the price of our common stock is subject to some factors outside the control of our company and our executives, we believe it is also

important that a portion of our executives’ incentive compensation be tied to performance goals relating to the operations of our company. We select performance goals that we believe help to drive our business and create value for our shareholders.

 

Our Starting Point.  We offer our executives compensation that is intended to be competitive with compensation offered at similar chemical, building product manufacturing and retail companies with comparable sales. The Compensation Committee has retained Towers Perrin, an outside compensation consultant, to identify annually the minimum, median and maximum compensation paid to executives holding equivalent positions or having similar responsibilities at these peer companies. These peer companies are regularly reviewed and changed from time to time, and the information is updated annually.

 

We review compensation paid at these peer companies because their size and business make them most comparable to us. We also believe these companies likely compete with us for executive talent. We use this information only as a starting point, not as a determining factor, in setting compensation.

 

We generally benchmark the compensation that we pay to our executives against the median compensation that these peer companies pay to their executives. We benchmark against median compensation because it allows us to attract and retain employees, provides an incentive for employees to strive for better than average performance to earn better than average compensation, and helps us to manage the overall cost of our compensation program. For compensation earned in 2007, these peer companies included the companies listed in the following table.

 

Akzo Nobel, N.V.		Engelhard Corporation		Owens Corning
American Standard Companies, Inc.		Fortune Brands Inc.		PPG Industries, Inc.
Armstrong Holdings Inc.		Imperial Chemical Industries PLC		Rohm and Haas Company
Ashland Inc.		Leggett & Platt Inc.		RPM International Inc.
Avery Dennison Corporation		Lennox International Inc.		The Stanley Works
The Black & Decker Corporation		Louisiana-Pacific Corporation		USG Corporation
Chemtura Corporation		Masco Corporation		The Valspar Corporation
Eastman Chemical Co.		Newell Rubbermaid Inc.		Weyerhaeuser Company

 

For compensation to be earned in 2008, we deleted eight companies (Armstrong, Chemtura, Engelhard, Imperial Chemical, Lennox, Louisiana-Pacific, RPM and Valspar) and added four companies (Air Products & Chemicals, Inc., Mohawk Industries, Inc., Celanese Corporation and The Lubrizol Corporation). These changes were made so that the median size of the group (measured in total sales) more closely approximates Sherwin-Williams’ size while still encompassing similar businesses.

 

The compensation information for the peer companies provided by Towers Perrin includes median base salary, annual cash incentive compensation, long-term equity incentive compensation and total direct compensation. Total direct compensation is the sum of base salary, annual cash incentive compensation and long-term incentive compensation. We review total direct compensation in order to help us determine whether the principal compensation components that we pay to our executives are competitive in the aggregate.

 

The following table sets forth the projected total direct compensation for our named executives as a percent of the median total direct compensation paid by the peer companies. For purposes of this table, projected total direct compensation includes 2008 base salary, 2008 targeted annual cash incentive compensation, stock options granted in October 2007 and the targeted value of shares of restricted stock granted in February 2008.

 

		Projected Targeted
		Total Direct
		Compensation as a %
Named Executive		of Peer Companies (%)
C.M. Connor			101.8
J.G. Morikis			105.6
S.P. Hennessy			104.6
S.J. Oberfeld			105.5
T.W. Seitz			109.0

 

The median total direct compensation paid by the peer companies (as set forth in the table above) reflects 2006 compensation because more current compensation amounts were not available at the time the Compensation Committee reviewed the information. Consequently, because peer compensation amounts were two years old, we expected the projected targeted total direct compensation for our named executives (as set forth in the table above) to exceed 100% of peer compensation.

 

No targeted compensation component amount for any of our named executives materially varied from the median component amount for the peer companies. The Compensation Committee did not increase or decrease the amount of any compensation component based upon the amount of any other compensation component or its review of projected targeted total direct compensation.

 

Base Salary.  Each salaried position at our company is assigned a salary grade that corresponds to a salary range. We review the salary ranges against median base salaries at the peer companies based upon the position and level of responsibility. The midpoint of the range generally approximates the median salary paid for an equivalent or similar position at the peer companies. The Compensation Committee reviews salary ranges for our executives annually. The Compensation Committee reviews and approves the base salary of each executive annually and at other times in connection with any promotion or other change in responsibility. Annual base salary increases are effective in March.

 

Annual salary increases are based, in part, on the overall annual salary budget guidelines for our company. In addition, each executive undergoes an annual performance review. The executive’s performance for the prior year is reviewed by his direct supervisor. With regard to the evaluation of our Chairman and Chief Executive Officer, each director provides ratings and comments for performance areas that include company strategy, manpower needs, and leadership in growing sales, earnings per share and total shareholder return. The results are reviewed by the Compensation Committee and by the non-management directors in executive session.

