Polaris Industries Inc.

2100 Highway 55

Medina, Minnesota 55340

763-542-0500

Fax: 763-542-0599

 

March 10, 2010

 

Dear Fellow Shareholder:

 

The Board of Directors of Polaris Industries Inc. joins me in extending a cordial invitation to attend our 2010 Annual Meeting of Shareholders which will be held at our corporate headquarters, 2100 Highway 55, Medina, Minnesota, 55340, on Thursday, April 29, 2010 at 9:00 a.m. local time.

 

In addition to voting on the matters described in the accompanying Notice of Annual Meeting and Proxy Statement, we will review Polaris’ 2009 business and discuss our direction for the coming years. There will also be an opportunity, after conclusion of the formal business of the meeting, to discuss other matters of interest to you as a shareholder.

 

This year, we will be using the “Notice and Access” method of furnishing proxy materials to you over the Internet. We believe that this process will provide you with a convenient and quick way to access your proxy materials and vote your shares, while allowing us to reduce the environmental impact of our annual meeting and the costs of printing and distributing the proxy materials. On or about March 10, 2010 we will mail to many of our shareholders a Notice of Internet Availability of Proxy Materials containing instructions on how to access our proxy statement and annual report and vote electronically over the Internet. The Notice also contains instructions on how to receive a paper copy of your proxy materials. We will not be mailing the Notice to shareholders who previously elected to receive paper copies of the proxy materials.

 

It is important that your shares be represented at the meeting whether or not you plan to attend in person. Please vote electronically over the Internet or by telephone or, if you receive a paper copy of the proxy card by mail, by returning your signed proxy card in the envelope provided. If you do attend the meeting and desire to vote in person, you may do so even though you have previously sent a proxy.

 

We hope that you will be able to attend the meeting and we look forward to seeing you.

 

Sincerely,

 

 

Gregory R. Palen

Chairman of the Board

 

Enclosures

POLARIS INDUSTRIES INC.
2100 Highway 55
Medina, Minnesota 55340
March 10, 2010

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

Polaris Industries Inc. will hold its 2010 Annual Meeting of Shareholders at its corporate headquarters located at 2100 Highway 55, Medina, Minnesota, 55340, on Thursday, April 29, 2010. The meeting will begin at 9:00 a.m. local time. The proxy materials were either made available to you over the Internet or mailed to you beginning on or about March 10, 2010. At the meeting, we will:

 

1. Elect three Class I directors for three-year terms ending in 2013.

 

2. Ratify the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal 2010.

 

3. Act on any other matters that may properly come before the meeting.

 

The Board recommends that shareholders vote FOR the director nominees named in the accompanying Proxy Statement. The Board recommends that shareholders vote FOR the ratification of the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal 2010, as described in the Company’s accompanying Proxy Statement.

 

Only shareholders of record at the close of business on March 1, 2010 may vote at the Annual Meeting or any adjournment thereof.

 

By Order of the Board of Directors

 

Stacy L. Bogart

Vice President, General Counsel and Secretary

 

 

YOUR VOTE IS IMPORTANT

 

Whether or not you plan to attend the meeting, we urge you to vote as soon as possible via the toll-free telephone number or over the Internet, as described in the enclosed materials. If you received a copy of the proxy card by mail, you may sign, date and mail the proxy card in the envelope provided.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE 2010 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 29, 2010.

 

The Company’s Proxy Statement for the 2010 Annual Meeting of Shareholders, the Company’s Annual Report to Shareholders for the fiscal year ended December 31, 2009 and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 are available at www.proxydocs.com/pii

 

TABLE OF CONTENTS

 

 

POLARIS INDUSTRIES INC.
2100 Highway 55
Medina, Minnesota 55340

PROXY STATEMENT

 

 

 

 

 

 

 

The following table sets forth certain information with respect to the beneficial ownership of the Company’s common stock as of February 16, 2010 by each person known to the Company who then beneficially owned more than 5% of the outstanding shares of common stock, each director of the Company, each nominee for director, each Named Executive Officer named in the Summary Compensation Table on page 30 and all current executive officers and directors as a group. As of February 16, 2010, there were 32,870,589 shares of common stock outstanding. Except as otherwise indicated, the named beneficial owner has sole voting and investment powers with respect to the shares held by such beneficial owner. The table also includes information with respect to common stock equivalents credited as of February 16, 2010 to the accounts of each director under the Company’s Deferred Compensation Plan for Directors that is described in this Proxy Statement under the heading “Corporate Governance — Director Compensation.”

 

 

 

 

Since 2002, when Mr. Palen was elected Chairman, Polaris has separated the roles of Chairman of the Board and Chief Executive Officer (the “CEO”) of the Company. Although the separation of roles has been appropriate for Polaris during that time period, in the view of the Board, the advisability of the separation of these roles depends upon the specific circumstances and dynamics of the Company’s leadership. Separation of the two offices is not mandated by the Company’s Corporate Governance Guidelines.

 

As non-executive Chairman of the Board, Mr. Palen serves as the primary liaison between the CEO and the independent directors and provides strategic input and counseling to the CEO. With input from other members of the Board, committee chairs and management, he develops the agenda for Board meetings, sets meeting schedules of the Board and presides over meetings of the Board and executive sessions of the independent directors. Mr. Palen directs the Board and CEO evaluation processes. As a Board member for over 15 years, Mr. Palen has developed an extensive knowledge of the Company, its challenges and opportunities and has a productive working relationship with the Company’s senior management team.

 

The Board, as a unified body and through committee participation, organizes the execution of its monitoring and oversight roles and does not expect its Chairman to organize those functions. Polaris’ primary rationale for separating the positions of Board Chairman and the CEO is the recognition of the time commitments and activities required to function effectively as Chairman and as the CEO of a company with a relatively flat management structure. The separation of roles has also permitted the Board to recruit senior executives into the CEO position with skills and experience that meet the Board’s planning for the position who may not have extensive public company board experience.

 

Our Audit Committee is primarily responsible for reviewing and discussing with management on a regular basis the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures, including management’s guidelines and policies with respect to risk assessment and risk management. In some instances, when the Board deems it appropriate, responsibility of oversight of a specific risk is assigned to another of the Board’s committees.

 

The Company engages in an Enterprise Risk Management (“ERM”) process. The ERM process consists of periodic risk assessments performed by various functional management groups during the year. Executive management reviews the risk assessments and presents these assessments to the Audit Committee at least twice per year to ensure completeness of the process, appropriate oversight and review of the risks and risk assessments. In addition, the Audit Committee reports regularly to the full Board of Directors, which also considers the Company’s risk profile. While Company management is responsible for day-to-day risk management identification and mitigation, the Board, directly and through its committees, oversees the execution of such process. We believe this division of responsibilities is the most effective approach for addressing the risks facing our Company and that our Board leadership structure supports this approach.

 

In consultation with other members of Board, the Corporate Governance and Nominating Committee is responsible for identifying individuals who it considers qualified to become Board members. In considering whether to recommend an individual for election to the Board, the Corporate Governance and Nominating Committee considers, as required by its charter, the Board’s overall balance of diversity of perspectives, backgrounds and experiences. The Corporate Governance and Nominating Committee views diversity expansively and considers among other things, functional areas of experience, educational background, employment experience and leadership performance as well as those intangible factors that it deems appropriate to develop a heterogeneous and cohesive Board such as integrity, achievements, judgment, intelligence, personal character, the interplay of the candidate’s relevant experience with the experience of other Board members, the willingness of the candidate to

devote adequate time to Board duties, and likelihood that he or she will be willing and able to serve on the Board for a sustained period.

 

Polaris’ Board of Directors and each of its committees engage in an annual self evaluation process. As part of that process, directors, including the CEO, provide feedback on, among other things, whether the Board is meeting its diversity objectives and how the composition of the Board should be changed or supplemented in order to enhance its value to the Company and shareholders.

