29
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to
240.14a-11(c) or 240.14a-12
The Reader's Digest Association, Inc.
(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):
[X]$125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(i)(2) or Investment Company Act Rule 20a-1(c).
[ ]$500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3).
[ ]Fee computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
(Set forth the amount on which the filing fee
is calculated and state how it was determined:
4) Proposed maximum aggregate value of transaction:
[ ]Fee paid previously with preliminary materials.
[ ]Check the box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
[RDA LOGO]
September 26, 1996
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of
Stockholders of The Reader's Digest Association, Inc. to be held
at 9:30 a.m. on Friday, November 8, 1996, at the Company's DeWitt
Wallace Auditorium, Reader's Digest Road, Chappaqua, New York.
Driving directions to the Wallace Auditorium appear on the last
page of the accompanying Proxy Statement.
The accompanying Notice of Meeting and Proxy Statement
describe the matters to be considered and voted upon at the
Meeting. In addition to consideration of these matters, there
will be a report to stockholders on the affairs of the Company,
and stockholders will have an opportunity to discuss matters of
interest concerning the Company.
Although only holders of the Company's Class B Voting Common
Stock are entitled to vote at the Meeting, we invite all
stockholders of the Company, including the holders of the
Company's Class A Nonvoting Common Stock, to attend.
If you are entitled to vote at the Meeting, it is important
that your shares be represented, whether or not you plan to
attend the Meeting personally. To ensure that your vote will be
received and counted, please promptly complete, date and return
your proxy in the enclosed return envelope, whether or not you
plan to attend the meeting in person.
Sincerely yours,
JAMES P. SCHADT
James P. Schadt
Chairman and Chief Executive Officer
[RDA LOGO]
NOTICE OF 1996 ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders:
The Annual Meeting of Stockholders of The Reader's Digest
Association, Inc. (the "Company") will be held at the Company's
DeWitt Wallace Auditorium, Reader's Digest Road, Chappaqua, New
York, on Friday, November 8, 1996 at 9:30 a.m., New York time, to
consider and take action on the following matters:
(1) election of Directors of the Company; and
(2) transaction of such other business as may
properly come before the Meeting.
Only holders of record of the Company's Class B Voting
Common Stock at the close of business on September 11, 1996 are
entitled to notice of, to attend and to vote at, the Meeting.
Holders of the Company's Class A Nonvoting Common Stock on the
record date are also welcome to attend the Meeting.
By Order of the Board of
Directors:
PAUL A. SODEN
Paul A. Soden
Senior Vice President, General
Counsel and Secretary
September 26, 1996
PROXY STATEMENT
GENERAL INFORMATION
Annual Meeting Time and Location
The Annual Meeting of Stockholders of The Reader's Digest
Association, Inc. (the "Company") will be held at the Company's
DeWitt Wallace Auditorium, Reader's Digest Road, Chappaqua, New
York, on Friday, November 8, 1996 at 9:30 a.m., New York time.
Driving directions to the Wallace Auditorium appear on the last
page of this Proxy Statement.
Principal Executive Offices of the Company
The principal mailing address of the executive offices of
the Company is Pleasantville, New York 10570.
Meeting Admittance Procedures
Attendance at the Meeting will be limited to stockholders of
record on the record date (as described below), or their duly
appointed proxy holders (not to exceed one per stockholder). If
you or your proxy holder plans to attend the Meeting, please
return the longer portion of the enclosed admission card. Your
name will then be placed on an admission list held at the
entrance to the Meeting. Please save the shorter portion of the
admission card. You will have to present the shorter portion of
the admission card to gain entrance to the Meeting.
If you plan to attend the Meeting and vote your shares in
person, but your shares are held in the name of a broker, trust,
bank or other nominee, you should also bring with you a proxy or
letter from the broker, trustee, bank or nominee confirming your
beneficial ownership of the shares.
Securities Entitled to be Voted at the Meeting; Record Date
The only securities entitled to be voted at the Meeting are
shares of the Company's Class B Voting Common Stock (the "Class B
Voting Common Stock"), and only holders of record at the close of
business on September 11, 1996 (the record date) are entitled to
vote. The Class B Voting Common Stock is entitled to one vote
per share. On September 11, 1996, 21,716,057 shares of Class B
Voting Common Stock were outstanding.
The Class A Nonvoting Common Stock is not entitled to be
voted at the Meeting. Holders of Class A Nonvoting Common Stock
are receiving this Proxy Statement for information purposes only
and will not receive a proxy card.
Proxies Solicited by the Board of Directors
This Proxy Statement, and the proxy card that accompanies
the Proxy Statement to the holders of the Class B Voting Common
Stock, are first being sent or given to stockholders on or about
September 26, 1996.
The accompanying proxy card is solicited by the Board of
Directors of the Company. It may be revoked by written notice
given to the Corporate Secretary of the Company at any time
before being voted. Proxies in this form, properly executed,
duly returned to the Company and not revoked, will be voted in
favor of the election of Directors (except to the extent that
authority therefor is withheld) and in favor of any management
proposals in accordance with the instructions in the proxy.
Presence at the meeting does not of itself revoke the proxy.
The Company will bear the cost of the solicitation of
proxies pursuant to this Proxy Statement, including reimbursement
of brokers and other persons holding stock in their names, or in
the names of nominees, at approved rates, for their expenses for
sending proxy material to principals and obtaining their proxies.
The Company has retained Morrow & Co., Inc. to solicit proxies on
behalf of management for an estimated fee of $3,500, plus
reimbursement of reasonable out-of-pocket expenses. In addition,
proxies may be solicited personally, or by mail, telephone or
electronic transmission, by regular employees of the Company
without additional compensation.
Vote Tabulation
Abstentions and "non-votes" are counted as present in
determining whether the quorum requirement is satisfied.
Abstentions and "non-votes" have the same effect as votes against
proposals presented to stockholders other than election of
directors. A "non-vote" occurs when a nominee holding shares for
a beneficial owner votes on one proposal, but does not vote on
another proposal because the nominee does not have discretionary
voting power and has not received instructions from the
beneficial owner.
As a matter of Company practice, the tabulation of
stockholder votes at the Annual Meeting of Stockholders is to be
made on a confidential basis by independent third parties and
certain employees of the Company involved in the tabulation
process. Each stockholder proxy card, ballot and the votes
specified thereon are to be kept confidential until the final
vote is tabulated, except that disclosure may be made as required
by applicable law, in the case of proxy cards containing a
stockholder comment or question, and in the event of a contested
proxy solicitation.
PROPOSAL NO. 1--ELECTION OF DIRECTORS
Nominees
The Board of Directors consists of ten members who are
elected annually to hold office until the next Annual Meeting or
until their successors are duly elected and qualified. The
affirmative vote of a plurality of the votes cast by the holders
of the Class B Voting Common Stock present in person or
represented by proxy and entitled to vote thereon is necessary to
elect a Director. If no contrary indication is made, proxy cards
in the accompanying form are to be voted for the nominees named
below or, in the event any such nominee is not a candidate or is
unable to serve as a Director at the time of the election (which
is not now expected), for any nominee who shall be designated by
the Board of Directors to fill such vacancy. All nominees named
below are incumbent members of the Board of Directors.
Set forth below opposite the name and age of each nominee
are the nominee's present positions and offices with the Company,
the year in which the nominee was first elected a Director of the
Company and the nominee's principal occupations during the past
five years.