 

As part of this annual performance review, all salaried employees, including our executives, are assigned a performance rating that corresponds with a range of potential merit increases. Increases are based upon the executive’s performance, responsibilities, experience and tenure in his particular position and our company-wide performance. These factors are not quantified or weighted in any objective manner. Instead, the Compensation Committee exercises its discretion and subjective judgment in assessing those factors and in approving a specific merit increase within the range.

 

During 2007, the Compensation Committee reviewed the perquisites that Sherwin-Williams has provided to its executives and eliminated most of those perquisites. Effective August 2007, the Compensation Committee eliminated the following perquisites: parking, annual physical, personal liability insurance, basic financial planning, home security system and club memberships for personal use. Accordingly, the Compensation Committee approved a salary adjustment to compensate executives for the elimination of these perquisites. The annual base salaries were increased $25,000 for Messrs. Connor, Morikis and Hennessy and $20,000 for Messrs. Oberfeld and Seitz.

 

We adopt budget salary guidelines for all of our employees. For 2007, we adopted an overall 3.75% merit budget for annual salary increases with possible merit increases ranging from 0% to 8.25%. For 2008, we adopted an overall 3.25% merit budget for annual salary increases with possible merit increases ranging from 0% to 7.75%. The following table sets forth the 2007 and 2008 base salaries for our named executives and the percentage increase.

		2007 Base				%				2008 Base
Named Executive		Salary ($)				Increase				Salary ($)
C.M. Connor			1,183,522				3.25				1,221,987
J.G. Morikis			683,356				3.25				705,566
S.P. Hennessy			522,157				3.25				539,127
S.J. Oberfeld			474,575				3.25				489,999
T.W. Seitz			436,713				3.25				450,907

 

Annual Cash Incentive Compensation.  We pay annual cash incentive compensation to our executives under our 2007 Executive Performance Bonus Plan, which was approved by our shareholders at our 2007 Annual Meeting of Shareholders. The amount of annual cash incentive compensation earned by our named executives in 2007 is set forth in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. We paid these amounts in February 2008. All of our executives participate in our Executive Performance Bonus Plan. Our Executive Performance Bonus Plan is designed so that our executives may earn higher than average annual cash incentive compensation for above average performance and lower than average annual cash incentive compensation for below average performance.

 

The Compensation Committee annually reviews target and maximum annual cash incentive compensation levels for our executives as a percent of their salary. Target incentive awards are determined by using the median annual cash incentive compensation available at the peer companies, which generally equals the amount an executive could receive under our Executive Performance Bonus Plan if he achieves a 100% average of his goals. The maximum incentive awards are determined by using the maximum annual cash incentive compensation available at the peer companies, which generally equals the amount an executive could receive if he achieves a 125% average of his goals.

 

The following table sets forth the minimum, target and maximum cash incentive amount levels, as a percent of salary, for each named executive based upon the executive achieving an average of 75%, 100% and 125%, respectively, of his performance goals. These levels are effective for annual cash incentive amounts earned in 2008 and payable in February 2009. In February 2008, we increased the maximum annual cash incentive level that may be earned in 2008 for Messrs. Oberfeld and Seitz (from 95% to 120%). We increased these levels for Messrs. Oberfeld and Seitz to align their maximum annual cash incentive compensation with the maximum annual cash incentive compensation available for similar positions at the peer companies.

 

		2008 Incentive Amount as a
		Percentage of Salary
Named Executive		Minimum				Target				Maximum
C.M. Connor			40				95				190
J.G. Morikis			40				75				150
S.P. Hennessy			40				75				150
S.J. Oberfeld			30				60				120
T.W. Seitz			30				60				120

 

At its February meeting, the Compensation Committee reviews and approves each named executive’s achievement of performance goals for the prior year and approves new performance goals for the current year.

 

We annually establish a threshold goal to increase company earnings. 75% of this earnings increase must be met before we pay annual incentive compensation, subject to the Compensation Committee’s discretion to pay amounts for individual performance and to make adjustments for nonrecurring or unusual items. For 2007, the threshold earnings goal was to increase 2007 earnings before taxes $68.2 million over 2006 earnings. In 2007, our earnings before taxes increased $78.6 million compared to 2006. Accordingly, we exceeded the 2007 threshold earnings goal. We did not make any adjustments for nonrecurring or unusual items.

 

The Compensation Committee approves the performance goals of all of our named executives. Our Chairman and Chief Executive Officer also approves the goals of our other named executives. Performance goals vary by executive and usually relate to the business unit or function for which such person has responsibility. Performance goals are weighted between 10% and 30%. Financial performance goals are generally weighted more heavily.

 

Target levels for financial performance goals are generally set at a level that show improvement over the prior year. The following table shows for each named executive the 2007 performance goals, the weightings for each goal and the corresponding percentage achievement for each goal.