 

Our Board of Directors has adopted Corporate Governance Guidelines, which may be viewed online on our website at www.polarisindustries.com. Under our Corporate Governance Guidelines, which adopt the current standards for “independence” established by the New York Stock Exchange (“NYSE”), a majority of the members of the Board of Directors must be independent as determined by the Board of Directors. In making its determination of independence, among other things, the Board of Directors must have determined that the director has no material relationship with Polaris either directly or indirectly as a partner, shareholder or officer of an organization that has a relationship with Polaris. The Board of Directors has determined that Ms. Clayton and Messrs. Caulk, Kessler, Menard, Palen, Schreck, Van Dyke and Wiehoff are independent. The Board of Directors determined that Mr. Baltins is independent for all purposes other than service on the Company’s Audit Committee because he is a member of one of the law firms that provides legal services to the Company. Mr. Wine, our CEO, is not considered to be independent by the Board of Directors. Mr. Tiller, formerly our Senior Program Advisor and, prior to that, our CEO, was not considered to be independent during his term of service as a director. In January 2010, the Company engaged C. H. Robinson to conduct an analytical study of its distribution centers and the dollar amount involved in this transaction is significantly below $120,000. A member of our Board of Directors, Mr. John Wiehoff is the CEO of C. H. Robinson. The transaction was entered into on competitive terms and is maintained on an arm’s length basis. The Board determined that neither the nature of the transaction nor the amount paid in connection with this transaction is at a level that would compromise Mr. Wiehoff’s independence. Accordingly, a majority of our Board of Directors is considered to be independent. Additionally, all current members of our Audit, Compensation and Corporate Governance and Nominating Committees are considered to be independent.

 

We have also adopted a Code of Business Conduct and Ethics applicable to all employees, including our CEO, our Chief Financial Officer and all other senior executives, and the directors. A copy of the Polaris Code of Business Conduct and Ethics is available on our website at www.polarisindustries.com.

 

Under our Corporate Governance Guidelines, a process has been established by which shareholders and other interested parties may communicate with members of the Board of Directors. Any shareholder or other interested party who desires to communicate with the Board of Directors, individually or as a group, may do so by writing to the intended member or members of the Board of Directors, c/o Corporate Secretary, Polaris Industries Inc., 2100 Highway 55, Medina, Minnesota, 55340.

 

All communications received in accordance with these procedures will be reviewed initially by the office of our Corporate Secretary to determine that the communication is a message to one or more of our directors and will be relayed to the appropriate director or directors unless the Corporate Secretary determines that the communication is an advertisement or other promotional material. The director or directors who receive any such communication will have discretion to determine whether the subject matter of the communication should be brought to the attention of the full Board of Directors or one or more of its committees and whether any response to the person sending the communication is appropriate.

 

During 2009, the full Board of Directors met four times in person. Each of the in-person meetings was preceded and/or followed by an executive session of the Board of Directors without management in attendance, chaired by Mr. Palen. Each of our directors attended 75% percent or more of the meetings of the Board of Directors and any committee on which they served in 2009. The Board also acted through four written actions in 2009. The

Company does not maintain a formal policy regarding the Board’s attendance at annual shareholder meetings; however, Board members are expected to regularly attend all Board meetings and meetings of the committees on which they serve as well as the annual shareholder meetings. All members of the Board of Directors attended our 2009 Annual Meeting, except for Mr. Kessler, who was appointed to the Board effective January 21, 2010.

 

The Board of Directors has designated four standing committees. The Audit Committee, the Compensation Committee, the Corporate Governance and Nominating Committee and the Technology Committee each operates under a written charter which is available on our website at http://www.polarisindustries.com. The current membership of each committee and its principal functions, as well as the number of times it met during fiscal 2009, are described below.

 

Audit Committee

 

 

Compensation Committee

 

Corporate Governance and Nominating Committee

 

 

Technology Committee

 

 

During 2009, the law firm of Kaplan, Strangis and Kaplan, P.A. (“KSK”) provided ongoing legal services to the Company and certain subsidiaries in connection with various matters. Andris A. Baltins, a member of the Board of Directors, is a member of that firm. Due to the nature of Mr. Baltins’ interest in KSK, disclosure of this relationship is not required under applicable SEC regulations. However, the relationship is periodically reviewed by the Corporate Governance and Nominating Committee and the Board of Directors. The level of fees paid by the Company to KSK for services rendered is not material to either the Company or to KSK and the Board of Directors concluded that the relationship did not constitute a material relationship that would impair Mr. Baltins’ independence.

 

Polaris’ written Related-Person Transactions Policy, which is applicable to all directors, nominees for directors, executive officers and five-percent shareholders of the Company and their respective immediate family members, prohibits “related-person transactions” unless approved or ratified by the Corporate Governance and Nominating Committee.

 

Matters considered to be a related-person transaction subject to the policy include any transaction in which Polaris is directly or indirectly a participant and the amount involved exceeds or reasonably can be expected to exceed $120,000, and in which a director, nominee for director, executive officer or five-percent shareholder or any of their respective family members has or will have a direct or indirect material interest,.

 

Any potential related-person transaction that is raised will be analyzed by the General Counsel, in consultation with management and with outside counsel, as appropriate, to determine whether the transaction or relationship constitutes a related-person transaction requiring compliance with the policy. The potential related-person transaction and the General Counsel’s conclusion and the analysis thereof is also to be reported to the chair of the Corporate Governance and Nominating Committee.

 

The Corporate Governance and Nominating Committee shall review the material facts of all related-person transactions that require the Committee’s approval and either approve or disapprove of the related person transaction. If advance Committee approval of a related-person transaction is not feasible, then the related-person transaction shall be considered and, if the Committee determines it to be appropriate, ratified at the Committee’s next regularly scheduled meeting. Any related-person transaction that is not approved or ratified, as the case may be, shall be voided, terminated or amended, or such other actions shall be taken, in each case as determined by the Committee, so as to avoid or otherwise address any resulting conflict of interest.

 

All current members of the Compensation Committee are considered independent under our Corporate Governance Guidelines. During fiscal year 2009, none of our executive officers served on the compensation committee (or its equivalent) or board of directors of another entity whose executive officers served on our Compensation Committee or Board.

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s directors and executive officers to file initial reports of ownership and reports of changes of ownership of the Company’s common stock with the SEC. Executive officers and directors are required to furnish the Company with copies of all Section 16(a) reports that they file. To the Company’s knowledge, based solely upon a review of the reports filed by the executive officers and directors during 2009 and written representations that no other reports were required, the Company believes that, during the year ended December 31, 2009, all filing requirements applicable to its directors, executive officers and 10% beneficial owners, if any, were complied with, except that the Company failed to timely file (1) a Form 4 for John B. Corness, Vice President — Human Resources, with respect to the sale of 6,794 shares on August 7, 2009 and (2) a Form 4 for Robert L. Caulk with respect to the sale of 200 shares on October 26, 2009.

 

The Board of Directors of the Company is divided into three classes. The members of one class are elected at each annual meeting of shareholders to serve three-year terms. The Class I directors currently serving on the Board, whose terms expire at the 2010 Annual Meeting, are Messrs. Andris A. Baltins, Robert L. Caulk, Bernd F. Kessler and Scott W. Wine. Mr. Baltins will serve until the 2010 Annual Meeting but will not stand for reelection. Accordingly, immediately prior to the 2010 Annual Meeting, the Board will reduce the authorized number of directors from ten to nine. We wish to thank Mr. Baltins for his many years of dedicated service to our Board.