Positions and Offices With the
Name and Age Company and
Principal Occupations During the
Past Five Years
James P. Schadt (58) Mr. Schadt is Chairman and Chief
Executive Officer of the Company.
He became Chairman on August 1, 1995
and became Chief Executive Officer
on August 1, 1994. He joined the
Company as President and Chief
Operating Officer and was elected to
the Board of Directors of the
Company in September 1991. He also
served as President of the Company
until September 8, 1995.
Melvin R. Laird (74) Mr. Laird has been a member of the
Board of Directors of the Company
since 1990. He has served as Senior
Counsellor for national and
international affairs since 1974 and
was elected to the additional
position of Vice President in 1989.
Mr. Laird joined the Company in
1974. Mr. Laird also serves as a
director of IDS Mutual Fund Group.
William G. Bowen (62) Dr. Bowen has been a member of the
Board of Directors of the Company
since 1985. He has been the
President of The Andrew W. Mellon
Foundation since 1988. Dr. Bowen
also serves on the boards of
directors of American Express
Company and Merck & Co., Inc.
Lynne V. Cheney (55) Dr. Cheney joined the Board of
Directors in 1993. She is an
author, lecturer and television
commentator and has been a senior
fellow of the American Enterprise
Institute for Public Policy Research
since January 1993. She served as
Chairman of the National Endowment
for the Humanities from May 1986 to
January 1993. Dr. Cheney is also a
director of FPL Group, Inc. (parent
of Florida Power & Light Company),
IDS Mutual Fund Group, Lockheed-
Martin Corporation and Union Pacific
Resources Group, Inc.
M. Christine DeVita (46) Ms. DeVita has been a member of the
Board of Directors of the Company
since 1993. She has been President
of the DeWitt Wallace-Reader's
Digest Fund, Inc. and the Lila
Wallace-Reader's Digest Fund, Inc.
since June 1989.
James E. Preston (63) Mr. Preston has been a member of the
Board of Directors of the Company
since 1994. He became Chairman of
the Board of Avon Products, Inc.
(beauty and related products) in
January 1989 and has been Chief
Executive Officer since 1988,
holding the additional position of
President from 1988 until November
1993. Mr. Preston also serves on
the boards of directors of Aramark,
Inc. and Woolworth Corporation.
Robert G. Schwartz (68) Mr. Schwartz has been a member of
the Board of Directors of the
Company since 1989. He retired in
April 1993 as Chairman of the Board,
President and Chief Executive
Officer of Metropolitan Life
Insurance Company, having served in
that position since September 1989.
Mr. Schwartz also serves on the
boards of directors of Ascent
Entertainment Group, Inc., COMSAT
Corporation, Consolidated Edison Co.
of New York, Inc., CS First Boston,
Inc., Lone Star Industries, Inc.,
Lowe's Companies, Inc., Mobil
Corporation and Potlatch
Corporation.
Walter V. Shipley (60) Mr. Shipley has been a member of the
Board of Directors of the Company
since 1989. He is Chairman of the
Board and Chief Executive Officer of
The Chase Manhattan Corporation.
Mr. Shipley has been Chairman of the
Board and Chief Executive Officer or
President of The Chase Manhattan
Corporation since 1983, which was
named Chemical Banking Corporation
until March 1996, when it merged
with and changed its name to The
Chase Manhattan Corporation. Mr.
Shipley also serves on the boards of
directors of Champion International
Corporation and NYNEX Corporation.
C.J. Silas (64) Mr. Silas has been a member of the
Board of Directors of the Company
since 1992. He retired in May 1994
as Chairman and Chief Executive
Officer of Phillips Petroleum
Company, positions he had held since
1985. Mr. Silas is Chairman of the
Board of COMSAT Corporation,
Chairman of Ascent Entertainment
Group, Inc. and a director of
Halliburton Company.
William J. White (58) Mr. White became a member of the
Board of Directors of the Company on
August 9, 1996. He has been
Chairman of the Board and Chief
Executive Officer of Bell & Howell
Company (information access and mail
processing systems) since 1990 and
was also President from February
1990 to February 1995. Mr. White is
also a director of TJ International,
Inc.
Board of Directors and Committees
During the Company's fiscal year ended June 30, 1996, its
Board of Directors held 11 meetings. The Board of Directors of
the Company has an Audit Committee, a Compensation & Nominating
Committee and a Finance Committee.
The Audit Committee, which met three times during the 1996
fiscal year, is comprised of Mr. Shipley (Chairman), Ms. DeVita
and Messrs. Preston and Schwartz. Its functions include
recommending annually to the Board of Directors a firm of
independent accountants to audit and review the Company's books
and records and approving the scope of such firm's audit;
reviewing the adequacy of the Company's internal controls and
auditing procedures; reviewing the appropriateness of and effect
of changes in the Company's accounting principles and auditing
procedures; reviewing the Company's ethics policies and
procedures; and reviewing, approving and recommending to the
Board the Company's annual financial statements.
The Compensation & Nominating Committee, which met five
times during the last fiscal year, consists of Drs. Bowen
(Chairman) and Cheney, Mr. Shipley and Mr. Silas. Its functions
include administering certain employee benefit plans;
recommending the amount and form of any contribution to The
Reader's Digest Employees Profit-Sharing Plan; reviewing the
compensation levels and programs for officers and key personnel
and determining incentive compensation for employees of the
Company and its subsidiaries; and reviewing and recommending
candidates and nominees for election to the Board of Directors.
The Finance Committee, which met twice during the 1996
fiscal year, is comprised of Messrs. Silas (Chairman), Laird,
Preston and Schwartz. The Finance Committee's functions include
overseeing the financial affairs of the Company, such as the
Company's investment policies and programs and those of its
employee benefit plans; and advising the Board with respect to
corporate financial policies and procedures, dividend policy,
financing plans and budgets, foreign exchange management, tax
planning and insurance coverage.
Each Director who is not an officer or employee of the
Company or of one of its subsidiaries receives an annual retainer
of $32,000 each fiscal year for services as a Director. In
addition, such Directors receive a fee of $1,000 for each Board
or Committee meeting attended in person or by telephone ($1,500
for the Chairman of the Committee) and are reimbursed for their
reasonable expenses of attending such meetings and otherwise in
connection with their duties as Directors. Each such Director
who serves for more than five years will, upon retirement from
the Board, continue to receive annually compensation in the
amount of the Director's retainer in effect at the time of
retirement.
Under the Deferred Compensation Plan for Non-Employee
Directors of The Reader's Digest Association, Inc., non-employee
Directors are eligible to defer payment of 50%, 75% or 100% of
their annual retainer for certain established deferral periods.
Deferred annual retainers are credited to an unfunded account for
each participant, on which interest accrues at a rate determined
by a committee comprised of employee Directors. Payment of the
deferred annual retainer will be made, at the election of the
participant, in a lump sum or in annual installments of from one
to 10 years.