				Percentage
Named Executive		2007 Performance Goals		Achievement
C.M. Connor		Earnings per share of $4.60 (weighted 30%)		125
J.G. Morikis S.P. Hennessy		Earnings before interest, taxes, depreciation and amortization of $1.126 billion (weighted 20%)		125
		Net sales of $8.3 billion (weighted 20%, 20% and 10%, respectively)		75
		Free cash flow of $444.6 million (weighted 10%, 10% and 20%, respectively)		125
		After tax return on equity of 31.1% (weighted 10%)		125
		Consolidated working capital as a % of sales of 11.62% (weighted 10%)		75
S.J. Oberfeld		Paints Stores Group sales of $5.3 billion (weighted 20%)		75
		Paint Stores Group profit before taxes (weighted 20%)		108
		Paint Stores Group return on sales (weighted 20%)		125
		Paint Stores Group return on net assets employed of 52.1% (weighted 15%)		125
		Paint Stores Group gallons sold (weighted 15%)		50
		Paint Stores Group new store openings of 143 (weighted 10%)		75
T.W. Seitz		Net sales of $8.3 billion (weighted 20%)		75
		Total savings from operations management projects of $24 million (weighted 20%)		125
		Development of domestic supply chain strategy (weighted 20%)		125
		Earnings per share of $4.60 (weighted 10%)		125
		Return on net assets employed of 28.6% (weighted 10%)		125
		Creation of a global sourcing strategy (weighted 10%)		125
		Adoption of excellence initiatives in acquisitions (weighted 10%)		120

 

We have not disclosed target levels for three of Mr. Oberfeld’s performance goals because we believe such disclosure will cause competitive harm to Sherwin-Williams with regard to product pricing. These three goals relate to Paint Stores Group profit before taxes, return on sales and gallons sold. The target levels for each of these goals were set at amounts that exceeded 2006 results. Mr. Oberfeld’s percentage achievement for each of these goals is set forth in the table above.

 

In February 2008, the Compensation Committee reviewed each named executive’s achievement of his 2007 performance goals. The following table sets forth for each named executive the average percentage of performance goals achieved, the amount of annual cash incentive compensation earned and the percentage of their 2007 salary that the amount represented.

 

		Average % of				Amount of
		Performance				Annual Cash
		Goals				Incentive				% of 2007
Named Executive		Achieved				Earned ($)				Salary
C.M. Connor			110.0				1,544,000				133
J.G. Morikis			110.0				697,000				105
S.P. Hennessy			115.0				604,000				120
S. J. Oberfeld			100.0				276,000				60
T.W. Seitz			114.5				339,000				80

 

Tax and Accounting Considerations.  From time to time, we review the accounting and tax laws, rules and regulations that may affect our compensation programs. However, tax and accounting considerations have not significantly impacted the compensation programs we offer to our executives.

 

Section 162(m) of the Internal Revenue Code generally provides that certain compensation in excess of $1 million per year paid to a company’s chief executive officer and any of its four other highest paid executive officers is not deductible by a company unless the compensation qualifies for an exception. Section 162(m) provides an exception to the deductibility limit for performance-based compensation if certain procedural requirements, including shareholder approval of the material terms of the performance goal, are satisfied.

 

Under our Executive Performance Bonus Plan, we have the ability to pay non-discretionary annual cash incentive compensation to our named executives that will qualify for deductibility. Independent of the Executive Performance Bonus Plan, the Compensation Committee retains the discretion to reward strong individual performance by paying

executive compensation that may not be deductible under Section 162(m). The Compensation Committee believes that its ability to exercise such discretion is in the best interests of Sherwin-Williams and our shareholders. The Compensation Committee did not make any such discretionary payments for 2007 to our executives.

 

Long-term Equity Incentive Compensation.  We grant long-term equity incentive compensation in the form of stock options and restricted stock annually to our executives under our 2006 Equity and Performance Incentive Plan. We begin by determining the median market value of long-term equity incentive compensation that the peer companies grant to their executives, and then we allocate that compensation between stock options and restricted stock. When making awards of stock options and restricted stock to executives, we target comparable values for stock options and restricted stock. We allocate the mix of stock options and restricted stock in this way because we want to equally reward the growth in the value of our common stock and the achievement of financial performance goals.

 

We have used a consistent approach in granting stock options and restricted stock over the years. We grant stock options and restricted stock on an annual basis at regularly scheduled Compensation Committee meetings. We schedule the dates of these meetings approximately one year in advance. We typically grant restricted stock in February and stock options in October. We grant restricted stock and stock options in February and October so that our annual grants are made at different times of the year. Information relating to the stock options and shares of restricted stock granted to our named executives is set forth in the Summary Compensation Table and the 2007 Grants of Plan-Based Awards Table.

 

At each October Compensation Committee meeting, we grant stock options to all eligible employees. These grants are made typically on the same day that the Audit Committee approves our earnings release for the third quarter and a day or so before we release our third quarter earnings results. At each February Compensation Committee meeting, we grant restricted stock. This meeting typically occurs in the third week of February, approximately three or four weeks after we release our annual earnings results. We may also grant restricted stock and stock options at other regularly scheduled Compensation Committee meetings in connection with an employee’s promotion and other events. The dates of these grants may occur shortly before we release our quarterly earnings results. We do not take into account our earnings results when determining the number of stock options or shares of restricted stock to be granted.