 

Upon the recommendation of the Corporate Governance and Nominating Committee of the Board, the Board of Directors proposes that the following nominees, all of whom are currently serving as Class I directors, be elected as Class I directors for three-year terms expiring in 2013:

 

Robert L. Caulk
Bernd F. Kessler
Scott W. Wine

 

The persons named in the proxy intend to vote your proxy for the election of each of the three nominees, unless you indicate on the proxy that your vote should be withheld from any or all of the nominees. If you are voting by telephone or on the Internet, you will be told how to withhold your vote from some or all of the nominees. Each nominee elected as a director will continue in office until his or her successor has been elected, or until his or her death, resignation or retirement.

 

After the election of three Class I directors at the Annual Meeting, the Board will consist of nine directors, including six continuing directors whose present terms extend beyond this Annual Meeting (Classes I, II and III will each consist of three directors). There are no family relationships between or among any executive officers or directors of the Company.

 

We expect each nominee standing for election as a Class I director to be able to serve if elected. If any nominee is not able to serve, proxies will be voted in favor of the remainder of those nominated and may be voted for substitute nominees designated by the Board, unless an instruction to the contrary is indicated on the proxy.

 

The Board of Directors unanimously recommends a vote FOR the election of these nominees as Directors.

 

Our directors bring a broad range of leadership and experience to the boardroom and regularly contribute to the dialogue involved in effectively overseeing and guiding the business and affairs of the Company. Other than the CEO, all of the members of the Board are independent. Though the members of the Board have been selected to provide a wide range of viewpoints, the atmosphere of our Board is collegial. Preparation, engagement and participation are expected from our directors and in 2009 all of our directors attended 100% of Board meetings and meetings of committees on which they serve. We insist on high personal and professional ethics, integrity and values. All of our current directors and nominees satisfy such requirements. The Board has adopted Corporate Governance Guidelines which are observed by all directors. With a diverse mix of experience, backgrounds and skill sets, the Board believes it is well positioned to represent the best interests of the shareholders. The principal occupation, specific experience, qualifications, attributes or skills and certain other information about the nominees and other directors whose terms of office continue after the Annual Meeting are set forth on the following pages.

 

 

 

The following discussion and analysis describes the Company’s compensation objectives and policies and the compensation awarded to the following executive officers (the “Named Executive Officers”) during 2009:

 

 

Objectives of Polaris’ Compensation Program

 

Our executive compensation philosophy aligns executive compensation decisions with our desired business direction, strategy and performance. The primary objectives and priorities of the compensation program for Polaris’ Named Executive Officers are the following:

 

 

To achieve these objectives, we have designed an executive compensation program that emphasizes performance-based incentives, with the percentage of total compensation opportunities made available in performance-based compensation increasing with the level of authority of the Named Executive Officer.

 

Our purpose in providing each element of compensation, the criteria used in establishing the amount thereof and the objectives achieved in awarding the same are detailed below:

 

Factors Considered in Determining Compensation

 

The Compensation Committee annually reviews competitive executive compensation levels based upon a report compiled by its independent compensation consultant, The Delves Group, (“Delves”), that includes comparative compensation data from a survey of a group of companies that are primarily engaged in the manufacturing industry and have annual sales ranging from $0.4 billion to $6.0 billion. Companies in the peer group are selected based on size, complexity and business model relative to Polaris. We believe that these criteria are effective in identifying a survey group of companies comparable to Polaris, which is a manufacturing entity that had annual sales of $1.6 billion and $1.9 billion for the years ended December 31, 2009 and December 31, 2008, respectively. All of the companies surveyed to establish the 2010 compensation opportunities of the Named Executive Officers are listed below:

 

 

Utilizing the survey group information, the Compensation Committee conducts its own review of the various components of Polaris’ executive compensation program and, with the assistance of the CEO, the President and Chief Operating Officer and the Vice President — Human Resources, determines the base salary and annual and long-term incentive targets and opportunities of the Named Executive Officers as a group and individually. In doing so, the Compensation Committee conducts an evaluation of the compensation opportunities and individual performance of each Named Executive Officer. Each executive’s skills, experience, time in position, achievements and level of contribution towards desired business objectives is reviewed. The Compensation Committee uses this information to determine the amount and mix of compensation opportunities and the actual compensation for the Company’s Named Executive Officers is based upon these assessments.

 

Annual Compensation

 

Base Salary.  We target the base pay of our Named Executive Officers at approximately the 50th percentile of the survey group of companies identified above in order to remain competitive with compensation levels of executives at comparable companies. Polaris believes that targeting base pay at a competitive level helps to meet our compensation program objective of attracting and retaining high quality executives. Each Named Executive Officer’s salary varies from the 50th percentile target based on the Compensation Committee’s assessment of the level of his responsibility, experience, time in position, internal equity considerations and individual performance. Named Executive Officer base salaries are reviewed by the Compensation Committee on an annual basis and specific salary adjustments take into account these factors and the current market for management talent. A Named Executive Officer’s base salary will also generally be reviewed at the time of a promotion or other change in responsibilities.

 

For a Named Executive Officer who is new in his or her position, the Compensation Committee’s philosophy is to establish compensation below the market, and to increase it to market level over the first several years, assuming that the performance warrants such increase. For example, when Mr. Wine became CEO in 2008, his base salary was well below the median of the survey group because he was new to the role as a public company CEO. The 2010 salary increase described below reflects a market adjustment as well as Mr. Wine’s strong individual performance and his substantial contribution to the Company’s overall performance in fiscal year 2009, especially given the very difficult external economic environment.

2009 Base Salaries

 

In January 2009, the Compensation Committee determined not to increase the base salaries of the Named Executive Officers in consideration of what it expected to be a very difficult industry cycle and a challenging macroeconomic climate during 2009. In addition, as a cost reduction measure, the Named Executive Officers, along with all other salaried employees in the Company, agreed to an approximately 1.9% reduction in base salary paid in 2009 in exchange for an additional week of vacation, which was restored effective January 1, 2010. In May 2009, Mr. Jonikas received a salary increase of 4% to bring his base salary to $290,000, in consideration of his assuming additional responsibilities in supervising the On Road division.

 

2010 Base Salaries

 

In January 2010, the Compensation Committee set the base salaries for 2010 for all of the Named Executive Officers, except for Mr. Wine. As Mr. Wine’s base salary was well below the median of the survey group, the Compensation Committee decided to postpone a determination regarding his base salary until March 2010 to allow for further discussion and review. The base salary of Mr. Morgan was increased by 6% to $425,000 to bring Mr. Morgan closer to the market median. In addition, Mr. Morgan’s increasing experience and individual performance also warranted such an increase. Mr. Malone was granted a 1% increase bringing his base salary to $380,000 to maintain his position in the market. Mr. Barker’s salary for 2010 will remain unchanged at $250,000, which is slightly under the market median, reflecting his limited tenure with the Company. Mr. Jonikas received a 2% increase to bring his base salary to $295,000 to maintain his position relative to the market median.

 

In March 2010, after further reviewing survey group practices and Mr. Wine’s strong individual performance in 2009, the Compensation Committee approved an 18% increase in Mr. Wine’s base salary to $680,000 effective April 1, 2010. Even with this increase, Mr. Wine’s base salary remains significantly lower than the market median for CEOs of the companies within the survey group. The Compensation Committee expects Mr. Wine’s base salary to get closer to market median during his tenure if his performance warrants such increases.

 

In each instance, the approved increase reflected the Compensation Committee’s assessment of:

 

 

Senior Executive Plan.  We award annual cash incentives under the Senior Executive Plan based on the achievement of performance criteria established for a specific year. Consistent with our compensation objectives to support a performance-oriented environment, annual incentives reward our executives for outstanding performance when certain objectives are achieved.