EQUITY SECURITY OWNERSHIP
Principal Stockholders
The following table shows, based on information reported to
the Company by or on behalf of such persons, the ownership, as of
September 11, 1996, of the Company's voting securities by the
only persons known to the Company to be the beneficial owners of
more than five percent of the Class B Voting Common Stock, the
only class of voting securities of the Company outstanding:
Amount and
Name and address of beneficial nature Percent of
owner of class
beneficial
ownership
DeWitt Wallace-Reader's Digest 7,750,000 35.69%
Fund, Inc. shares
Two Park Avenue (sole
New York, NY 10016 (1) voting
and
investment
power)
Lila Wallace-Reader's Digest 7,750,000 35.69%
Fund, Inc. shares
Two Park Avenue (sole
New York, NY 10016 (1) voting
and
investment
power)
- -----------
(1) As of September 11, 1996, the DeWitt Wallace-Reader's Digest
Fund, Inc. also owned 6,117,240 shares of Class A Nonvoting
Common Stock, which, together with its holding of Class B Voting
Common Stock, represented 12.92% of the total outstanding common
stock of the Company. The Lila Wallace-Reader's Digest Fund,
Inc. also owned 2,439,558 shares of Class A Nonvoting Common
Stock, which, together with its holding of Class B Voting Common
Stock, represented 9.49% of the total outstanding common stock of
the Company.
Each of the DeWitt Wallace-Reader's Digest Fund, Inc. and
the Lila Wallace-Reader's Digest Fund, Inc. (collectively, the
"Funds") has seven members and a board consisting of seven
directors. Dr. Bowen, Messrs. Laird, Shipley and Silas and Ms.
DeVita, who are Directors of the Company, are also members and
directors of each of the Funds.
It has been the Company's objective since fiscal 1990 that
the Company's employee benefit plans, including The Reader's
Digest Employee Profit-Sharing Plan (the "Profit-Sharing Plan")
would hold up to 20% of the Class B Voting Common Stock, or
approximately 4% of the equity in common stock of the Company, by
the end of fiscal 1999. As of September 11, 1996, approximately
7.90% of the outstanding Class B Voting Common Stock is held by
the Profit-Sharing Plan, which is the only employee benefit plan
that holds such stock.
In order to avoid the imposition of excise taxes, commencing
in the year 2000 the Funds together may not own more than 50% of
the voting stock or value of the Company. Accordingly, the Funds
must reduce their aggregate holdings of Class B Voting Common
Stock to 50% by the year 2000. The Funds presently own
approximately 71% of the outstanding Class B Voting Common Stock.
The Funds will be required to dispose of between 3-to-4.5 million
shares of Class B Voting Common Stock by the year 2000 (depending
on the amount of Class B Voting Common Stock outstanding,
including the amount held by the Company's employee benefit
plans), in order to avoid the imposition of excise taxes. No
determination has been made at this time as to the manner in
which, or the time during which, further reductions in ownership
of Class B Voting Common Stock will be effected. The Funds
intend to retain 50% of the Class B Voting Common Stock as long-
term investors.
Directors, Nominees and Executive Officers
The following table shows, as to the current Directors and
nominees individually, the Named Executive Officers (as listed in
the Summary Compensation Table) and the current Directors and
executive officers of the Company as a group, the equity
securities of the Company and its subsidiaries that were
beneficially owned by them as of September 11, 1996.
Shares of
Class A Nonvoting
Name of beneficial owner(1)(2) Comon Stock
James P. Schadt 179,820 (3) (4)
Melvin R. Laird 1,000 (5)
William G. Bowen 1,550 (6)
Lynne V. Cheney 1,180
M. Christine DeVita 1,000
James E. Preston 2,000
Robert G. Schwartz 2,000
Walter V. Shipley 3,000
C.J. Silas 1,000
William J. White 2,000
Thomas M. Kenney 56,481 (4)
Martin J. Pearson 29,400 (4)
Paul A. Soden 8,242 (4)
Stephen R. Wilson 22,242 (3)(4)
All Directors, nominees and
executive officers as a group 331,675 (3)(4)(5)(6)
(19 persons)
______________
(1) "Beneficial ownership" has been determined in accordance
with rule 13d-3 under the Securities Exchange Act of 1934.
Each Director, nominee or officer had voting and investment
power over the shares shown, except as noted below. Each
Director, nominee or Named Executive Officer individually, and
the Directors and executive officers as a group, beneficially
owned less than one percent of the total issued and
outstanding shares of Class A Nonvoting Common Stock.
(2) Other than as indicated in footnote 4 below, no Director,
nominee or officer holds any shares of Class B Voting Common
Stock or any shares of preferred stock of the Company.
Messrs. Grune, Laird, Bowen, Shipley and Silas and Ms. DeVita
are members and directors of the Funds, which together
beneficially own 10.00% of the Class A Nonvoting Common Stock
and 71.38% of the outstanding Class B Voting Common Stock.
See Principal Stockholders.
(3) Includes with respect to Messrs. Schadt and Wilson,
respectively, 41,078 and 7,200 shares of restricted stock
granted by the Company, with respect to which the restrictions
have not yet lapsed. Includes with respect to the group
48,278 shares of restricted stock granted by the Company, with
respect to which the restrictions have not yet lapsed.
(4) Includes shares of Class A Nonvoting Common Stock underlying
presently exercisable stock options as follows: Mr. Schadt,
75,250; Mr. Kenney, 45,250; Mr. Pearson, 29,400, Mr. Soden,
5,750; Mr. Wilson, 9,750; all Directors, nominees and
executive officers, 176,050. Does not include 10,918 shares
of Class B Voting Common Stock over which members of the group
have voting authority as a result of their participation in
The Reader's Digest Employees Profit-Sharing Plan.
(5) Does not include 10,000 shares previously beneficially owned
by Mr. Laird that have been placed in trusts for the benefit
of Mr. Laird's grandchildren.
(6) Includes 1,050 shares held by a charitable trust, as to
which Mr. Bowen disclaims beneficial ownership.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information for each of the
fiscal years ended June 30, 1996, 1995 and 1994 concerning the
compensation of the individuals whose compensation is required to
be disclosed pursuant to Securities and Exchange Commission
regulations (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
Long-term compensation
Annual Compensation Awards (1) Payouts
Fiscal All
year Restricted other
Name and ended stock Options/ LTIP compen-
principal June 30 Salary Bonus Other award SARs payouts sation(2)
position
<S> <C> <C> <C> <C> <C> <C> <C>
James P. Schadt 1996 $800,000 $588,327(4) $101,440(5) (6) 122,200(7) $0 $3,500
Chairman and Chief 1995 $740,866 $713,792(4) $73,584(5) (6) (7) $457,452 $7,000
Executive Officer(3) 1994 $583,846 $475,000 210,000(7) $490,950 $30,000
Kenneth A.Gordon 1996 $532,692 $328,000 $59,934(5) 85,700(7) $0 $3,500
President and Chief 1995 $441,154 $325,000 16,000(7) $230,913 $7,000
Operating Officer(8) 1994 $388,077 $300,000 85,000(7) $290,934 $30,000
Stephen R. Wilson 1996 $435,000 $246,000 46,300(7) $0 $343,500(11)
Executive Vice 1995 $114,423 $250,000 $433,125(10) 90,000(7) $0 $307,000(11)
President and
Chief Financial
Officer(9)
Thomas M. Kenney 1996 $379,385 $161,000 38,800(7) $0 $3,500
President, Global 1995 $379,038 $192,000 (7) $196,040 $7,000
Magazine and 1994 $365,000 $175,000 45,000(7) $272,750 $30,000
Corporate Develop-
ment and Vice
President(12)
Martin J. Pearson 1996 $327,500 $155,000 49,300(7) $0 $3,500
President, Reader's 1995 $257,346 $200,000 (7) $109,330 $7,000
Digest Europe 1994 $197,780 $150,000 55,000(7) $147,285 $22,788
Vice President(13)
Paul A. Soden 1996 $323,000 $150,000 25,100(7) $0 $3,500
Senior Vice 1995 $127,212 $160,000 50,000(7) $43,958 $0
President,
General Counsel
and Secretary(14)
(1) All awards are made in or with respect to shares of Class
A Nonvoting Common Stock.
(2) Represents amounts contributed by the Company to The
Reader's Digest Employees Profit-Sharing Plan (the "Profit-
Sharing Plan") for the accounts of the Named Executive
Officers except Mr. Wilson (see footnote 12).
(3) Mr. Schadt served as President and Chief Operating
Officer until August 1994, as President and Chief Executive
Officer thereafter until August 1995, as Chairman, President
and Chief Executive Officer thereafter until September 1995.
(4) Mr. Schadt's 1996 and 1995 annual bonuses reflect the
fact that a significant portion of his target annual bonus has
been granted as performance-based restricted stock. In fiscal
1996, Mr. Schadt was awarded shares of performance-based
restricted stock under the 1994 Key Employee Long Term
Incentive Plan. 20% of the shares granted vested on September
15, 1995 and September 15, 1996, respectively, and an
additional 20% will vest on each successive anniversary of
that date, subject to the satisfaction of Company performance
conditions. Mr. Schadt's bonuses include $413,327 for 1996
and $478,792 for 1995, representing the value of shares of
performance-based restricted stock that vested on September
15, 1996 and September 15, 1995, respectively, after
certification of the attainment of the Company performance
goal relating to fiscal 1996 and 1995. The value of the
vested shares reported is based on the closing market price of
the Class A Nonvoting Common Stock on the NYSE on those
respective dates. See "Report of the Compensation &
Nominating Committee."
(5) Includes for Mr. Schadt $38,063 in 1996 and $31,073 in
1995 for personal use of corporate transportation. Includes
for Mr. Gordon $35,188 for personal use of corporate
transportation.
(6) As of June 30, 1996, Mr. Schadt held an aggregate of 48,278
shares of restricted stock, valued at $2,051,815, based on the
closing price of the Class A Nonvoting Common Stock on the
NYSE on that date.
(7) The grants for 1994 represent options or SARs equivalent to
five annual grants. Comparable grants were made to newly
hired executive officers in subsequent years. Consistent with
these multiple-year grants, no options or SARs were awarded to
these individuals in 1995 or 1996 other than grants in
connection with new employment and promotions and grants of
recovery stock options. See "Stock Options and SARs Granted
in Last Fiscal Year" and "Report of the Compensation &
Nominating Committee."
(8) Mr. Gordon served as President and Chief Operating
Officer from September 1995 until his retirement on June 30,
1996. He was a Vice President until January 1994, a Senior
Vice President thereafter until April 1995 and an Executive
Vice President thereafter until September 1995.
(9) Mr. Wilson joined the Company in April 1995.
(10) Represents 9,000 shares of restricted stock granted in
connection with the commencement of Mr. Wilson's employment.
20% of the shares vest on each successive anniversary of the
date of grant. Mr. Wilson receives dividends on such shares.
The restricted stock shown in the table is valued at the
closing market price of the Class A Nonvoting Common Stock on
the NYSE on the date of grant. As of June 30, 1996, Mr.
Wilson held an aggregate of 7,200 shares of restricted stock,
valued at $306,000, based on the closing price of the Class A
Nonvoting Common Stock on the NYSE on that date.
(11) Includes $340,000 and $300,000 for 1996 and 1995,
respectively, paid in lieu of a long term incentive payment.
Also includes $7,000 for 1995 paid in lieu of a contribution
to the Profit-Sharing Plan and $3,500 for 1996 contributed to
the Profit-Sharing Plan for the account of Mr. Wilson.
(12) Mr. Kenney was President, U.S. Magazine Publishing prior
to September 1995.
(13) Mr. Pearson was President, Reader's Digest Pacific prior
to September 1995.
(14) Mr. Soden joined the Company in February 1995.
</TABLE>
Stock Options and SARs Granted in Last Fiscal Year
The following table sets forth information concerning stock
options and stock appreciation rights granted during the fiscal
year ended June 30, 1996 to the Named Executive Officers.
<TABLE>
<CAPTION>
Individual grants
Potential realizable
Percent value at assumed annual rates of
of stock price appreciation for
total option/SAR term(2)
options/
Options/ SARs Exercise
SARs granted or
granted to base
Name (#)(1) employees price Expiration 0% 5%(3) 10%(4)
in ($/sh) date
fiscal
year
<S> <C> <C> <C> <C> <C> <C> <C>
James P. Schadt 122,000 9.85% 47.31 9/7/05 $0 $3,635,817 $9,213,875
Kenneth A. Gordon 85,700 6.91% 47.31 9/7/05 $0 $2,549,833 $6,461,776
Stephen R. Wilson 46,300 3.73% 47.31 9/7/05 $0 $1,377,564 $3,491,018
Thomas M. Kenney 30,800 2.48% 47.31 9/7/05 $0 $916,393 $2,322,319
8,000(5) 0.64% 50.94 11/21/05 $0 $256,275 $649,450
Martin J. Pearson 37,300 3.01% 47.31 9/7/05 $0 $1,109,787 $2,812,418
12,000(5) 0.97% 50.94 11/21/05 $0 $384,412 $974,175
Paul A. Soden 25,100 2.02% 47.31 9/7/05 $0 $746,800 $1,892,539
All Common -- -- -- -- $0 $3,202,924,877(6) $8,116,840,452(6)
Stockholders
(1)All options and SARs are granted with respect to Class A
Nonvoting Common Stock. Except as noted in footnote 5 below,
the options granted are recovery stock options. Up to 50% of
these options become exercisable at the end of the 1996-1998 and
1997-1999 performance periods only if the applicable performance goals
relating to corporate earnings growth are met; the balance of the
options becomes exercisable in 2004. See "Report of the
Compensation & Nominating Committee."
(2)The values shown are based on the
assumed hypothetical compound annual appreciation rates of 5%
and 10% prescribed by Securities and Exchange Commission
rules. These hypothetical rates are not intended to forecast
either the future appreciation, if any, of the price of Class
A Nonvoting Common Stock or the values, if any, that may
actually be realized upon such appreciation, and there can be
no assurance that the hypothetical rates will be achieved.
The actual value realized upon exercise of an option or SAR
will be measured by the difference between the price of the
Class A Nonvoting Common Stock and the exercise price on the
date the option or SAR is exercised.
(3)For the values stated in this
column to be realized, the price of the Class A Nonvoting
Common Stock would have to appreciate from $47.31 to $77.06
and from $50.94 to $82.97 during the 10-year option/SAR term.
(4)For the values stated in this
column to be realized, the price of the Class A Nonvoting
Common Stock would have to appreciate from $47.31 to $122.71
and from $50.94 to $132.12 during the 10-year option/SAR term.
(5)The options consist of awards of
four-year options granted in connection with promotions. The
options become exercisable as to 6.25%, 18.75%, 37.5% and 100%
on the first four respective anniversaries of the grant date.
These awards supplement five-year options previously granted
to these Named Executive Officers.
(6)For "All Common Stockholders," the
potential realizable values have been calculated on the basis
of the same price ($47.31) at which stock options and SARs
were granted to the Named Executive Officers and on the basis
of the total number of shares of Class A Nonvoting Common
Stock and Class B Voting Common Stock outstanding on June 30,
1996. An increase in the price of the Class A Nonvoting
Common Stock will benefit all holders of such stock and all
option holders commensurately.
</TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal
Year-End Option/SAR Values
The following table sets forth information concerning stock
options and SARs exercised during the fiscal year ended June 30,
1996 and the fiscal year-end value of unexercised options and
SARs for the Named Executive Officers.
<TABLE>
<CAPTION>
Value of unexercised
Number of unexercised in-the-money options/
options/SARs at fiscal SARs at fiscal year
Shares year end end
acquired Value Exer- Unexer- Exer- Unexer-
Name on exercise realized cisable cisable cisable cisable
<S> <C> <C> <C> <C> <C> <C>
James P. Schadt -- -- 75,250 306,950 $23,624 $133,875
Kenneth A. Gordon -- -- 76,250 176,450 $722,903 $54,188
Stephen R. Wilson -- -- 9,750 126,550 $0 $0
Martin J. Pearson -- -- 29,400 97,300 $244,395 $35,063
Thomas M. Kenney -- -- 45,250 80,550 $184,403 $28,688
Paul A. Soden -- -- 5,750 69,350 $0 $0
</TABLE>
Long-Term Incentive Plans - Awards in Last Fiscal Year
The following table sets forth information concerning long-
term incentive plan ("LTIP") awards during the fiscal year ended
June 30, 1996 to each of the Named Executive Officers.
<TABLE>
<CAPTION>
Estimated future payouts under
Performance non-stock
Number of or other price-based plans
shares, period until
units or maturation or
Name other payout Threshold(2) Target(2) Maximum(2)
rights(1)
<S> <C> <C> <C> <C> <C>
James P. Schadt 998,000 7/1/95-6/30/98 $698,600 $998,000 $1,497,000
Kenneth A. Gordon 550,000 7/1/95-6/30/98 $385,000 $550,000 $825,000
Stephen R. Wilson 365,000 7/1/95-6/30/98 $255,500 $365,000 $547,500
Martin J. Pearson 300,000 7/1/95-6/30/98 $210,000 $300,000 $450,000
Thomas M. Kenney 245,000 7/1/95-6/30/98 $171,500 $245,000 $367,500
Paul A. Soden 200,000 7/1/95-6/30/98 $140,000 $200,000 $300,000
(1) Each unit entitles the participant to one dollar at the end
of the performance cycle, if performance target is met.
Payment of performance units may be made, as determined by the
Compensation & Nominating Committee, in any combination of
cash and shares of Class A Nonvoting Common Stock valued at
their fair market value on the date of payment.
(2) Threshold, target and maximum amounts are based on the
Company's earnings during the performance period.
</TABLE>
Retirement Plans
The following table shows the estimated annual retirement
benefit to employees in specified compensation and years of
service classifications under The Reader's Digest Association,
Inc. Retirement Plan (the "Qualified Retirement Plan") based on
the retirement formula effective July 1, 1992. Amounts
calculated under the retirement formula which exceed the limits
under the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), will be paid under the Excess Benefit
Retirement Plan of The Reader's Digest Association, Inc. (the
"Excess Benefit Plan") from the Company's assets and are included
in the amounts shown below.
<TABLE>
<CAPTION>
Highest
Consecutive
Three Year
Average Estimated Annual Retirement Benefit for
Compensation Representative Years of Credited Service
15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$ 300,000 91,848 122,464 153,080 183,696 214,312
$ 400,000 123,134 164,178 205,223 246,267 287,312
$ 500,000 154,419 205,893 257,366 308,839 360,312
$ 600,000 185,705 247,607 309,509 371,410 433,312
$ 700,000 216,991 289,321 361,651 433,982 506,312
$ 800,000 248,177 331,035 413,794 496,553 579,312
$ 900,000 279,562 372,750 465,937 559,125 652,312
$ 1,000,000 310,848 414,464 518,080 621,696 725,312
</TABLE>
Compensation covered by the Qualified Retirement Plan is
based on salary. At June 30, 1996, the Named Executive Officers
were credited with approximately the following years of service
under the Qualified Retirement Plan: Mr. Schadt, 5; Mr. Gordon,
23; Mr. Wilson, 1; Mr. Kenney, 7; Mr. Pearson, 23; and Mr. Soden,
1. The amounts shown in the table reflect the effect of social
security integration. The estimated amounts in the table are
based on the assumption that payments under the Qualified
Retirement Plan and the Excess Benefit Plan will commence upon
retirement at age 65, that the Qualified Retirement Plan and the
Excess Benefit Plan will continue in force in their present form
and that benefits will be paid in the form of a single life
annuity.
Effective July 1, 1992, the Company adopted The Reader's
Digest Executive Retirement Plan (the "1992 Executive Retirement
Plan"). Benefits under the 1992 Executive Retirement Plan are
based on compensation (consisting of salary and bonus) and years
of service. Benefits are reduced by benefits payable under the
Qualified Retirement Plan, the Excess Benefit Retirement Plan and
certain other Company-provided retirement benefits. Because of
the nature of the interdependency among the 1992 Executive
Retirement Plan, the Qualified Retirement Plan and the Excess
Benefit Plan, it is not possible to present estimated benefits
under the 1992 Executive Retirement Plan in tabular format.
Benefits payable under the 1992 Executive Retirement Plan, after
the reductions for benefits payable under other plans, will be
$171,706 for Mr. Gordon, and are currently estimated at $463,463
for Mr. Schadt, $199,564 for Mr. Wilson, $109,324 for Mr. Kenney;
$88,847 for Mr. Pearson, and $150,920 for Mr. Soden. These
amounts are based on the assumption that payment under the 1992
Executive Retirement Plan will commence upon retirement at age
65, that the 1992 Executive Retirement Plan will continue in
force in its present form and that benefits will be paid in the
form of a single life annuity. Mr. Gordon's benefit is based on
the commencement of payment in connection with his retirement on
June 30, 1996 at age 59.
The Company is a party to supplemental retirement benefit
agreements with certain key employees, including Messrs. Schadt,
Gordon, Kenney and Pearson, pursuant to which they may defer
currently a certain amount of their income to fund supplemental
retirement benefits. The Company has agreed to pay death
benefits under such agreements regardless of whether the
supplemental retirement benefits have yet been fully funded by
the employees.
Severance Arrangements
Under The Reader's Digest Association, Inc. Severance Plan
for Senior Management (the "Severance Plan"), senior officers and
key executives of the Company, including the Named Executive
Officers, whose employment is terminated by the Company other
than for "cause" (as defined in the Severance Plan) or for
reasons of death, disability or sale by the Company of the
division which employs the employee (provided a comparable
position is offered to the employee by the new owner), will be
entitled to receive severance payments computed at a rate of one
month of base annual salary at the time of termination for each
year of service, but in any event, no less than 12 and no more
than 24 months' pay. A participant will also be entitled to
receive certain additional benefits, including a supplemental
payment in an amount equal to the difference between the
participant's monthly retirement benefits under the Qualified
Retirement Plan, the Excess Benefit Plan and the 1992 Executive
Retirement Plan and the amounts that would have been payable if
the participant's credited service under such plans had included
the number of months of severance payments made under the
Severance Plan. In addition, a participant will be entitled to
receive credited service equal to the severance period for
purposes of certain welfare benefits. In September 1996, Mr.
Kenney and the Company entered into an agreement in connection
with his resignation from the Company on October 31, 1996,
pursuant to which he is to receive, in addition to the benefits
under the Severance Plan, (1) 12 months of base salary, (2)
benefits equivalent to continued participation in the Company's
medical, dental and group term insurance plans for two years, (3)
annual incentive compensation for fiscal 1996, (4) financial
counseling for one year and (5) prorated payments of outstanding
performance units.
The Company has entered into agreements with Messrs. Schadt,
Wilson, Pearson and Soden and certain other key employees of the
Company each of which provides generally that if the employee's
employment is terminated by the employee for "good reason" or by
the Company except for "cause" (as such terms are defined in the
agreement), the employee will be entitled to receive for two
years from termination (1) bi-weekly severance payments at the
rate of the employee's highest annual base salary within 12
months plus the higher of the highest annual bonus within three
years of termination or the current annual bonus target and (2)
benefits equivalent to continued participation in the Profit-
Sharing Plan and all non-cash employee benefit plans. Each
agreement also provides for the inclusion of the severance period
for purposes of credited service and age under the Qualified
Retirement Plan, the Excess Benefit Retirement Plan and the
Executive Retirement Plan and for the continued vesting of stock
option, stock appreciation rights, restricted stock, performance
units and other awards under the Company's long-term incentive
plans during the severance period, exercisability of options and
stock appreciation rights thereafter consistent with termination
by mutual agreement or retirement, and prorated performance unit
payments based on service through the end of the severance
period. Benefits paid under the Severance Plan and under the
Income Continuation Plan discussed below will be credited against
benefits payable under each agreement. Mr. Gordon retired from
the Company pursuant to an agreement containing substantially the
same terms as the above-referenced agreements.
Income Continuation Plan
Under The Reader's Digest Association, Inc. Income
Continuation Plan for Senior Management (the "Income Continuation
Plan"), certain officers and key employees of the Company,
including the Named Executive Officers, whose employment is
terminated involuntarily (other than for cause, disability,
retirement or death) within 24 months following a change in
control of the Company, or who terminates employment within 90
days following constructive termination and within 24 months
following a change in control of the Company, will be entitled to
receive a payment of three full years' base annual salary in
effect immediately prior to termination or, if higher,
immediately prior to the change in control. Any benefits payable
under the Income Continuation Plan will be reduced by any
payments made under the Severance Plan and any monthly retirement
benefit actually paid under the Qualified Retirement Plan. A
participant will also be entitled to certain additional benefits,
including a supplemental payment equal to the difference between
the participant's monthly retirement benefits under the Qualified
Retirement Plan, the Excess Benefit Plan and the 1992 Executive
Retirement Plan and the amounts that would have been payable if
the participant's credited service under such plans had included
the number of months of benefit payments under the Income
Continuation Plan (reduced by any months of benefit under the
Severance Plan). In addition, the participant will be entitled
to receive a lump-sum payment equal to three times the average of
the three highest of the five preceding annual cash bonuses
awarded to the participant. Benefits under the Income
Continuation Plan will be reduced to the extent necessary to
prevent any portion of such benefits from being considered
"excess parachute payments" under Section 280G of the Internal
Revenue Code, when considered alone or in combination with any
payments otherwise payable to the participant upon a change in
control.
Stock options, SARs, performance units, restricted stock and
other awards under The Reader's Digest Association, Inc. Key
Employee Long Term Incentive Plans also generally become
immediately vested upon a change in control.
Miscellaneous
In connection with Mr. Pearson's relocation to the United
States, the Company has guaranteed a bank residential financing
loan to Mr. Pearson in the amount of $304,000.
REPORT OF THE COMPENSATION & NOMINATING COMMITTEE
Executive Compensation Philosophy
The Company's executive compensation program is designed to
offer market competitive compensation opportunities which are
tied to individual, financial and stock performance. The
purposes of the program are to:
- Continue to retain and attract high
caliber executive talent critical to the success of the
Company.
- Direct executive attention on
performance measures that are important to stockholders,
such as earnings-per-share growth and stock price
appreciation.
- Reward executives for successful
strategic management, growth in earnings and customers,
and increases in return to stockholders.
- Promote stock ownership to foster
commonality of interests between executives and
stockholders.
The Company's executive compensation philosophy is to
provide compensation at levels competitive with those provided in
the markets in which the Company competes for business and for
executive resources. The Company is committed to placing a
majority of total compensation at risk by linking incentives to
stock performance and to the achievement of operational and
strategic goals including earnings per share growth, operating
profit growth and customer growth. In addition, the program
attempts to recognize and reward exceptional individual
contributions.
The Company's incentive compensation programs for executive
officers are designed to reward participants on the basis of
individual and corporate performance that benefit the Company and
its stockholders. The Committee believes that it is desirable
for executive compensation to be deductible for federal income
tax purposes, but only to the extent that achieving deductibility
is practicable, consistent with the Company's overall
compensation objectives, and in the best interests of the Company
and its stockholders. Accordingly, although the Committee
retains discretion to provide compensation programs intended to
achieve corporate goals regardless of tax deductibility, the
Committee may from time to time take appropriate action intended
to qualify compensation as "performance based" for tax
deductibility as within the meaning of Section 162(m) of the
Internal Revenue Code or action that results in the
disqualification of compensation.
Compensation Components
The executive compensation program consists of three
elements: base salary, annual incentive bonus and long-term
incentive compensation. The Company annually reports to the
Compensation & Nominating Committee (the "Committee") on the
competitiveness of the level and structure of total annual
executive compensation, specifically, as it compares to that of a
selected group of peer companies with which the Company competes
for business and for executive talent. These peer companies
include but are not limited to those media and publishing
companies reflected in the performance graph appearing elsewhere
in this Proxy Statement, and in addition, selected consumer
product and direct marketing companies. The Company regularly
receives advice from an independent compensation consultant in
structuring compensation plans and setting compensation levels.
Periodically, the Committee meets with an outside consultant to
assess the competitiveness of the executive compensation program
and its effectiveness in linking pay to total stockholder return.
Base salaries are targeted at the 50th percentile of
competitive market data. Salary opportunities are set by annual
comparison to external rates of pay for comparable positions
within competitive companies. Annually, the Committee reviews
and approves individual salary adjustments for corporate officers
and senior group executives earning $200,000 or more based on
individual performance, and changes in responsibility, as well as
general movement in external salary levels. Decisions regarding
salary adjustments for executive officers and senior management
are consistent with the salary increase guidelines in effect for
all employees which are established each year by the Company, and
which are consistent with competitive salary management
practices.
In fiscal 1996, the Committee approved salary increases for
executive officers which were in accordance with the Company's
fiscal 1996 salary increase guidelines established for all
employees.
Annual incentive bonus targets are set at the 50th
percentile of competitive practice of peer companies. Annual
bonus targets vary by position and level of responsibility. The
purpose of these awards is to deliver competitive compensation
for the attainment of Company financial objectives and individual
performance goals, which the Committee believes are primary
determinants of share price over time. The Committee establishes
an annual incentive pool equal to the sum of all individual
target awards. The amount available for the purpose of funding
the incentive pool is determined after consideration of the
Company's annual performance measured against the operating
profit goal (on a currency neutral basis) established by the
Committee at the start of the fiscal year. Beginning in fiscal
1996, the Company introduced customer growth as an additional
performance goal for purposes of funding the annual incentive
pool. If the Company and individual business units achieve or
exceed the goals, the incentive pool increases up to 130% of the
sum of the individual target awards. If Company and individual
business unit performance fall below a performance threshold , no
pool of funds is available for awards. Once the overall pool is
determined, individual awards are decided based upon a review of
individual performance against annual goals which include
financial, operational and strategic management objectives.
Individual awards may range from 0% - 150% of targeted levels and
are made in the sole discretion of the Committee. After
reviewing the Company's overall performance against goals
established for fiscal 1996, the Committee determined that
Company performance was above the performance threshold but below
targeted levels, and therefore, approved annual incentive awards
for executive officers reflecting company performance which,
overall, was below target.
Long-term incentive compensation consists of an annual grant
of stock options or stock appreciation rights, and performance
units which are typically based on earnings-per-share growth over
a three-year performance cycle. The amounts of individual grants
are based on position and level of responsibility. Participation
in the long-term incentive program is limited to those executives
who are responsible for implementing operational plans designed
to achieve the Company's long-term strategic objectives as
approved by the Board of Directors. Guidelines for annual grants
are set by regular comparison to general industry long-term
incentive competitive practices. The purpose of the long-term
incentive component is to tie compensation to the long-term
financial performance of the Company and to align the long-term
interests of executives with those of stockholders by providing
executives with an equity interest in the Company. The long-term
incentive compensation program is designed to deliver to
executives the majority of long-term incentive through stock
options or stock appreciation rights in order to closely align
the executive's interests with stockholder interests. The
combination of stock options or stock appreciation rights and
performance units is designed to deliver long-term incentive
compensation approximately equal to the median long-term
incentive compensation levels at peer companies, with an
opportunity to earn above market long-term compensation when
superior financial performance is achieved.
Stock option and stock appreciation rights grant guidelines
were established in 1990 at the time of the Company's initial
public offering, and were based on a review of competitive long-
term incentive values and were recommended by an independent
compensation consultant. The number of stock options or stock
appreciation rights awarded to executives varies by position and
level of responsibility. Neither the number, nor the value of
stock options or stock appreciation rights held by an executive
is considered when determining individual awards. The guidelines
for grants to executive officers are reviewed annually by an
independent compensation consultant. In 1996, following a
competitive review by the Company's outside compensation
consultants, eligibility criteria for stock option grants was
extended to include middle level managerial positions, and
adjustments were made to the annual grant guidelines for some
levels in order for the Company to continue to maintain its long-
term competitive position. Additionally, in an effort to more
closely link compensation and performance, stock options are now
awarded based on individual performance.
Two years ago, executive officers received the equivalent of
five annual stock option/stock appreciation rights grants,
intended to replace annual grants for a five-year period. Since
then, individuals who were hired as or promoted to the level of
executive officer were awarded first-time or incremental four-
year or three-year stock option grants, in lieu of subsequent
annual grants. These subsequent multi-year grants to new hires
and recently promoted executives are designed to conclude vesting
concurrently with the special five-year grant awarded two years
ago. The 1996 stock option or stock appreciation rights grant
guidelines for executive officers continue to be consistent with
the fixed share grant guidelines established in 1991.
The performance unit program generally pays cash awards at
the end of three-year performance cycles, with a new cycle
beginning each year. Performance targets are based on cumulative
earnings-per-share growth (determined before the effect of
accounting changes and special or extraordinary charges). Cash
awards range from 0% - 150% of individual target awards, and are
based on earnings-per-share growth (determined before the effect
of accounting changes and special or extraordinary charges)
relative to the growth goal established by the Committee at the
start of the cycle. If cumulative growth is below a
predetermined performance threshold, then no awards are paid.
If the targeted growth is achieved, then 100% of the target
awards are paid. Depending upon the extent to which performance
exceeds goal, up to 150% of the target awards may be paid.
The Committee recognized that the Company had commenced in
fiscal 1995 a period of strategically restaging the Company for
sustainable long-term growth and that this strategic restaging
was expected to continue throughout fiscal 1996 and 1997. The
Committee determined that the financial performance projected
during the restaging would result in no performance unit awards
being earned for the three-year performance cycles ending in
fiscal 1996 and 1997 under the long-term incentive plan.
Accordingly, in order to retain and motivate senior executives
during the restaging period, the Committee approved the award of
recovery stock options that were intended to replace the long-
term incentive opportunity that was foregone in the restaging
decision. The options were granted at full market value and will
not vest until 2004 unless the financial goals for the
performance unit plan cycles ending in fiscal 1998 and 1999 are
met, thereby resulting in early vesting of part or all of the
options. Those options are intended to provide incentives to
accomplish the goals of the restaging of the Company and link the
value of the incentive directly to the enhancement of shareholder
value through stock price appreciation.
During 1996 the Committee reviewed the financial projections
associated with the restaging and re-examined the performance
targets for the long-term incentive cycle ending with fiscal year
1998, which determine the earning of performance units for that
cycle and the potential early vesting of up to one-half of the
recovery stock option grant. To maintain some of the intended
incentive value under the existing programs and conform the
performance standards to the strategic goals determined during
the early stages of the implementation of the Company's growth
strategy, the Committee approved restating the applicable
performance targets. Additionally, the Committee established the
performance targets for the three-year performance period ending
fiscal 1999 applicable to the earning of performance units and
the potential vesting of the remainder of the recovery stock
option grant.
Fiscal 1996 Chief Executive Officer Compensation
Chief Executive Officer compensation is based on the same
factors as compensation for other executive officers. In setting
the Chief Executive Officer's target annual compensation, the
Committee seeks to be competitive with Chief Executive Officer
compensation in peer companies, and to place at least 60% of
Chief Executive Officer compensation at risk by linking pay to
the achievement of the Company's annual and long-term financial
and operating goals and the performance of the Company's Class A
Nonvoting Common Stock.
The Committee approved an annual salary increase for Mr.
Schadt which took effect in July 1995. The increase is
consistent with the Company's annual salary increase guidelines,
and the new salary is competitive with salaries paid to chief
executive officers within the Company's competitive peer group.
The Company believes in and promotes employee stock
ownership through a number of savings, investment, and
compensation programs currently in place including the Profit-
Sharing Plan, the Employee Stock Purchase Plan, and the stock
option program. Within the spirit of the Company's stock
ownership philosophy, the Company determined that the Chief
Executive Officer will receive part of his annual bonus target,
previously paid entirely in cash, in the form of performance-
based restricted stock. In September 1995, Mr. Schadt received a
grant, under the 1994 Key Employee Long Term Incentive Plan, of
51,347 shares of performance-based restricted stock, which
represents a significant portion of the next five years' worth of
annual bonus targets divided by the fair market value of the
Class A Nonvoting Common Stock on the date of grant. Twenty
percent of these shares vest on September 15 of each year
beginning in 1995, contingent on the Company's achieving the pre-
established performance goal, which is consistent with the
performance criteria used for funding the Company's annual bonus
pool. Continued employment is also a condition of vesting. The
Committee will certify the attainment of the performance
threshold after each fiscal year as a condition to the annual
vesting of shares. In the event the Company does not achieve the
threshold, the shares due to vest will be entirely forfeited.