 

Stock Options.  The number of stock options granted to an executive is based upon the executive’s position and level of responsibility using comparable positions at the peer companies. We determine the specific number of stock options to be granted by calculating the Black-Scholes-Merton value of the stock options over a prior 90-day period. Black-Scholes-Merton is a generally accepted model used in estimating the value of stock options. We identify the minimum, median and maximum values of stock options granted by the peer companies. The Compensation Committee generally grants stock options at approximately median value.

 

In accordance with the terms of our stock plans, the option exercise price for all stock options is equal to the average of the high and low market price of our common stock on the date options are granted. Accordingly, the exercise price may be higher or lower than the closing price of our common stock on that day. We do not reprice stock options, and our stock plans do not contain reload features. Stock options typically vest at the rate of one-third per year for three years (beginning one year from the date of grant) and expire ten years from the date of grant. In October 2007, we granted stock options to all executives.

 

Restricted Stock.  We determine the granting of restricted stock in a manner similar to how we determine the granting of stock options. We identify the minimum, median and maximum values of restricted stock granted by the peer companies. The Compensation Committee generally grants restricted stock with a value higher than the median to allow our executives the opportunity to earn above average compensation for above average performance. In 2007, the Compensation Committee granted shares of

restricted stock at approximately 125% of the median value. Shares of restricted stock are subject to a “substantial risk of forfeiture” and vest in accordance with performance and time restrictions. The number of shares of restricted stock that will vest at the end of the restriction period is based upon the achievement of one or more performance goals. Up to 100% of the number of shares of restricted stock may be forfeited if the performance goals are not achieved. The shares of restricted stock vest at the end of four years. During the four-year period, executives beneficially own the shares of restricted stock and possess all voting and dividend rights.

 

The number of shares of restricted stock that will actually vest will range from 0% to 100% based upon our company’s achievement of specified financial performance goals. These goals measure average return on average equity and cumulative earnings before interest, taxes, depreciation and amortization over four years. We refer to this second measure as EBITDA. We explain how we calculate EBITDA on page 36 of our 2007 Annual Report to Shareholders. The Compensation Committee selected these two performance measures because they reward our executives in achieving two important business objectives — earnings growth and working capital management. The Compensation Committee believes these objectives help us improve our long-term financial results.

 

At the end of the vesting period, the Compensation Committee will review performance against the goals and determine the number of shares of restricted stock that will vest. For the 2007 grant of restricted stock:

 

 

At each February meeting, the Compensation Committee grants shares of performance-based restricted stock to all executives and approves the vesting of restricted stock granted four years earlier. In February 2007 and 2008, the Compensation Committee approved the vesting of 100% of the shares of restricted stock granted in February 2003 and 2004, respectively. During each four-year period, Sherwin-Williams achieved at least a 17% average return on average equity and at least an 8% cumulative growth in EBITDA.

 

Long-term incentive opportunities are intended to be competitive with market long-term incentive opportunities. Therefore, we do not consider the amount of outstanding stock options and shares of restricted stock currently held by an executive when making awards of stock options and restricted stock.

 

Other Benefits.  We provide our named executives with various retirement and savings programs, health and welfare programs, employee benefit plans, programs and arrangements generally available to all employees and other executive benefits. We annually review these items in connection with our preparation and review of the overall compensation packages of our named executives and in connection with our review of tally sheets.

 

Other executive benefit programs include an executive life insurance program, an executive long-term disability program, a grantor trust program and perquisites. The 2007 amounts for these programs, including the incremental costs of perquisites, are set forth in separate tables that are included in a footnote to the “All Other Compensation” column of the Summary Compensation Table.

 

The life insurance and long term disability programs are designed to provide our named executives with life and disability benefits greater than the life and disability benefits available under the broad-based life insurance and long-term disability programs that we offer to other employees due to benefit limitations within the broad-based programs.

 

We initiated our grantor trust program in 2003 to replace our non-qualified deferred

compensation plan in order to provide financial security to those executives who have accumulated a significant retirement benefit in our non-qualified deferred compensation plan. All salaried employees are eligible to participate in funded retirement plans. The Internal Revenue Code contains limits on the amount of benefits that can be contributed to and/or paid from a qualified retirement plan. Employees whose retirement benefits are limited are eligible to participate in the nonqualified deferred compensation plan to provide such employees with the retirement benefits they would have received under our qualified retirement plans but for those limitations. Executives who are eligible to participate in our grantor trust program are not eligible to participate in our deferred compensation plan.

 

All of our named executives participate in our grantor trust program. Under this program, supplemental compensation amounts are paid to our named executives to fund individual grantor trusts established by the executives. It is intended that these amounts provide our named executives with the same after-tax amount at retirement age as would have been provided under our non-qualified deferred compensation plan.