 

The Company’s CEO and other members of senior management selected by the Compensation Committee participate in the Senior Executive Plan in lieu of the Company’s broad based annual profit sharing plan. The Senior Executive Plan was designed and is administered so that the annual incentive compensation paid to participants would be tax deductible without regard to the limitation on deductibility imposed by Section 162(m) of the Internal Revenue Code and the plan has been approved by the Company’s shareholders. In order to comply with Section 162(m), the Senior Executive Plan provides for maximum incentive compensation payment opportunities based on the Company’s performance relative to financial operating targets established early in the year by the Compensation Committee; however, the Compensation Committee may exercise its discretion to reduce or even eliminate the annual incentive awards that could be paid upon achievement of the targets. The Compensation Committee has regularly exercised its discretion to award less than the maximum amount that could be paid under the Senior Executive Plan.

In administering the plan, the Compensation Committee has established the following target annual incentive opportunities under the plan for each Named Executive Officer (expressed as a percentage of base salary):

 

 

These target annual incentive opportunities are based on the respective executive’s level of responsibility, consistent with comparable positions in the market when considering total cash compensation. These targets reflect the Compensation Committee’s view that the compensation opportunities of Messrs. Wine and Morgan, who have the greatest overall responsibility for Company performance, should be weighted more heavily towards performance based compensation.

 

During January of each year the Compensation Committee establishes a matrix for each Named Executive Officer of maximum annual incentive payouts, expressed as a percentage of base salary, across a range of levels of earnings from continuing operations per diluted share for the year. Historically, the Committee has believed that earnings from continuing operations per diluted share is the most effective and appropriate of the numerous business measurement criteria available under the Senior Executive Plan for a number of reasons, including, but not limited to: a) it is easily understood by the Named Executive Officers, shareholders and employees of the Company, b) it is a measurement that is communicated in the audited financial statements of the Company, and c) it is a measurement that is identical to the measurement used for purposes of determining the annual payments under the Company’s broad based annual profit sharing plan for all eligible non-executive employees of the Company. In determining the maximum payments at various levels of earnings from continued operations per diluted share, the Compensation Committee reviews the market for the products sold by the Company, the general economic environment and the Company’s internal operating plans for the upcoming year. The financial operating targets are heavily influenced by the Company’s internal operating plan for the year, which is not publicly disclosed. In order for the Named Executive Officers to qualify to receive an annual incentive award at least at the level of their target annual incentive opportunity, Polaris must achieve earnings from continuing operations per diluted share that exceeds the guidance provided to shareholders in January for such year. The Compensation Committee sets challenging targets in order to focus executives on delivering a high level of performance. From 2005 through 2008, the annual performance targets have required year over year growth of earnings from continuing operations per diluted share of between 10% and 16% in order for the Named Executive Officers to qualify for an award equal to their target annual incentive opportunities. Given the weak global economic environment and unprecedented uncertainty of the overall market conditions, the annual performance target for 2009 was set below the earnings from continuing operations per diluted share accomplished in 2008. During the period 2005-2009, the Company met or exceeded the required performance target in two out of five years and the Named Executive Officers received annual incentive payments at or above their target incentive opportunity those two years.

 

The amount of a Named Executive Officer’s actual incentive award payment for a performance period is based predominantly upon Polaris’ financial performance measured against pre-established performance metrics. However, the Compensation Committee also considers corporate performance against specific strategic priorities established for the year, corporate performance relative to competitors, business unit or departmental performance, individual achievement of pre-established objectives and contributions to strengthening Polaris’ business and recommendations from the CEO. Accordingly, awards under the Senior Executive Plan, which are paid prior to March 15th following the year during which performance is measured, fulfill Polaris’ compensation objectives of supporting the Company’s business plans and annual goals and generating and rewarding superior performance.

The following graph shows for fiscal years 2005 through 2009 the average annual incentive payments as a percent of target for the Named Executive Officers and percentage of internal operating plan achieved, which illustrates the correlation between achievement of the internal operating plan and the actual payouts received by the Named Executive Officers:

 

 

Senior Executive Plan Awards for 2009 — Awarded in March 2010

 

In January 2009, the Compensation Committee established award targets under the Senior Executive Plan for fiscal year 2009 (the “2009 Senior Executive Plan Awards”) that required the Company to achieve earnings from continuing operations per diluted share of $3.24 in order for the Named Executive Officers to qualify for an award equal to their target annual incentive opportunities. The Company actually achieved earnings from continuing operations per diluted share of $3.05 for 2009, a 13 percent decrease from 2008, which the Compensation Committee considers to be excellent performance in a difficult economic environment. The award targets and annual incentive awards are as follows:

 

 

 

 

As noted above, the Compensation Committee’s determination of the amount of the annual incentive awards to be paid for 2009 was based upon Polaris’ financial performance against pre-established performance metrics as well as the Compensation Committee’s subjective assessment of corporate performance against specific strategic priorities established for the year, business unit or departmental performance and individual achievement of pre-established objectives and contributions to strengthening Polaris’ business.

 

The 2009 Senior Executive Plan Awards paid to Named Executive Officers in March 2010 are reflected in the Non-Equity Incentive Plan Compensation column of the Summary Compensation table appearing on page 33 of this Proxy Statement.

Senior Executive Plans Awards for 2010 — To Be Awarded in February 2011

 

In January 2010, the Compensation Committee established a performance and payout matrix for 2010 under the Senior Executive Plan (the “2010 Senior Executive Plan Awards”). After considering the market for the products sold by the Company, the general economic environment and the Company’s plans for the upcoming year in what is expected to be another challenging industry cycle and macroeconomic climate, the Compensation Committee set performance targets for achievement of earnings from continuing operations per diluted share for 2010 above the actual results achieved in 2009. The performance and payout matrix for the 2010 Senior Executive Plan Awards approved by the Compensation Committee establishes a range of payout percentages that requires the Company to achieve earnings from continuing operations per diluted share in excess of the upper-end of the guidance range provided to shareholders in January 2010 of $3.30 in order for the Named Executive Officers to qualify for an award equal to their target annual incentive opportunities. The matrix establishes a maximum payout at 140% of the target amount for each of the Named Executive Officers if the actual results are approximately 20% or more above the targeted earnings from continuing operations per diluted share growth for the fiscal year ending December 31, 2010 and a minimum payout of 25% of the target amount if actual results are no more than 20% below the target amounts. If actual 2010 earnings from continuing operations per diluted share are more than 20% below target, then the Named Executive Officers will not be eligible to receive annual incentive awards for 2010 performance. Accordingly, as in previous years, the Compensation Committee views these targets to be challenging and designed to generate and reward superior performance.

 

Long-Term Compensation

 

Long-term compensation awarded by the Company includes long-term cash-based incentive awards under the LTIP, stock options under the Omnibus Plan and performance-based stock awards under the Omnibus Plan. The Omnibus Plan, which was adopted in April 2007 and amended in April 2009, is used to grant equity and performance-based awards similar to those previously granted under the Polaris Industries Inc. 1995 Stock Option Plan (the “Stock Option Plan”), Polaris Industries Inc. Restricted Stock Plan (the “Restricted Stock Plan”), Polaris Industries Inc. 2003 Non-Employee Director Stock Option Plan (“Director Stock Option Plan”) and Polaris Industries Inc. 1999 Broad Based Stock Option Plan. Such plans were frozen upon adoption of the Omnibus Plan. All outstanding awards under the existing plans remained outstanding; however, no further awards have been or will be granted pursuant to such plans. The Company strives to find an appropriate balance between stock price based long-term compensation opportunities and the cash-based awards under the LTIP or performance-based stock awards under the Restricted Stock Plan or Omnibus Plan that are dependent upon achievement of specific financial measures to drive shareholder value. Accordingly, approximately 60% of the grant date value of long-term compensation opportunities is provided to each Named Executive Officer in the form of stock options, with the remaining 40% allocated to cash awards under the LTIP or performance-based restricted stock awards.

 

Long-term compensation awards are consistent with the compensation program objectives of supporting our performance-oriented culture, aligning our executives with the financial interests of our shareholders, focusing on our long-term success, and offering competitive compensation to attract and retain our talented executives.