The remainder of any annual bonus, which will be in the form of a
cash payment, will be awarded at the discretion of the Committee,
based on Mr. Schadt's performance against the goals established
for each fiscal year.
After the end of fiscal 1996, the Committee reviewed the
extent to which the performance threshold was exceeded and
approved the vesting on September 15 of the second tranche of Mr.
Schadt's performance-based restricted shares. The remainder of
Mr. Schadt's annual bonus included a cash payment which, together
with the vesting of the performance-based restricted shares
comprise his total annual incentive award. In deciding on the
cash component of Mr. Schadt's total annual bonus opportunity,
the Committee took into consideration the financial performance
of the Company, the worldwide downsizing activities which took
place in 1996, Mr. Schadt's continued efforts in implementing and
pursuing the Company's growth strategies, and his overall
leadership in restaging the Company for long-term growth.
The Compensation & Nominating
Committee:
William G. Bowen, Chairman
Lynne V. Cheney
Walter V. Shipley
C. J. Silas
Compensation Committee Interlocks and Insider Participation
On July 31, 1995, George V. Grune retired as Chairman of the
Board of the Company. During July 1995, Mr. Grune served as a
member of the compensation committee of Avon Products, Inc. Mr.
Preston served as an executive officer of Avon Products, Inc.
during fiscal 1996. Also during July 1995, Mr. Grune served as a
director of Chemical Banking Corporation (now The Chase Manhattan
Corporation). Mr. Shipley served as an executive officer of
Chemical Banking Corporation and also served on the Company's
Compensation & Nominating Committee during fiscal 1996.
PERFORMANCE GRAPH
The following graph compares the total return to
stockholders (stock price plus reinvested dividends) on a $100
investment in each of the following: the Company's Class A
Nonvoting Common Stock, the S&P 500 Stock Index and the Dow Jones
Media-Publishing Group Index from June 30, 1991 through June 30,
1996.
Comparison of Cumulative Total Return: The Reader's Digest
Association, Inc.
vs. S&P 500 and Dow Jones Media-Publishing Group
[GRAPH AS DESCRIBED ABOVE APPEARS HERE]
<TABLE>
<CAPTION>
June 30, June 30, June 30, June 30, June 30, June 30,
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
The Reader's Digest $100.00 $136.11 $126.78 $128.92 $142.09 $142.11
Association, Inc.
Dow Jones Media- $100.00 $111.06 $115.13 $120.33 $137.32 $172.96
Publishing Group
S&P 500 $100.00 $113.39 $128.82 $130.60 $164.60 $207.36
</TABLE>
SUBMISSION OF STOCKHOLDER PROPOSALS AND NOMINATIONS
Pursuant to Securities and Exchange Commission rules and the
Company's By-Laws, proposals of stockholders intended to be
submitted at the 1997 Annual Meeting of Stockholders must be
received by the Company at its principal executive offices on or
before May 31, 1997 to be eligible for inclusion in the Company's
notice of meeting, proxy statement and accompanying proxy card
for such meeting or to be introduced from the floor at such
meeting.
The Company's By-Laws also provide that notice of proposed
stockholder nominations for election of directors must be given
to the Corporate Secretary of the Company not less than 14 or
more than 50 days prior to a meeting called to elect directors.
Such notice must contain certain information about each proposed
nominee including age, business and residence addresses,
principal employment, number of shares of Class B Voting Common
Stock beneficially owned (with evidence of such ownership) and
such other information as would be required in a proxy statement
soliciting proxies for the election of such proposed nominee, and
a signed consent of the nominee to serve as a director if
elected.
MISCELLANEOUS
The Board of Directors is not aware at the date hereof of
any matter proposed to be presented at the Meeting other than the
election of Directors nominated in the Proxy Statement. If any
other matter is properly presented, the persons named in the
accompanying proxy card will have discretionary authority to vote
thereon according to their best judgment.
It is expected that a member of KPMG Peat Marwick LLP, the
Company's independent auditors, will attend the Annual Meeting to
respond to any appropriate questions that may be asked by
stockholders.
The Company's Annual Report to Stockholders is being mailed
with this Proxy Statement. It is not to be deemed a part of the
proxy solicitation material and is not incorporated herein by
reference.
A copy of the Company's 1996 annual report on Form 10-K
filed with the Securities and Exchange Commission (without
exhibits) will be made available to stockholders without charge
upon written request to the Director, Investor Relations, The
Reader's Digest Association, Inc., Pleasantville, NY 10570-7000.
By Order of the Board of
Directors:
PAUL A. SODEN
Paul A. Soden
Senior Vice President, General
Counsel and Secretary
September 26, 1996
Driving Directions to Reader's Digest Global Headquarters
From Manhattan
From East Side, take I-87 north (Major Deegan Thruway) into
Yonkers to Exit 5, "Central Park Avenue, Route 100." Proceed on
Route 100 north for 1 mile to entrance to Sprain Brook Parkway
(left turn). Continue on Sprain Brook Parkway north
approximately 12 miles to exit for Saw Mill River Parkway north.
Take Saw Mill River Parkway north approximately 7 miles to the
traffic light at the Reader's Digest Road exit. Turn right at
the exit and bear right to the top of the hill proceeding around
the Reader's Digest headquarters. At the traffic light, turn
left onto Route 117 and make another immediate left into the
Reader's Digest main entrance.
From West Side, take the West Side Highway north to the Henry
Hudson Parkway north to the Saw Mill River Parkway north.
Continue on the Saw Mill River Parkway north approximately 20
miles to the traffic light at the Reader's Digest Road exit.
Turn right at the exit and bear right to the top of the hill
proceeding around the Reader's Digest headquarters. At the
traffic light, turn left onto Route 117 and make another
immediate left into the Reader's Digest main entrance.
From Dutchess or Putnam County
Take I-84 south to the I-684 south approximately 10 miles to Saw
Mill River Parkway south. Bear right onto Exit 5 entering Saw
Mill River Parkway south and continue approximately 7 miles to
traffic light at Reader's Digest Road exit. Turn left at exit
and bear right to top of hill proceeding around the Reader's
Digest headquarters. At the traffic light, turn left onto Route
117 and make another immediate left into the Reader's Digest main
entrance.
From New Jersey
Take I-287 east (Tappan Zee Bridge) to Exit 1 for Saw Mill River
Parkway north. Take Saw Mill River Parkway north approximately 7
miles to the traffic light at the Reader's Digest Road exit.
Turn right at the exit and bear right to the top of the hill
proceeding around the Reader's Digest headquarters. At the
traffic light, turn left onto Route 117 and make another
immediate left into the Reader's Digest main entrance.
From Connecticut
Take I-95 south to Exit 21 to I-287. Proceed on I-287 to Exit 3
for Sprain Brook Parkway north. Take Sprain Brook Parkway north
approximately 4 miles to exit for Saw Mill River Parkway north.
Take Saw Mill River Parkway north approximately 7 miles to the
traffic light at the Reader's Digest Road exit. Turn right at
the exit and bear right to the top of the hill proceeding around
the Reader's Digest headquarters. At the traffic light, turn
left onto Route 117 and make another immediate left into the
Reader's Digest main entrance.
Reader's Digest and the Pegasus logo are registered trademarks of
The Reader's Digest Association, Inc.
[Logo] Printed on recycled paper.