 

Internal Pay Equity.  The Compensation Committee has no specific policy and follows no established guidelines when considering internal pay equity. In connection with grants of stock options and restricted stock, the Compensation Committee generally grants the same number of stock options and shares of restricted stock to employees who are in similar pay grades.

 

Use of Tally Sheets.  When approving changes in compensation for our named executives, our human resources department prepares a tally sheet for each named executive. Tally sheets set forth the dollar amounts of all components of each named executive’s current compensation, including salary, annual cash incentive compensation, long-term incentive compensation, retirement and savings programs, health and welfare programs and other executive benefits, including perquisites.

 

Tally sheets allow the Compensation Committee and management to review, in one place, how a change in the amount of each compensation component affects each named executive’s total compensation and to review each named executive’s total compensation in the aggregate. Based upon its most recent review, the Compensation Committee determined that total compensation, in the aggregate, for our named executives to be consistent with the Compensation Committee’s expectations. The Compensation Committee did not increase or decrease the amount of compensation to be awarded to our named executives solely based upon the review of tally sheets.

 

The Compensation Committee and management also reviewed potential payments to our named executives under termination and change in control scenarios including:

 

 

This review included potential severance payment obligations, potential values of accelerated shares of restricted stock and stock options, and projected payment obligations in connection with our retirement and savings programs, health and welfare plans, and other executive benefits. The Compensation Committee determined that the total potential payments, in the aggregate, for our named executives under each scenario to be reasonable and not excessive.

 

Executive Compensation Adjustment and Recapture Policy.  In February 2008, the Board of Directors and the Compensation Committee adopted a policy regarding the adjustment and recapture of compensation paid or payable to key employees and executives. Under the policy, employees who receive an award under our 2007 Executive Performance Bonus Plan are required to reimburse Sherwin-Williams in the event:

 

 

 

The reimbursement will be equal to the difference in the amount of the award prior to the restatement and the amount of the award determined using the restated financial results.

 

In addition, under our 2006 Equity and Performance Incentive Plan, (a) all stock awards will be cancelled and (b) the employee will be required to reimburse Sherwin-Williams for any economic gains received by the employee pursuant to a stock award during the one-year period preceding the Board of Director’s determination that the employee engaged in such conduct.

 

Severance Pay Agreements.  To ensure continuity and the continued dedication of our executives during any period of uncertainty caused by the possible threat of a takeover, we have entered into severance pay agreements with our executives, including each of our named executives. These severance pay agreements have not been a significant factor in setting compensation levels and have not affected the Compensation Committee’s decisions with respect to the compensation components.

 

In 2006, the Compensation Committee engaged Towers Perrin to evaluate our then existing severance pay agreements in order to determine how these agreements compared to market practices. Towers Perrin’s evaluation included a review of material terms of the agreements, including the change in control trigger threshold, severance pay single versus double triggers, severance pay multiples, continuation of retirement, health and welfare benefits, excise tax gross-ups, and the impact of Section 409A of the Internal Revenue Code. Based upon this evaluation, the Compensation Committee approved a new form of severance agreement in February 2007, and we entered into new severance agreements with each of our executives. The Compensation Committee believes that the material terms of the severance agreements are consistent with market practices.

 

Potential cash severance payments are based upon a multiplier of base salary and annual cash incentive pay. Because Mr. Connor’s base salary and annual cash incentive pay are higher than that of our other named executives, Mr. Connor’s potential cash severance payment is correspondingly higher than that of our other named executives. Additional information regarding the severance agreements, including the estimated amounts payable to each named executive, is set forth under the heading “Potential Payments upon Termination or Change in Control.”

 

Stock Ownership Guidelines.  We have established a minimum share ownership requirement for our directors, executive officers and operating presidents. We require each director who has served on the Board of Directors for at least five years to own a minimum of 10,000 shares of common stock. We require each executive and operating president who has served in such capacity for at least five years to own shares of common stock equal in value to a multiple of his base salary ranging from a low of three times to a high of five times for the Chief Executive Officer. The requirements for the executives and operating presidents are as follows.

 

		Minimum share
		Ownership as
		Multiple of
Title		Base Salary
Chief Executive Officer			5 times
Chief Operating Officer			4 times
Other Executives and Operating Presidents			3 times

 

For purposes of meeting this requirement, each equivalent share of common stock and each share of restricted stock held under our benefit plans is considered as a share of common stock. Stock options are not considered towards meeting the requirement. The Compensation Committee reviews compliance with these guidelines annually. All directors, executive officers and operating presidents have either met the guidelines or are pursuing plans to meet the guidelines within the time frames prescribed.

 

 

 

The following table sets forth information regarding the compensation of our Chairman and Chief Executive Officer, our Senior Vice President — Finance and Chief Financial Officer and our other three highest paid executive officers (our “named executives”).