 

LTIP

 

Each of the current Named Executive Officers participates in the LTIP. The plan was adopted with the intention that awards would be made under this plan in substitution for annual awards previously made under the Restricted Stock Plan. Payouts under the LTIP are based on financial performance measured over a period of three consecutive fiscal years. In determining the performance targets for the LTIP, the Compensation Committee evaluates the external economic environment, the anticipated demand for the products sold by the Company and the Company’s long term business plan.

 

At the beginning of each three-year performance period, participants choose whether their payout will be calculated based upon: (1) cash value at the time of award; or (2) cash value tied to Polaris stock price movement over the three-year performance period. Each Named Executive Officer has chosen to have his payout calculated based upon cash value tied to Polaris stock price movement over the three-year performance period. Similar to the Senior Executive Plan, Polaris establishes an LTIP target in January of each year for each Named Executive Officer

expressed as a percentage of base salary based on that individual’s level of responsibility. A plan target of 100% of base salary was established under the LTIP for Messrs. Wine and Morgan, 80% of base salary for Mr. Malone, and 65% of base salary for Messrs. Barker and Jonikas for the 2009 — 2011 performance period (“2009 LTIP Grant”) and for the 2010 — 2012 performance period (“2010 LTIP Grant”). A plan target of 65% of base salary was established under the LTIP for Mr. Barker, prorated to the time he is employed by the Company during the 2009-2011 performance cycle. The Compensation Committee has discretion under the LTIP to either (i) disregard the impact of any extraordinary or unusual events (such as significant acquisitions or divestitures by the Company) in determining whether a performance objective has been obtained or (ii) to make appropriate adjustments in any performance objective to reflect the occurrence of such an event.

 

2009-2011 Performance Cycle

 

Target awards under the 2009 LTIP Grant will be dependent upon the level of achievement of three performance criteria. The Compensation Committee determined that the performance criteria for the 2009 LTIP Grant should emphasize profitability due to the challenges to the Company resulting from difficult economic conditions. The 2009 LTIP Grant requires, in order for the Named Executive Officers to be eligible to receive target-level payouts, that the Company achieve during 2011, a minimum of a 15% return on invested capital and a minimum of $120 million of net income. If the two minimum conditions are satisfied, the compensation opportunities under the 2009 LTIP Grant are a function of the level of Polaris’ 2011 net income from continuing operations expressed as a percentage of sales (net margin percentage).

 

 

The Company will apply a non-discretionary sliding scale of percentages of base salary based upon the foregoing threshold, target and maximum award amounts to determine the amount of incentive award payable to each Named Executive Officer if actual Company performance falls between the threshold and target performance criteria or between the target and maximum performance criteria.

 

2010-2012 Performance Cycle

 

Target awards under the 2010 LTIP Grant will be dependent upon the level of achievement of four performance criteria. The Compensation Committee determined that the performance criteria for the 2010 LTIP Grant should emphasize growth as well as profitability. The 2010 LTIP Grant requires, in order for the Named Executive Officers to be eligible to receive target-level payouts, that the Company achieve during 2012 a minimum of 15% return on invested capital. If the minimum condition is satisfied, the compensation opportunities under the 2010 LTIP Grant are a function of the level of Polaris’ 2012 revenue, net income from continuing operations and operating profit expressed as a percentage of sales as reported in Polaris’ Consolidated Statements of Income included in its Annual Report on Form 10-K as filed with the SEC.

 

 

Stock Option Awards.  The Company makes grants in the form of nonqualified stock options under the Omnibus Plan. The value of the stock options is inherently tied to the performance of the Company, as reflected in its stock price, provides Named Executive Officers with an opportunity to have an equity stake in the Company and aligns the financial interest of our executives with our shareholders.

 

The Compensation Committee approves each stock option grant to Named Executive Officers under the Omnibus Plan. The number of stock options awarded is based upon the Compensation Committee’s subjective assessment of the Company’s operating performance, individual performance, and market competitiveness as well as market data provided by the Company’s compensation consultant from the survey group referenced under “Factors Considered in Determining Compensation”. Named Executive Officers are generally eligible to receive stock option grants on an annual basis. The Company ensures that stock option awards approved by the Compensation Committee will be granted subsequent to any planned release of material non-public information. The Company does not engage in the backdating, cancellation or re-pricing of stock options and has not engaged in such practices in the past.

 

The Compensation Committee considers stock option grants to Named Executive Officers in January of each year at the same time that it reviews other elements of Named Executive Officer compensation.

 

2009 Stock Option Grant — In January 2009, the Compensation Committee awarded stock options to Messrs. Malone, Morgan and Jonikas. The effective date of the grant of such awards was February 2, 2009. On February 10, 2009, the Compensation Committee awarded stock options to Mr. Wine. The stock options granted have a ten-year life and vest in two equal installments on the second and fourth anniversaries of the date of grant. The options were issued at an exercise price of $19.80 per share ($20.06 per share for Mr. Wine), which was the fair market value of a share of Polaris common stock on the date of the grant. The number of shares subject to the stock options granted was as follows:

 

 

In April 2009, in connection with beginning employment as Polaris’ Vice President — Operations, Mr. Barker was awarded stock options with respect to 20,000 shares of Company stock that have a ten-year life, three-year cliff vesting and were issued at an exercise price of $27.80 per share, which was the fair market value of a share of Polaris common stock on the date of the grant.

 

2010 Stock Option Grant — In January 2010, the Compensation Committee awarded stock options to Messrs. Wine, Malone, Morgan, Barker and Jonikas. The effective date of the grant of such awards was February 1, 2010. The stock options granted have a ten-year life and vest in two equal installments on the second and fourth anniversaries of the date of grant. The options were issued at an exercise price of $44.66 per share, which was the

fair market value of a share of Polaris common stock on the date of the grant. The number of shares subject to the stock options granted was as follows:

 

 

The amount of each award in 2009 and 2010 was based on market-based compensation surveys for comparable positions as part of the annual review performed by our Compensation Consultants and the Compensation Committee’s subjective assessment of the retention risk for each Named Executive Officer. In addition, the same subjective individual performance factors discussed in the “Senior Executive Plan” above were also considered by the Compensation Committee in determining the amount of the awards for each Named Executive Officer.

 

Performance Based Stock Awards.  The Company makes awards of performance-based restricted stock on a selective and limited basis under its Omnibus Plan. Generally such awards are made in connection with promotions, individual outstanding performance, hiring of new executives and extensions of existing employment arrangements. The Company believes that awards of performance-based restricted stock are a vital factor in aligning the financial interests of executives with shareholders and attracting, retaining and motivating executives who contribute to the growth and success of the Company.

 

In April, 2009, Mr. Barker was granted a 10,000 share performance-based restricted stock award under the Omnibus Plan in connection with his beginning employment as Vice President — Operations. The fair market value of the share price on the date of the grant was $27.80. The award has a performance target of at least 11.4% of operating income as a percentage of sales for the year ended December 31, 2011 or, if not attained during such period, for the year ended December 31, 2012. The awards will vest on the earlier of December 31, 2011 or December 31, 2012 depending on the date of attainment of the performance target.

 

In August, 2009, Mr. Jonikas was granted a 2,000 share and a 3,000 share performance-based restricted stock awards under the Omnibus Plan in recognition of the added responsibilities of the On Road Vehicle Division reporting to him starting in May 2009. The fair market value of the share price on the date of the grant was $39.05. The 3,000 share award has performance targets of at least $130 million of net income of the Company and at least $150 million of sales from the On Road Vehicle Division for the year ended December 31, 2011 or, if not attained during such period, for the year ended December 31, 2012. The 2,000 share award has performance targets of at least $130 million of the Company net income and at least $200 million of sales from the On Road Vehicle Division for the year ended December 31, 2011 or, if not attained during such period, for the year ended December 31, 2012. Both awards will vest on the earlier of August 21, 2012 or March 29, 2013 depending on the date of attainment of the performance target.

 

Benefits

 

Polaris provides a full range of benefits to its Named Executive Officers, including the standard medical, dental and disability coverage available to employees generally.

 

Polaris also sponsors a 401(k) Retirement Savings Plan (“401(k) Plan”) that allows employees to make plan contributions on a pre-tax basis. Employees are automatically enrolled at 5% of gross income and can elect to contribute 0-50% of covered compensation into the 401(k) Plan. Polaris matches employee contributions dollar-for-dollar up to 5% of covered compensation. Although Named Executive Officers are eligible to participate in the 401(k) Plan, the application of the annual limitation on contributions under Section 401(a)(17) of the Internal Revenue Code prevents Named Executive Officers from participating at the same level as non-executives. The Polaris Industries Inc. Supplemental Retirement/Savings Plan (“SERP”) provides executives who participate in the 401(k) Plan with the opportunity to defer up to 50% of their base salary and up to 100% of amounts payable under the Senior Executive Plan and the LTIP by making contributions to the SERP. Typically, contributions are matched by the Company as if they had been made under the 401(k) Plan dollar-for-dollar up to 5% of covered

compensation. The SERP is intended solely to restore contributions lost because of the application of the annual limitations under the Internal Revenue Code that are applicable to the 401(k) Plan. This additional benefit, which assists the Named Executive Officers in accumulating funds for retirement, is consistent with observed competitive practices of similarly situated companies.

 

Due to the difficult economic conditions experienced by the Company in 2009, the Company suspended its match to SERP contributions for its executives in April 2009 as a cost savings measure. The Company anticipates that the match will resume in 2010.

 

Other than the restorative SERP, the Company does not maintain a defined benefit supplemental retirement savings plan or a pension plan for the Named Executive Officers.

 

Perquisites

 

Polaris provides a limited number of perquisites to its Named Executive Officers in an effort to remain competitive with similarly situated companies.

 

Club Dues.  Polaris reimburses each Named Executive Officer for entrance or initiation fees and monthly club dues. During 2009, 2008 and 2007, only three of the Named Executive Officers received reimbursement for club dues. Prior to July 2009, Polaris provided tax gross-ups to Named Executive Officers on the amount of club due reimbursements. Tax gross-ups were not provided for any club dues after July 2009.

 

Tax, Estate and Financial Planning Fees.  Polaris also reimburses its Named Executive Officers for tax, estate and financial planning fees. Prior to July 2009, Polaris provided tax gross-ups to Named Executive Officers on the amount of tax, estate and financial planning fee reimbursements. Tax gross-ups were not provided for any tax, estate and financial planning fee reimbursements after July 2009.

 

Exec-U-Care Coverage.  The Named Executive Officers, their spouses and immediate family members are eligible to receive broad medical and dental coverage up to $50,000 a year through the Exec-U-Care program. Exec-U-Care supplements a Named Executive Officer’s basic health plan by reimbursing annual expenses not covered under the basic medical and dental benefit plans that are available on a Company-wide basis. Examples of such expenses include deductibles, co-insurance amounts, special health equipment and chiropractic care. Annual physicals at the Mayo Clinic are also covered for each Named Executive Officer and his spouse.

 

Polaris Products.  We provide each Named Executive Officer with temporary use of Polaris products to encourage a first-hand understanding of the riding experience of Polaris customers and to provide Named Executive Officers with an opportunity to evaluate product design and efficiency. The CEO and the President and Chief Operating Officer are provided with 12 Polaris products and other Named Executive Officers are given their choice of six Polaris products, with a maximum of two from each product line. The products used by the Named Executive Officers can be returned to Polaris or purchased at a price greater than cost at the end of a defined usage period based upon months, miles or hours, depending upon the product line. Polaris sells the returned products to dealers at an amount greater than the cost of such products to the Company. All Named Executive Officers also receive related Polaris parts, garments and accessories.

 

Corporate Aircraft Use.  Named Executive Officers are eligible to use the Company’s aircraft for personal travel. Under the Company’s Corporate Travel and Expense Reimbursement Policy, all incremental variable operating costs associated with such personal aircraft use must be reimbursed by the Named Executive Officer to the Company. Named Executive Officers did not use the Company’s aircraft for personal travel in 2009.

 

Severance Arrangements

 

The Company has entered into severance arrangements with the Named Executive Officers, which provide for certain benefits in the event a Named Executive Officer is involuntarily terminated, terminated in connection with a change in control or, in the case of the CEO, if he terminates his employment for good reason. The severance arrangements are provided to enhance the loyalty and performance of Named Executive Officers and induce the continued employment of Named Executive Officers, thereby creating continuity of management. The benefits provided under the Company’s severance arrangements are positioned to be comparable to common market practice

based on a survey completed by our former Compensation Consultant in 2007 based on broad trends of severance arrangements and does not factor in prior compensation. The design and structure of the severance arrangements do not have any impact on the other elements of compensation provided to the Named Executive Officers.

 

The severance arrangements are described in more detail under the section entitled “Potential Payments Upon Termination or Change-in-Control” “— Severance Arrangements with Named Executive Officers” and “— Potential Payments to Named Executive Officers Upon Termination” beginning on pages 44 and 47, respectively, of this Proxy Statement.

 

Employment Agreements

 

The Company is party to employment agreements with its CEO, Scott W. Wine, and its President and Chief Operating Officer, Bennett J. Morgan. Although we do not typically enter into employment agreements with our executives, we believe that such agreements are important to secure the leadership of these key management individuals. The employment agreement with Mr. Wine provides that he will serve as CEO of the Company at an annual salary of at least $575,000, which may be increased at the discretion of the Board of Directors, an opportunity to earn a target bonus of 100% of base salary under the Senior Executive Plan, an opportunity to earn awards under the LTIP and the Company’s equity based compensation plans and participation under the Company’s benefit plans and perquisites identified above. In addition, Mr. Wine received a one-time cash bonus, stock option and performance based stock award upon beginning his employment with the Company. The employment agreement with Mr. Morgan provides for an annual base salary of at least $350,000 per year, which may be increased at the discretion of the Board of Directors, an opportunity to earn awards under the Senior Executive Plan, the LTIP and the Company’s equity based compensation plans and participation under the Company’s benefit plans and perquisites identified above.

 

The Process Followed by the Compensation Committee

 

The practice of the Compensation Committee is to meet in January of each year to: (i) establish the annual base salary and annual incentive compensation opportunity for each of the Named Executive Officers for the current year, (ii) determine the annual incentive compensation to be paid to each Named Executive Officer for services provided during the prior year, (iii) determine the payout, if any, to be made under the LTIP for the three-year performance period ended on the immediately preceding December 31st; (iv) establish plan targets and performance measures for the three-year performance period beginning on January 1 of the current year for LTIP participants, and (v) determine stock option and performance restricted stock awards, if any, to be granted to Named Executive Officers.

 

When making individual compensation decisions for Named Executive Officers, the Compensation Committee takes many factors into account. These factors include subjective and objective considerations of the individual’s performance; the performance of the Company overall; retention concerns; the individual’s tenure and experience with the Company and in his current position; the recommendations of management; the individual’s current and historical compensation; the Compensation Committee’s compensation philosophy; and comparisons to other comparably situated executive officers (both those of the Company and those of the Company’s peer group).

 

Role of Executive Officers in Determining Compensation

 

The Compensation Committee meets with the CEO annually to review the performance of the Company’s other executive officers. The meeting includes an in-depth review of the performance of each executive officer, achievement of individual performance objectives established at the beginning of the year and individual contributions towards achievement of the Company’s business goals. A summary of the performance review is presented to the full Board of Directors each year.

 

The CEO and the Vice President — Human Resources assist the Compensation Committee in reviewing performance under the Senior Executive Plan metrics, including pre-established incentive award targets, Company performance and individual performance for the other Named Executive Officers and recommend incentive award amounts for such persons to the Compensation Committee. In addition, the CEO makes recommendations to the Compensation Committee with respect to equity-based incentive awards for the other Named Executive Officers.

Impact of Income Tax Treatments

 

The Compensation Committee made decisions regarding executive compensation using forms of compensation that were compliant with Section 162(m) of the Internal Revenue Code. Section 162(m) generally provides that a publicly held corporation will not be entitled to deduct for federal income tax purposes compensation paid to either its CEO or any of its four other most highly compensated executive officers in excess of $1 million in any year if that compensation is not performance related. In April 2009, shareholders reapproved the material performance terms and approved additional business criteria under the Senior Executive Plan and the LTIP. Senior executives of the Company, to whom Section 162(m) may apply, participate in the Senior Executive Plan in lieu of the Company-wide profit sharing plan. Awards under both plans would meet the requirements of Section 162(m) and be tax deductible to Polaris. Additionally, outstanding grants under the Company’s stock-based compensation programs, including stock option and performance-based stock award programs, are performance-based for purposes of Section 162(m). The Company believes that all compensation paid to Polaris executives for 2007 through 2009 is deductible under the Internal Revenue Code.

 

Stock Ownership Guidelines

 

We have adopted stock ownership guidelines, which provide that the CEO and other Named Executive Officers are expected to own, directly or indirectly, shares of common stock or restricted share awards having a value computed at the time of their appointment to their positions of at least five and three times, respectively, their current annual base salaries. Compliance with the stock ownership guidelines is voluntary but is monitored by the Vice President — Finance and Chief Financial Officer of the Company. All Named Executive Officers are expected to satisfy the stock ownership guidelines within four years following the date of their becoming a Named Executive Officer. The following chart sets forth the stock ownership of each of the Named Executive Officers as of December 31, 2009 relative to the stock ownership guidelines:

 

 

 

 

Role of Compensation Consultant

 

Polaris’ compensation consultant, The Delves Group, provides executive and director compensation consulting services to the Board of Directors for Polaris Industries. The services they provide includes an annual market analysis for the executive officers and Board of Directors, making recommendations on the executive pay programs, review, participation and commentary on executive and board compensation matters and providing updates on legal and other developments and trends in executive compensation.

 

The following table shows, for the fiscal years completed December 31, 2007, 2008 and 2009, the annual compensation paid to or earned by the Named Executive Officers.

 

 

 

 

 

 

As described under the section entitled “Compensation Discussion and Analysis — Executive Compensation Program Components— Perquisites” beginning on page 30 of this Proxy Statement, Named Executive Officers are provided with the use of various Polaris products. There is no aggregate incremental cost to the Company associated with such use because the Named Executive Officer purchases the products at a price above cost or Polaris sells the returned products to its dealers at an amount greater than the cost to the Company. In addition, Named Executive Officers are eligible to use the Company’s aircraft for personal travel, however, all incremental variable operating costs associated with such personal aircraft use must be reimbursed to the Company. During 2007, 2008 and 2009, none of the Named Executive Officers used the Company’s corporate aircraft for personal travel.

 

The following table shows all grants of awards under the Company’s incentive plans in 2009 to each of the Named Executive Officers named in the Summary Compensation Table and the estimated future payouts with respect to such awards. To the extent that an award only provides for a single estimated payout, that amount is reported in the Target columns below.

 

 

 

 

 

Following is a description of material factors necessary to an understanding of the information disclosed in the Summary Compensation Table and the Grants of Plan-Based Awards Table above.

 

The Company is party to employment agreements with Scott W. Wine, its CEO, and Bennett J. Morgan, its President and Chief Operating Officer. Although, the Company does not generally enter into employment agreements with its executives, it believes such agreements are important in securing the continued leadership of the CEO and the President and Chief Operating Officer. These agreements, which are described in more detail under the section entitled “Compensation Discussion and Analysis — Executive Compensation Program Components — Employment Agreements” beginning on page 31 of this Proxy Statement, set forth the base salaries, incentive opportunities, benefits and perquisites available to Messrs. Wine and Morgan, as applicable, which are reflected in the Summary Compensation Table above.

 

The Company has not entered into employment agreements with Messrs. Malone, Barker or Jonikas. More information regarding the base salaries, incentive opportunities, benefits and perquisites awarded to Messrs. Malone, Barker and Jonikas, which are reflected in the Summary Compensation Table above, may be found under the section entitled “Compensation Discussion and Analysis” beginning on page 19 of this Proxy Statement.

 

Senior Executive Plan

 

As described under the section entitled “Compensation Discussion and Analysis — Executive Compensation Program Components— Annual Compensation — Senior Executive Plan” beginning on page 23 of this Proxy Statement, the Company grants annual incentive cash compensation awards to each of the Named Executive Officers and other eligible employees pursuant to the Senior Executive Plan in January of each year. The amounts of such awards are set forth in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table appearing on page 33 of this Proxy Statement. In January of each plan year, the Compensation Committee determines which employees will be eligible to participate in the Senior Executive Plan, the performance objectives under the plan and the formula for computing the award payable to each participant if the performance objectives are met.

All of the Named Executive Officers then employed by the Company participated in the Senior Executive Plan in 2007, 2008 and 2009. During that period, the Compensation Committee established the following target annual incentive opportunities under the plan for each Named Executive Officer (expressed as a percentage of base salary):

 

 

 

 

The receipt of the target incentive awards for 2007, 2008 and 2009 was based upon the attainment of earnings from continuing operations per diluted share of $3.00, $3.47 and $3.24, respectively. The potential threshold, target and maximum payments under the Senior Executive Plan for 2009 are reflected in the Estimated Future Payouts Under Non Equity Incentive Plan Awards — Threshold, Target and Maximum columns, respectively, in the Grants of Plan-Based Awards Table above.

 

During the January following the end of a plan year, the Compensation Committee determines the annual incentive compensation to be paid to each of the Named Executive Officers for prior year performance, which is primarily based upon Polaris’ financial performance measured against pre-established performance metrics as well as corporate performance against specific strategic priorities established for the year, business unit or departmental performance and individual achievement of pre-established objectives and contributions to strengthening Polaris’ business.

 

The Company exceeded the threshold performance objectives for the Senior Executive Plan during each of 2007, 2008 and 2009. The Compensation Committee exercised its negative discretion in determining the incentive awards payable for 2007, 2008 and 2009 for the Named Executive Officers under the Senior Executive Plan. The actual amount paid to each Named Executive Officer under the Senior Executive Plan for those years is included in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table.

 

All of the current Named Executive Officers will participate in the Senior Executive Plan in 2010. See the section entitled “Compensation Discussion and Analysis — Executive Compensation Program Components — Annual Compensation — Senior Executive Plan” beginning on page 23 of this Proxy Statement, for a description of the performance criteria established for fiscal year 2010.

 

LTIP

 

As described under the section entitled “Compensation Discussion and Analysis — Executive Compensation Program Components — Long-Term Compensation — LTIP” beginning on page 26 of this Proxy Statement, the Company grants long-term performance-based cash incentives to each of the Named Executive Officers, and other full-time employees pursuant to the LTIP. Incentive awards under the LTIP are based on performance over a period of three consecutive fiscal years as measured against certain objectives established by the Compensation Committee prior to the commencement of such performance period, or at such other time as permitted by Section 162(m) of the Internal Revenue Code. For purposes of this discussion, the grant made for the 2005-2007 performance period is referred to as the 2005 LTIP Grant, the grant made for the 2006-2008 performance period is referred to as the 2006 LTIP Grant, the grant made for the 2007-2009 performance period is referred to as the 2007 LTIP Grant, the grant made for the 2008-2010 performance period is referred to as the 2008 LTIP Grant and the grant made for the 2009-2011 performance period is referred to as the 2009 LTIP Grant .

All Named Executive Officers, other than Messrs. Wine and Barker, were eligible to receive awards as part of the 2005 LTIP Grant, the 2006 LTIP Grant and the 2007 LTIP Grant and continue to be eligible to receive awards as part of the 2008 LTIP Grant and 2009 LTIP Grant. Mr. Wine is also eligible to receive awards as part of the 2009 LTIP Grant and on a prorated basis for the 2008 LTIP Grant. Mr. Barker is eligible to receive awards as part of the 2009 LTIP Grant on a prorated basis.

 

As described in more detail in the section entitled “Compensation Discussion and Analysis — Compensation Program Components — Long-Term Compensation — LTIP” beginning on page 26 of this Proxy Statement, the Compensation Committee determined that incentive awards under the 2005 LTIP Grant, 2006 LTIP Grant, 2007 LTIP Grant and 2008 LTIP Grant would be based upon the attainment of two performance criteria: three-year compound annual sales growth and three-year compound earnings from continuing operations per diluted share growth. For the 2009 LTIP Grant, the Compensation Committee determined that incentive awards would be based upon the attainment of a net margin percentage performance target, a minimum net income amount and a minimum return on invested capital target percentage for calendar 2011. Award targets of 100%, 80% and 65% of base salary were established under the LTIP for Mr. Morgan, Mr. Malone and Mr. Jonikas, respectively for the 2005 LTIP Grant, 2006 LTIP Grant, 2007 LTIP Grant and 2008 LTIP Grant. Mr. Wine is also eligible for the 2008 LTIP Grant at a target amount of 100%, with the amount earned to be prorated for the number of months during such performance cycle that Mr. Wine is employed by the Company. For the 2009 LTIP, award targets of 100% of base salary were established for Messrs. Wine and Morgan, a target of 80% of base salary was established for Mr. Malone and a target of 65% of base salary was established for Mr. Jonikas. Mr. Barker is also eligible for the 2009 LTIP Grant at a target amount of 65%, with the amount earned to be prorated for the number of months during such performance cycle that Mr. Barker is employed by the Company. The potential threshold, target and maximum percentage payouts under the 2009 LTIP Grant were established on February 2, 2009 and are reflected in the Estimated Future Payouts Under Equity Incentive Plan Awards — Threshold, Target and Maximum columns, respectively, in the Grants of Plan-Based Awards Table above.

 

In January, 2008, 2009 and 2010, the Compensation Committee determined that the threshold performance criteria had not been achieved for the 2005 LTIP Grant, 2006 LTIP Grant and 2007 LTIP Grant, respectively. Accordingly, the Compensation Committee determined that no incentive awards would be paid to the Named Executive Officer participants for those performance periods.

 

On December 12, 2006 each Named Executive Officer, other than Messrs. Wine and Barker who were not then employed by the Company, received two grants of performance-based stock awards under the Restricted Stock Plan — one conditioned on the achievement of compound annual earnings from continuing operations per diluted share growth of 6% and the other conditioned on the achievement of compound annual earnings from continuing operations per diluted share growth of 12%. The compound annual earnings from continuing operations per diluted share growth was measured for fiscal years 2007 and 2008 over the actual $2.72 earnings from continuing operations per diluted share earned in 2006. The Company achieved these performance targets during the 2007 and 2008 measurement period and these performance — based stock awards vested on December 12, 2009.

 

Under the terms of his September, 2008 employment agreement, Mr. Wine was granted a performance-based restricted stock award under the Omnibus Plan for 50,000 shares of the Company’s common stock, granted on September 1, 2008 when the fair market value of such stock was $45.09 per share. The shares will either vest on (i) December 31, 2011, provided the Company achieves at least 12% compound annual diluted earnings per share from continuing operations growth for fiscal years 2008, 2009, 2010 and 2011 or (ii) December 31, 2012, provided the Company achieves at least 12% compound annual diluted earnings per share from continuing operations growth for fiscal years 2008, 2009, 2010, 2011 and 2012, as compared to the actual diluted earnings per share from continuing operations earned in 2007.

 

Mr. Morgan was granted a performance-based restricted stock award under the Omnibus Plan for 25,000 shares of the Company’s common stock on October 23, 2008, when the fair market value of such stock was $27.27 per share. The shares will either vest on (i) December 31, 2011, provided the Company achieves at least 12% compound annual diluted earnings per share from continuing operations growth for fiscal years 2008, 2009, 2010 and 2011 or

(ii) December 31, 2012, provided the Company achieves at least 12% compound annual diluted earnings per share from continuing operations growth for fiscal years 2008, 2009, 2010, 2011 and 2012, as compared to the actual diluted earnings per share from continuing operations earned in 2007.

 

On April 13, 2009, Mr. Barker was granted a 10,000 share performance-based restricted stock award under the Omnibus Plan in connection with the commencement of his employment as Vice President — Operations. The fair market value of the share price on the date of the grant was $27.80. The award has a performance target of at least 11.4% of operating income as a percentage of sales for the year ended December 31, 2011 or, if not attained during such period, for the year ended December 31, 2012. The awards will vest on the earlier of December 31, 2011 or December 31, 2012 depending on the date of attainment of the performance target.

 

On August 21, 2009, Mr. Jonikas was granted a 2,000 share and a 3,000 share performance-based restricted stock awards under the Omnibus Plan in consideration o f his assuming additional responsibilities supervising the On Road Vehicle Division reporting to him starting in May 2009. The fair market value of the share price on the date of the grant was $39.05. The 3,000 share award has performance targets of at least $130 million of net income of the Company and at least $150 million of sales from the On Road Vehicle Division for the year ended December 31, 2011 or, if not attained during such period, for the year ended December 31, 2012. The 2,000 share award has performance targets of at least $130 million of net income of the Company and at least $200 million of sales from the On Road Vehicle Division for the year ended December 31, 2011 or, if not attained during such period, for the year ended December 31, 2012. Both awards will vest on the earlier of August 21, 2012 or March 29, 2013 depending on the date of attainment of the performance target.

 

Compensation received by the Named Executive Officers of the Company for 2007, 2008 and 2009 reflected the Company’s compensation philosophy of providing compensation opportunities that linked a significant amount of the compensation paid to a Named Executive Officer to Company performance and individual contribution over time.

 

The actual financial performance of the Company in 2007 and 2008 exceeded management’s internal operating plan. However, in accordance with the Company’s executive compensation philosophy, the poor financial performance of the Company in 2006 impaired the long term compensation earned by the Named Executive Officers in 2007 and 2008, other than Messrs. Barker and Wine, who were not employed by the Company in 2006. Accordingly, the Named Executive Officers of the Company actually received total compensation in 2007 and 2008 in the range of 31% to 44%, and 40% to 65% less than the grant date total compensation opportunities made available to them, respectively. These percentages assume that the stock options that vested in 2007 and 2008 had no value as the exercise price exceeded the closing market price of Polaris’ common stock on December 31, 2007 and December 31, 2008.

 

The actual financial performance of the Company in 2009 did not meet management’s internal operating plan. However, in accordance with the Company’s executive compensation philosophy, the strong financial performance of the Company in 2007 and 2008 resulted in the payout of the performance-based stock awards issued under the Restricted Stock Plan that vested on December 12, 2009, to the Named Executive Officers, other than Messrs. Wine and Barker (who were not employed by the Company when such awards were made). Despite such payouts, the Named Executive Officers of the Company, excluding Messrs. Wine and Barker, actually received total compensation in 2009 in the range of 21% to 25% less than the grant date total compensation opportunities made available to them, which reflects the poor financial results in 2009. There were no stock options that vested for the Named Executive Officers in 2009.

 

The following table sets forth information concerning unexercised stock options, restricted stock that has not vested and equity incentive plan awards for each of the Named Executive Officers as of December 31, 2009.