 

																										Change
																										in
																										Pension
																										Value
																										and
																						Non-Equity				Nonqualified
Name																						Incentive				Deferred				All
and														Stock				Option				Plan				Compensation				Other
Principal						Salary				Bonus				Awards				Awards				Compensation				Earnings				Compensation				Total
Position		Year				($)				($)				($)(2,3)				($)(3,4)				($)(5)				($)(6)				($)(7)				($)
C. M. Connor
Chairman and			2007				1,161,047				-0-				2,730,500				1,609,818				1,544,000				-0-				540,064				7,585,429
Chief Executive Officer			2006				1,113,742				-0-				2,657,568				1,311,425				1,816,000				-0-				454,283				7,353,018
J. G. Morikis
President and			2007				663,481				-0-				950,199				477,558				697,000				-0-				254,948				3,043,186
Chief Operating Officer			2006				479,036				-0-				803,983				315,980				577,000				-0-				194,016				2,370,015
S. P. Hennessy
Senior Vice President — Finance and			2007				503,617				-0-				661,186				382,116				604,000				-0-				193,997				2,344,916
Chief Financial Officer			2006				472,572				-0-				670,774				298,841				634,000				-0-				174,650				2,250,837
S. J. Oberfeld(1)
President,
Paint Stores Group			2007				459,272				-0-				474,603				729,311				276,000				-0-				249,720				2,188,906
T. W. Seitz
Senior Vice President — Strategic Excellence			2007				422,093				-0-				531,201				412,697				339,000				85,979				258,036				2,049,006
Initiatives			2006				399,642				-0-				444,052				583,737				327,000				53,816				356,401				2,164,648

 

 

 

 

		C.M. Connor				J.G. Morikis				S.P. Hennessy				S.J. Oberfeld				T.W. Seitz
Company Contributions — Pension Plans ($)			13,200				13,200				13,200				13,200				2,250
Company Match — Employee Stock Plan ($)			13,500				13,500				13,500				13,500				13,500
Supplemental Payments — Grantor Trust ($)			309,047				99,751				101,051				55,431				150,847
Value — Executive Life Insurance Plan ($)			85,800				45,050				22,800				17,675				52,000
Premiums — Executive Disability Plan ($)			2,372				2,283				2,620				2,643				3,362
Tax Reimbursements ($)			55,032				14,662				12,515				58,569				10,819
Company Charitable Matching Gifts ($)			1,000				-0-				5,000				-0-				5,000
Perquisites ($)			60,113				66,502				23,311				88,702				20,258
TOTAL ($)			540,064				254,948				193,997				249,720				258,036

 

Amounts do not include the incremental cost of our Business Travel Accident Insurance Plan, which provides coverage for all of our directors, executive officers and full-time salaried employees. The total aggregate premium in 2007 for this plan for all directors, executives and employees was $33,030.

 

Perquisites.  We provide our executives with perquisites and other personal benefits as part of providing a competitive executive compensation program and for employee retention. Effective August 2007, we eliminated the following perquisites for our executives: parking, personal liability insurance, an annual physical, club memberships for personal use, reimbursement for basic financial planning and a home security system. The incremental costs of all perquisites provided to our named executives during 2007 are listed in the following table.

 

		C.M. Connor				J.G. Morikis				S.P. Hennessy				S.J. Oberfeld				T.W. Seitz
Executive Automobile Program ($)			30,787				36,397				20,412				14,368				13,681
Parking ($)			1,096				1,096				1,021				1,096				1,021
Personal Use of Corporate Aircraft ($)			12,643				-0-				-0-				-0-				-0-
Personal Liability Insurance ($)			2,901				3,056				-0-				1,411				660
Annual Physical ($)			-0-				1,770				-0-				2,664				-0-
Club Memberships ($)			6,611				6,051				933				-0-				4,896
Basic Financial Planning ($)			4,735				4,807				-0-				5,811				-0-
Home Security System ($)			1,340				13,325				945				-0-				-0-
Relocation Expenses ($)			-0-				-0-				-0-				63,352				-0-
TOTAL ($)			60,113				66,502				23,311				88,702				20,258

 

Narrative Information Regarding the Summary Compensation Table.

 

Employment Agreements.  None of our named executives have entered into employment agreements with Sherwin-Williams.

 

Salary.  The salary amounts disclosed in the table are the amounts earned by our named executives during the year.

 

For 2007, salaries earned by our named executives accounted for the following percentages of their total compensation: Mr. Connor (15.3%), Mr. Morikis (21.8%), Mr. Hennessy (21.5%), Mr. Oberfeld (21.0%) and Mr. Seitz (20.6%).

 

Mr. Morikis’ 2007 salary and annual incentive compensation were higher than 2006 primarily because of his promotion to President and Chief Operating Officer in October 2006. Prior to October 2006, Mr. Morikis was President, Paint Stores Group.

 

Bonus.  We did not award a discretionary bonus to any of our named executives for 2006 or 2007. Annual cash incentive compensation is included in the “Non-Equity Incentive Plan Compensation” column of the table.

 

Pension Investment Plan.  Mr. Seitz is the only named executive who participates in our Salaried Employees’ Pension Investment Plan.

 

Perquisites.  The value of perquisites disclosed in the table is based upon the incremental cost of providing the benefit to the executive.

 

 

In addition, we purchase tickets to sporting and cultural events for business purposes. If not used for business purposes, the tickets are made available to our executives and other employees for personal use.

 

 

The following table sets forth information regarding the grants of annual cash incentive compensation, stock options and restricted stock during 2007 to our named executives.

 

																												All
																												Other								Grant
																												Option				Exercise				Date
																												Awards;				of				Fair
																												Number				Base				Value
																												of				Price				of
				Estimated Future Payouts Under Non-												Estimated Future Payouts Under												Securities				of				Stock
				Equity Incentive Plan Awards(1)												Equity Incentive Plan Awards(2)												Underlying				Option				and
		Grant		Threshold				Target				Maximum				Threshold				Target				Maximum				Options				Awards				Option
Name		Date		($)				($)				($)				(#)				(#)				(#)				(#)(3)				($/Sh)(4)				Awards($)(5)
C. M. Connor		02/21/2007			464,419				1,102,994				2,205,988
		02/21/2007															-0-				43,375				43,375												3,048,178
		10/19/2007																											100,000				63.44				1,621,870
J. G. Morikis		02/21/2007			265,393				497,611				995,222
		02/21/2007															-0-				14,250				14,250												1,001,419
		10/19/2007																											40,000				63.44				648,748
S. P. Hennessy		02/21/2007			201,447				377,712				755,425
		02/21/2007															-0-				10,000				10,000												702,750
		10/19/2007																											30,000				63.44				486,561
S. J. Oberfeld		02/21/2007			137,782				275,563				436,308
		02/21/2007															-0-				10,000				10,000												702,750
		10/19/2007																											30,000				63.44				486,561
T. W. Seitz		02/21/2007			126,628				253,256				400,988
		02/21/2007															-0-				7,500				7,500												527,063
		10/19/2007																											18,000				63.44				291,937

 

 

Narrative Information Regarding the 2007 Grants of Plan-Based Awards Table.

 

Non-equity Incentive Plan Awards.  The non-equity incentive plan awards set forth in the table reflect annual cash incentive compensation that could have been earned by our named executives during 2007 under our 2007 Executive Performance Bonus Plan. Annual cash incentive compensation is earned based upon the achievement of a threshold company earnings goal and the accomplishment by the executive of performance goals. Annual cash incentive compensation is payable as a percentage of salary. These percentages vary by named executive. The performance goals and the percentages of salary are set forth under the heading “Compensation Discussion and Analysis.”

 

The threshold, target and maximum amounts set forth in the table correspond to the named executive achieving an average of 75%, 100% and 125% of his performance goals, respectively.

 

Restricted Stock.  We grant restricted stock pursuant to our 2006 Equity and Performance Incentive Plan. The shares of restricted stock granted vest at the end of a four-year period based upon the achievement of specified financial performance goals. The number of shares of restricted stock that will actually vest at the end of the vesting period will range from 0% to 100% based upon achievement of the specified financial performance goals. The threshold, target and maximum amounts set forth in the table correspond to achievement of 0%, 100% and 100% of the financial performance goals, respectively. We have included more information about these performance goals under the heading “Compensation Discussion and Analysis.”

 

Shares of restricted stock will vest immediately upon the death or disability of the named executive or upon a change in control of Sherwin-Williams.

 

During the vesting period, the executives are the beneficial owners of the shares of restricted stock and possess all voting and dividend rights. Dividends are payable at the same rate as is paid on Sherwin-Williams common stock generally. During 2007, the quarterly dividend rate was $0.315 per share. In February 2008, the Board of Directors announced an increase in the quarterly dividend rate to $0.35 per share payable on March 14, 2008.

 

Stock Options.  We grant stock options pursuant to our 2006 Equity and Performance Incentive Plan. The option exercise price is equal to the market value of our common stock on the date options are granted. In accordance with the terms of the plan, the market value is equal to the average of the highest and lowest reported sale prices of our common stock on the date of grant during normal trading hours on the New York Stock Exchange.

 

Stock options vest in approximately three equal installments on the first, second and third anniversary dates of the date of grant and have a term of ten years. Stock options become immediately exercisable in the event of the death or disability of the executive or in the event of a change in control of Sherwin-Williams. Stock options are not transferable other than by will or the laws of descent and distribution.

 

 

The following table sets forth information regarding the number of unexercised stock options and the number of shares and value of unvested restricted stock outstanding on December 31, 2007 for our named executives.

 

																		Stock Awards
																		Equity Incentive
		Option Awards																Plan Awards:				Equity Incentive
		Number of				Number of												Number of				Plan Awards:
		Securities				Securities												Unearned				Market or Payout
		Underlying				Underlying												Shares,				Value of Unearned
		Unexercised				Unexercised				Option								Units or Other				Shares, Units or
		Options				Options				Exercise				Option				Rights That Have				Other Rights That
		(#)				(#)				Price				Expiration				Not Vested				Have Not Vested
Name		Exercisable				Unexercisable				($)				Date				(#)				($)(1)
C. M. Connor			86,010				-0-				20.25				10/21/2009				88,000	(2)			5,107,520
			250,000				-0-				24.305				10/16/2011				53,750	(3)			3,119,650
			250,000				-0-				25.425				10/17/2012				59,000	(4)			3,424,360
			200,000				-0-				31.20				10/23/2013				43,375	(5)			2,517,485
			135,000				-0-				41.725				10/19/2014
			116,667				58,333	(6)			43.595				10/20/2015
			46,667				93,333	(7)			59.435				10/17/2016
			-0-				100,000	(8)			63.44				10/18/2017
J. G. Morikis			10,000				-0-				41.725				10/19/2014				20,000	(2)			1,160,800
			26,667				13,333	(6)			43.595				10/20/2015				11,500	(3)			667,460
			16,667				33,333	(9)			59.435				10/17/2016				28,700	(4)			1,665,748
			-0-				40,000	(10)			63.44				10/18/2017				14,250	(5)			827,070
S. P. Hennessy			41,795				-0-				31.20				10/23/2013				20,000	(2)			1,160,800
			30,000				-0-				41.725				10/19/2014				13,750	(3)			798,050
			26,667				13,333	(6)			43.595				10/20/2015				15,000	(4)			870,600
			11,000				22,000	(11)			59.435				10/17/2016				10,000	(5)			580,400
			-0-				30,000	(12)			63.44				10/18/2017
S. J. Oberfeld			3,444				-0-				29.0313				02/03/2008				7,000	(2)			406,280
			3,990				-0-				25.0625				02/02/2009				5,000	(3)			290,200
			5,095				-0-				19.625				10/18/2010				13,500	(4)			783,540
			7,181				-0-				24.305				10/16/2011				10,000	(5)			580,400
			3,933				-0-				25.425				10/17/2012
			15,000				-0-				31.20				10/23/2013
			13,500				-0-				41.725				10/19/2014
			10,667				5,333	(6)			43.595				10/20/2015
			11,000				22,000	(11)			59.435				10/17/2016
			-0-				30,000	(12)			63.44				10/18/2017
T. W. Seitz			3,795				-0-				31.20				10/23/2013				11,000	(2)			638,440
			13,604				-0-				41.725				10/19/2014				6,250	(3)			362,750
			20,000				10,000	(6)			43.595				10/20/2015				17,500	(4)			1,015,700
			9,334				18,666	(13)			59.435				10/17/2016				7,500	(5)			435,300
			-0-				18,000	(14)			63.44				10/18/2017

 

 

 

 

The following table sets forth information regarding the number and value of stock options exercised and restricted stock vested during 2007 for our named executives.

 

		Option Awards								Stock Awards
		Number of								Number of
		Shares Acquired				Value Realized				Shares Acquired				Value Realized
		on Exercise				on Exercise				on Vesting				on Vesting
Name		(#)				($)(1)				(#)				($)(2)
C. M. Connor			200,000				8,764,827				110,000				7,730,250
J. G. Morikis			68,933				2,436,922				27,000				1,897,425
S. P. Hennessy			63,205				2,545,494				30,000				2,108,250
S. J. Oberfeld			-0-				-0-				12,000				843,300
T. W. Seitz			20,601				734,870				13,000				913,575

 

 

The following table sets forth information relating to The Sherwin-Williams Company Salaried Employees’ Pension Investment Plan for 2007. Mr. Seitz is the only named executive who participates in our Salaried Employees’ Pension Investment Plan.

 

				Number of				Present Value		Payments During
				Years Credited				of Accumulated		Last Fiscal
Name		Plan Name		Service (#)				Benefit ($)		Year ($)
C. M. Connor		N/A			-0-			-0-		-0-
J. G. Morikis		N/A			-0-			-0-		-0-
S. P. Hennessy		N/A			-0-			-0-		-0-
S. J. Oberfeld		N/A			-0-			-0-		-0-
T. W. Seitz		Salaried Employees’ Pension Investment Plan			32			664,703		-0-

 

Material Features of our Salaried Employees’ Pension Investment Plan.  Our Salaried Employees’ Pension Investment Plan is a qualified noncontributory defined benefit pension plan. The benefit formula with respect to active participants hired prior to January 1, 2002, including Mr. Seitz, consists of the sum of two components: (a) a traditional pension-type retirement benefit that is determined based upon the greater of two formulas; and (b) a contribution credit equal to 1% of the participant’s earnings for periods after January 1, 2002.

 

The pension-type retirement benefit is determined based upon the greater of the following two formulas: