UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 14A-101)

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934

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Crawford & Company

(Name of Registrant as Specified In Its Charter)

 

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

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March 28, 2007

 

Dear Shareholder:

 

You are cordially invited to attend the Company’s 2007 Annual Meeting of Shareholders which will be held on Thursday, May 3, 2007, beginning at 2:00 p.m. at the Company’s headquarters, 5620 Glenridge Drive, N.E., Atlanta, Georgia, 30342.

 

The official Notice of Annual Meeting of Shareholders, Proxy Statement and form of Proxy are included with this letter and contain information about the meeting and the various matters on which the shareholders will act.

 

As is our custom, a brief report will be made at this meeting on the Company’s 2006 activities and the outlook for 2007. We hope you will be able to attend the meeting. Whether or not you plan to attend, it is important that you sign and return your Proxy promptly, as your vote is important to the Company.

 

On behalf of our Board of Directors, officers, and employees, we wish to thank you for your continued interest in and support of Crawford & Company.

 

Sincerely,

 

 

Thomas W. Crawford,

President and Chief Executive Officer

Crawford & Company

P.O. Box 5047

Atlanta, Georgia 30302

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

May 3, 2007

 

NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Crawford & Company (the “Company”) will be held in the Home Office Building of the Company, 5620 Glenridge Drive, N.E., Atlanta, Georgia, 30342, on Thursday, May 3, 2007, at 2:00 p.m. local time, for the following purposes:

 

1. To elect nine (9) Directors to serve until the next Annual Meeting of Shareholders or until their successors are elected and qualified;

 

2. To consider and vote on a Company proposal adopting the 2007 Non-Employee Director Stock Option Plan.

 

3. To consider and vote on a Company proposal adopting the Management Team Incentive Compensation Plan.

 

4. To ratify the appointment of Ernst & Young LLP as independent auditors for the Company for the 2007 fiscal year;

 

5. To consider and vote on a shareholder proposal entitled the “Maximize Value Resolution,” and

 

6. To transact any and all other such business as may properly come before the meeting or any adjournment or postponement thereof.

 

Information relating to the above matters is set forth in the accompanying Proxy Statement dated March 28, 2007. Only shareholders of record of Class B Common Stock of the Company as of the close of business on March 6, 2007 will be entitled to vote at the meeting and any adjournment or postponement thereof.

 

By Order of The Board of Directors,

 

Allen W. Nelson,

Secretary

 

Atlanta, Georgia

March 28, 2007

 

It is important that your shares of Class B Common Stock be represented at the Meeting whether or not you are personally able to be present. Accordingly, if you do not plan to attend the Meeting, please complete and sign the enclosed Proxy and return it in the accompanying postage prepaid envelope.

 

This Proxy is solicited by the Board of Directors. Proxies are not being solicited with respect to the shares of Class A Common Stock of the Company.

 

Crawford & Company
P.O. Box 5047
Atlanta, Georgia 30302

 

 

 

PROXY STATEMENT

 

 

 

ANNUAL MEETING OF SHAREHOLDERS

 

To be Held on May 3, 2007

 

You are receiving this Proxy Statement and the accompanying Proxy Card (“Proxy”) from us because you own shares of common stock in Crawford & Company (the “Company”). Only shareholders of Class B Common Stock of the Company are entitled to vote. The Proxy Statement describes the proposals on which we would like you to vote. It also gives you information so that you can make an informed voting decision. We first mailed this Proxy Statement and the form of Proxy to shareholders on or about March 28, 2007. The Annual Report of the Company for the fiscal year ended December 31, 2006 is also enclosed herewith.

 

VOTING AT THE ANNUAL MEETING

 

Date, Time and Place of the Annual Meeting

 

The Annual Meeting of Shareholders, and any adjournment or postponement thereof, will be held in the Home Office Building of the Company, located at 5620 Glenridge Drive, N.E., Atlanta, Georgia, on Thursday, May 3, 2007 at 2:00 p.m., local time.

 

Who May Vote

 

Only shareholders of record of Class B Common Stock of the Company as of the close of business on March 6, 2007 (the “Record Date”) will be entitled to vote at the Annual Meeting. As of that date, the Company had outstanding 24,697,172 shares of Class B Common Stock, each share being entitled to one vote.

 

Additionally, for information only, this Proxy Statement is being mailed to shareholders of Class A Common Stock of the Company as of the Record Date. Shares of Class A Common Stock are not entitled to vote at the Annual Meeting of Shareholders. Accordingly, no Proxy is being requested and no Proxy should be sent with respect to such shares.

 

Quorum for the Annual Meeting and Votes Required

 

A majority of the issued and outstanding shares of Class B Common Stock entitled to vote at the Annual Meeting will constitute a quorum for the transaction of business at such meeting. Proxies voted to withhold authority, abstentions and broker non-votes will be treated as present for purposes of determining the presence of a quorum.

 

Each share of Class B Common Stock is entitled to cast an affirmative vote for up to nine (9) Director nominees. Cumulative voting is not permitted. The nine nominees for Director who receive the highest number of votes cast, in person or by Proxy, at the Annual Meeting will be elected Directors. Votes withheld, abstentions, and broker non-votes, will have no effect on the outcome of the election of Directors.

 

The vote required under Georgia law for the proposal to approve the 2007 Non-Employee Director Stock Option Plan is a majority of the shares of Class B Common Stock present in person or represented by Proxy. For this purpose, abstentions are neither counted as votes cast for or against this proposal. In addition, to satisfy the New York Stock Exchange (“NYSE”) listing standards, the proposal must also receive the affirmative vote of a majority of the votes cast on this proposal provided that the total number of votes cast on this matter represents greater than 50% of the Company’s outstanding shares entitled to vote. For purposes of the NYSE listing standard, abstentions are counted as votes cast on this proposal and, as a result have the same effect as a vote against the

proposal. The vote required for the approval of the Management Team Incentive Compensation Plan, the ratification of the appointment of Ernst & Young LLP as the Company’s independent auditors for the year 2007 and to pass the shareholder proposal entitled the “Maximize Value Resolution,” is, respectively, a majority of the shares of Class B Common Stock present in person or represented by Proxy.

 

How to Vote

 

You may attend the Annual Meeting and vote your shares in person, or you may choose to submit your proxies by any of the following methods:

 

 

If you are a shareholder whose shares are held in a “street name”, (i.e., in the name of a broker, bank or other record holder), you must either direct the record holder of your shares how to vote your shares or obtain a Proxy, executed in your favor, from the record holder to be able to vote at the Annual Meeting.

 

The Company encourages shareholders who hold shares in a street name to provide instruction to that record holder by voting their Proxy. Providing voting instructions ensures that shares will be voted at the meeting. If shares are held through a brokerage account, the brokerage firm under certain circumstances, may vote the shares without instructions. On certain “routine” matters, such as the election of directors, brokerage firms have authority under NYSE rules to vote their customers’ shares if the customers do not provide voting instructions. When a brokerage firm votes its customers’ shares on a routine matter without receiving voting instructions, these shares are counted both for establishing a quorum to conduct business at the meeting and in determining the number of shares voted for or against the routine matter. The proposal relating to the election of directors and the proposal to ratify the appointment of Ernst & Young LLP as the Company’s independent auditors for the year 2007 are routine matters.

 

On “non-routine” matters, if the brokerage firm has not received voting instructions from the shareholder, the brokerage firm cannot vote the shares on that proposal, which is considered a “broker non-vote.” Broker non-votes will be counted for purposes of establishing a quorum to conduct business at the meeting but not for determining the number of shares voted for or against the non-routine matter. The proposals to approve the 2007 Non-Employee Director Stock Option Plan, the Management Team Incentive Compensation Plan, and the Shareholder Proposal entitled “Maximize Value Resolution” are non-routine matters.

 

Any shareholder giving a Proxy has the power to revoke it at any time before it is voted by the execution of another Proxy bearing a later date or by written notification to the Secretary of the Company. Shareholders who are present at the Annual Meeting may revoke their Proxy and vote in person if they so desire.

 

PROPOSAL 1 — ELECTION OF DIRECTORS

 

Nominees and Voting

 

The Board of Directors of the Company has fixed the number of Directors constituting the full Board at nine and has nominated the nine persons listed below as Directors, to hold office until the next Annual Meeting and until their successors are elected and qualified. Each nominee was elected by the shareholders at the last Annual Meeting on May 2, 2006. If, at the time of the Annual Meeting, any of the nominees should be unable to serve, the persons named in the Proxy will vote for substitute nominees selected by the Board of Directors. The Company has no reason to believe that any of the nominees will not be available for election as a Director.

 

Nominee Information

 

The following table gives certain information as to each person nominated by the Board of Directors for election as a Director:

 

 

Mr. Prince retired as Chairman of the Board of Genuine Parts Company on March 31, 2005, a position he had held since 1990. He was also Chief Executive Officer of Genuine Parts Company from 1990 until August 2004. Mr. Wood was appointed to his present position in June 2002, was appointed Chairman of the Board, President and Chief Executive Officer of SunTrust Bank, Georgia in March 2001 and was appointed President of SunTrust Bank, Georgia in October 2000. Mr. Johnson retired as a partner of Arthur Andersen LLP in 1993. Mr. Edwards retired in April 2002 as managing partner-global markets of Arthur Andersen LLP, a position he had held since 1998. Mr. Thomas W. Crawford was appointed President and Chief Executive Officer of the Company on September 1, 2004. From June 1998 until his retirement in January 2003 he was President of the Retail Distribution division of Prudential Financial, Inc., and from May 2004 until September 2004 he was Chairman of The Bodie Group, Inc., a business consulting firm. Dr. Benson was appointed to his present position February of 2007. From June 1998 until

January 2007 he was Dean of the Terry College of Business at the University of Georgia. The principal occupation or employment of each of the other nominees during the past five years has been as indicated in the above table.

 

Director Independence

 

A majority of the directors will be independent directors under the NYSE corporate governance listing standards, as in effect from time to time. The Board believes that directors who do not meet the NYSE’s independence standards also make valuable contributions to the board and to the Company by reason of their experience and wisdom. To be considered independent under the NYSE rules, the director must be determined, by resolution of the Board as a whole, after due deliberation, to have no material relationship with the Company other than as a director. The board has established the following categorical independence standards to assist it in determining director independence.

 

1. In no event will a director be considered “independent” if, within the preceding three years:

 

 

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

 

 

The Board has determined, pursuant to the listing standards of the NYSE, that all Directors standing for election are independent for purposes of serving on the Board of Directors, except Thomas W. Crawford. The companies with which Mr. Prince and Mr. Wood are affiliated, Genuine Parts Company and SunTrust Banks, Inc., respectively, are customers of the Company and the Company is a customer of SunTrust Banks, Inc. The Board has determined that the payments to the Company or from the Company with respect to Genuine Parts Company and SunTrust Banks, Inc., as a percentage of either entities’ consolidated gross revenue are immaterial as affecting each

director’s independence. In addition, SunTrust Banks, Inc. is a lender to the Company. The Board has determined that these loans do not affect the independence of Mr. Wood, since the annual repayments and interest payments on the loans by the Company, and the outstanding total loan balance itself, are not material when compared to the consolidated gross annual revenues of SunTrust Banks, Inc. For purposes of the Company’s Audit Committee, Mr. Johnson, Mr. Lanier, Mr. Edwards and Mr. Prince are independent under the NYSE listing standards and Rule 10A-3 promulgated under the Securities Exchange Act of 1934, and Mr. Johnson and Mr. Edwards are Audit Committee Financial Experts as defined by Item 401(h) of Regulation S-K under the Securities Exchange Act of 1934. There are no family relationships among the director nominees.

 

Standing Committees and Attendance at Board and Committee Meetings

 

The Board of Directors has three standing committees. The Executive Committee consists of Jesse C. Crawford as Chairman, and Larry L. Prince, Thomas W. Crawford and E. Jenner Wood, III as members. The Audit Committee consists of Robert T. Johnson as Chairman, and J. Hicks Lanier, Larry L. Prince and since November 15, 2006 James D. Edwards as members. The Nominating/Corporate Governance/Compensation Committee consists of J. Hicks Lanier as Chairman, and E. Jenner Wood, III, Clarence H. Ridley and since February 7, 2006, James D. Edwards and P. George Benson as members. Mr. Robert T. Johnson was a member of the Nominating/Corporate Governance/Compensation Committee from April 27, 2004 to February 7, 2006.

 

The Executive Committee may exercise all the authority of the Board of Directors between its meetings with respect to all matters not specifically reserved by law to the Board of Directors. The Executive Committee held five meetings during 2006.

 

The Audit Committee appoints or discharges the Company’s independent auditors, reviews with the independent auditors the audit plan and results of the audit engagement, reviews the scope and results of the Company’s internal auditing procedures and the adequacy of its accounting controls, approves professional services provided by the independent auditors, reviews the independence of the independent auditors, and approves the independent auditor’s audit and non-audit fees. The Committee also reviews and approves related party transactions, in accordance with the Company’s Related Party Transactions Policy. The Company’s Related Party Transactions Policy is designed to eliminate conflicts of interest and improper valuation issues, and applies to the Company’s directors, senior officers, shareholders holding 5% or more of the Company’s stock and family members or controlled affiliates of such persons. The Committee has adopted a written charter, approved by the Board of Directors. The Audit Committee held five meetings during 2006.

 

The Nominating/Corporate Governance/Compensation Committee actively reviews and selects director nominees for the Board, advises and makes recommendations to the Board on all matters concerning corporate governance and directorship practices and formulates and approves salaries, grants of stock options, performance share units and restricted stock and other compensation to the Chief Executive Officer and, upon recommendation by the Chief Executive Officer, salaries, grants of stock options, performance share units and restricted stock and other compensation for all other officers of the Company. The Board of Directors has determined that all members of the Nominating/Corporate Governance/Compensation Committee are independent pursuant to the NYSE Listing Rules. The Nominating/Corporate Governance/Compensation Committee has adopted a written charter, approved by the Board of Directors. The Nominating/Corporate Governance/Compensation Committee identifies and evaluates nominees for director according to the guidelines stated in this written charter. The Nominating/Corporate Governance/Compensation Committee will consider director candidates recommended by shareholders. See “Communications with the Board, Board Attendance at Annual Meetings, Shareholder Nominees” below. This Committee held two meetings in 2006. For additional information about the Nominating/Corporate Governance/Compensation Committee’s processes and the role of executive officers and compensation consultants in determining compensation, see “Compensation Discussion and Analysis” below.

 

Non-management and independent directors meet regularly without management participation. During 2006 there were four such meetings. The Presiding Director for each of these meeting was Jesse C. Crawford.

 

During 2006, the Board of Directors held seven meetings. Each of the Company’s Directors attended at least seventy-five percent (75%) of the aggregate number of meetings of the Board of Directors and committees thereof of which such Director was a member, with the exception of Clarence H. Ridley, who attended 56%.

 

The Company’s Corporate Governance Guidelines, Committee Charters, and Code of Business Conduct are available on its website at www.crawfordandcompany.com and are available without charge in print to any shareholder who makes a request by writing to Corporate Secretary, Legal Department, Crawford & Company, 5620 Glenridge Drive, N.E., Atlanta, Georgia 30342.

 

Director Compensation

 

The following table provides compensation information for the one-year period ended December 31, 2006 for each non-executive member of our Board of Directors.

 

DIRECTOR COMPENSATION TABLE

 

 

 

 

Communications with the Board, Board Attendance at Annual Meetings, Shareholder Nominees

 

Individuals may communicate with the Board by sending a letter to Board of Directors, Crawford & Company, P. O. Box 1261, Tucker, Georgia 30085-1261. Your letter will be shared with all members of the Board and may, at the discretion of the Board, be shared with Company management, unless your letter requests otherwise. Communications that are specifically intended for non-management directors should be addressed to “Presiding Director,” Board of Directors, Crawford & Company at this same address.

 

The Company encourages all Directors to attend the Company’s Annual Meeting and facilitates the scheduling of the Annual Meeting to accommodate all Directors. The Company also holds a full Board meeting the same day as the Annual Meeting to further encourage all Directors to attend the Annual Meeting. At the last Annual Meeting all then current Directors attended.

 

Any shareholder, who is the continuous record owner of at least one percent (1%) of the common stock of the Company for at least one year prior to the submission of the candidate and who provides a written statement that he or she intends to continue ownership of the shares through the Annual Meeting of Shareholders, may submit a nomination for director. The candidate must meet the qualifications stated in the Company’s By-laws and the submission must be made to the Nominating/Corporate Governance/Compensation Committee at P. O. Box 1261, Tucker, Georgia 30085, no more than 180 days and no less than 120 days prior to the anniversary date of this Proxy Statement. The Nominating/Corporate Governance/Compensation Committee will review all candidates submitted by Shareholders for consideration as nominees pursuant to its general practices and the guidelines stated in its charter before submitting any nominee to the full Board of Directors for consideration.

 

Shareholder Vote

 

Each share of Class B Common Stock may:

 

 

The 9 nominees receiving the highest number of affirmative votes will be elected as directors. This number is called a plurality. Cumulative voting is not permitted. Votes withheld, or abstentions, and broker non-votes, will have no effect on the outcome of the election of directors.

 

The Board of Directors unanimously recommends a vote FOR its nominees for Directors.

 

 

EXECUTIVE COMPENSATION

 

REPORT OF THE NOMINATING/CORPORATE GOVERNANCE/COMPENSATION
COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION

 

The Company’s executive compensation is administered by the Nominating/Corporate Governance/Compensation Committee (the “Committee”) of the Board of Directors. The Committee has received and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and based on this review and discussion, the Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

J. HICKS LANIER, CHAIRMAN
E. JENNER WOOD, III
CLARENCE H. RIDLEY
JAMES D. EDWARDS
P. GEORGE BENSON

 

COMPENSATION DISCUSSION AND ANALYSIS

 

The fundamental philosophy of the Committee is to ensure that the compensation programs of the Company will attract and retain key executives critical to its long-term success through the establishment of a performance-oriented environment that rewards the achievement of strategic management goals, with the attendant enhancement of shareholder value. This Compensation Discussion and Analysis focuses on compensation to the Named Executive Officers of the Company listed on page 12 of this Proxy Statement and provides additional information regarding compensation to key executive officers of the Company.

 

Role of the Committee

 

The role of the Committee among other responsibilities, is (1) to annually review and approve the Company’s goals and objectives relevant to CEO and senior executive compensation, including as the Committee deems appropriate, consideration of the Company’s performance and relative stockholder return, the value of similar incentive awards to officers at comparable companies, the awards given to the officers in past years and such other factors as the Committee deems relevant, and evaluate the CEO’s and the other senior executives’ performance in light of those goals and objectives, (2) to review and approve the adoption, terms and operation of the Company’s compensation plans for all directors, officers and other senior executives, including incentive-compensation plans and equity-based plans, and (3) to grant stock options, performance share units, restricted stock and other discretionary awards under the Company’s incentive-compensation and equity-based plans.

 

Role of Executive Officers in Executive Compensation Matters

 

Regarding most compensation matters, including executive and director compensation, management provides recommendations to the Committee and the Committee takes action with respect to such compensation; however, the Committee does delegate some of its functions to the Chief Executive Officer in setting compensation.

 

Compensation Consultants

 

The Committee’s Charter provides for the Committee to retain and terminate, as deemed necessary, any compensation consultant to be used to assist in the evaluation of director, CEO or executive compensation. The Committee has the sole authority to select such consultant and to approve the consultant’s fees and other retention terms. Historically, the Committee has not regularly engaged a consultant related to executive and/or director compensation matters. However, in 2005 the Committee did engage Pearl Meyer of Steven Hall & Partners for advice in designing the compensation of Mr. Isaac and certain other lead executives of The Garden City Group, Inc., a wholly-owned subsidiary of the Company. Beginning in 2007, the Committee has engaged Mercer Human Resource Consulting to review and advise it on executive and general compensation matters.

 

Elements of Compensation

 

The Company does not have an exact formula for allocating between cash and non-cash compensation to its executive officers. Compensation is generally paid as earned. Each executive’s current and prior compensation is considered in setting future compensation. In addition, the Company reviews the compensation practices of other

companies. To some extent, our compensation plan is based on the market and the companies we compete against for executives. There are three key elements in the Company’s executive compensation program:

 

 

Base Salary Compensation

 

The Company has established a comprehensive Wage and Salary Administration Policy applicable to the Company and its U.S. subsidiaries. This Policy includes a program for grading each position, including those of the U.S. Executive Officers of the Company, to ensure internal equity. Additionally, the Policy sets forth grade levels and salary ranges for those grade levels, and provides for annual merit increases tied to individual job performance as measured through annual performance reviews. Based on published national surveys, the Company annually establishes merit increase budgets as a percent of current salaries and any increases in salary ranges for the next fiscal year. Generally, the Company is at the midpoint of projected merit salary increases and salary range adjustments as reflected in the national surveys, with some adjustment up or down depending on prior year pre-tax earnings and revenues of the Company. Consistent with the overall merit increase percentage, the Company establishes guidelines for individual salary adjustments based on the individual’s performance rating. The base salaries for all employees other than the Chief Executive Officer are determined in this manner.

 

The Committee initially establishes and re-evaluates the salary of the Chief Executive Officer on an annual basis. In re-evaluating the base salary for the Chief Executive Officer, the Committee looks primarily at the pre-tax earnings of the Company in the preceding fiscal year as compared to the prior fiscal year. The Committee also takes into account external circumstances which may have impacted that performance which were not within the control of the Company or its Executive Officers, the increases in the base salaries of other employees of the Company, and the Committee’s assessment of the personal performance of the Chief Executive Officer during the preceding year. For both establishing and re-evaluating the base salary of the Chief Executive Officer, the Committee also looks at market conditions, both within the Company’s industry peer group and otherwise. For the 2006 fiscal year, the Committee established the base salary of the Chief Executive Officer, Mr. T. W. Crawford, at $700,000 per annum.

 

Annual Incentive Compensation

 

Under the Company’s 1996 Incentive Compensation Plan, which covers all U.S. key employees of the Company (other than the Chief Executive Officer, Chief Operating Officer Global Property & Casualty, Executive Vice President — Financial Administrative Services and employees of The Garden City Group, Inc. and Broadspire Management Services, Inc.), at the beginning of each fiscal year the Committee establishes pre-tax earnings and revenue thresholds, as well as targeted pre-tax earnings. A bonus pool is created for sales and marketing key employees based principally on increases in revenues above the threshold amount, while the bonus pool for other

participants is based primarily on growth in pre-tax earnings from the threshold amount up to the targeted pre-tax earnings. The Committee has the discretion to modify the formula for any bonus pool. The bonus pool is allocated by Mr. T. W. Crawford, the Company’s Chief Executive Officer, to the business units and staff departments based on his assessment of performance of the business unit and staff participants, and to each individual participant by the business unit or staff manager based on the individual’s personal performance and salary grade. The Chief Executive Officer establishes the bonuses for his direct reports.

 

The Committee sets the bonus for the Chief Executive Officer, based primarily on pre-tax earnings and the bonuses paid under the 1996 Incentive Compensation Plan, as a percentage of salary, to the other Executive Officers of the Company. Historically, the Chief Executive Officer’s bonus, as a percentage of his base salary, has been higher than the average paid to the other Executive Officers, expressed as a percentage of their base salaries. The Committee awarded Mr. T. W. Crawford, a bonus of $400,000 for 2006, to be paid in 2007. This bonus was based upon Mr. T. W. Crawford’s role in successfully completing the acquisition of Broadspire Management Services, Inc., as well as creating and implementing various operational goals of the Company in order to position the Company to achieve more beneficial financial results in the coming years.

 

A central element of the Company’s annual incentive compensation philosophy has been to link a significant portion of cash compensation to the attainment of our annual financial objectives. The proposed Crawford & Company Management Team Incentive Compensation Plan, set forth in the third proposal, is intended to continue this direct linkage between our performance and compensation to the persons who are most responsible for such performance.

 

Long-Term Incentive Compensation

 

Under the Company’s Executive Stock Bonus Plan, officers and other key employees of the Company may be granted performance share unit awards or restricted stock awards (collectively “Awards”) by the Committee, payable in shares of the Company’s Class A Common Stock. The Committee typically reviews and acts upon the recommendations of the Chief Executive Officer for the grant of Awards, on a discretionary basis, annually to the Company’s other officers and key employees. The number of shares of the Company’s Class A Common Stock covered by such Awards is generally based upon the grade level of the officer or other key employee’s position, but without regard to the individual’s stock ownership or the number of options previously granted. In 2006, as part of the annual grant, the Committee granted a performance share unit award to Mr. T.W. Crawford. Based on the pre-defined performance measures, Mr. T. W. Crawford earned 8,333 shares of the Company’s Class A Common Stock from this award, payable subject to vesting requirements at a rate of 20% of the earned award per year. Mr. Crawford was vested in 20% of this award for 2006, and thus received payment of 1,667 shares of the Company’s Class A Common Stock. Mr. Crawford was also vested in the second 20% traunch of his 2005 award and thus received the payment of 1,000 shares of the Company’s Class A Common Stock.

 

Impact of Internal Revenue Code Section 162(m)

 

Internal Revenue Code Section 162(m) provides that compensation in excess of $1 million paid to certain executive officers is not deductible unless it is performance-based. It is the policy of the Committee to periodically review and consider whether particular compensation and incentive payments to the Company’s executives will be deductible for federal income tax purposes. For the Company’s 2006 fiscal year, payments to both Mr. T.W. Crawford and Mr. Isaac exceeded the $1 million limit imposed by Section 162(m). The total compensation subject to the Section 162(m) limitation paid to Mr. T.W. Crawford for the period was $1,173,855, exceeding the limit by $173,855. The total compensation subject to the Section 162(m) limitation paid to Mr. Isaac for the period was $1,228,000, exceeding the limit by $228,000. The Crawford & Company Management Team Incentive Compensation Plan set forth in the third proposal of this proxy, if approved by the shareholders, is designed to allow the Committee to structure awards under that plan so that the resulting compensation would be qualified ’performance-based compensation’ eligible for deductibility without limitation under Code Section 162(m). However, the Committee retains the ability to evaluate the performance of the Company’s executives, including the CEO, and to pay appropriate compensation, even if it may result in the non-deductibility of certain compensation under federal tax law.

 

Accounting Considerations

 

Our Compensation Committee and management take into consideration the accounting effect of the forms of compensation that the Compensation Committee determines to award. Most of our stock option grants that are subject to expense recognition under SFAS 123(R) were granted prior to 2005. Stock-based compensation expense for performance share units and restricted stock related to our executive stock bonus plan is allocated to our operating segments and included in the determination of segment operating earnings or loss. The amount allocated to the operating segments was $2.3 million for the year ended December 31, 2006. Stock-based compensation expense related to the employee stock purchase plan, incentive stock options and nonqualified stock options are not allocated to the operating segments. The amount of stock-based compensation expense not allocated to the operating segments was $1.2 million during 2006 under the provisions of SFAS 123(R). We adopted SFAS 123(R) effective January 1, 2006. Prior to the adoption of SFAS 123(R), we accounted for all stock-based compensation under the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). There was a diminimis amount of stock-based compensation expense in 2005 recognized in our Consolidated Statements of Income under the provisions of APB 25 and none in 2004. Beginning January 1, 2006, we began accounting for stock-based payments in accordance with the requirements of SFAS 123(R).

 

Equity Grant Practices

 

Our Compensation Committee selects the terms of our equity compensation awards including grant date, exercise price of options and vesting period in accordance with our equity compensation plans. Equity awards are generally on an annual basis.

 

At December 31, 2006, we had three types of stock-based compensation plans: stock option plans, an executive stock bonus plan which allows grants of performance share units and restricted stock, and employee stock purchase plans. Our stock option plans for key employees and directors provide for nonqualified and incentive stock option grants. All stock options are for shares of the Company’s Class A common stock. Option awards are granted with an exercise price equal to the market price of our stock at the date of grant. Our stock option plans are approved by shareholders. Under the key employee stock option plan, incentive and nonqualified options for up to 6,250,000 shares may be granted. Employee stock options typically are subject to graded vesting over five years (20% each year) and have a typical life of ten years.

 

Under our directors’ plan, board members are granted options upon initial election to the Board and upon annual re-election to the Board. Options for up to 450,000 shares may be granted under the directors’ plan. Directors’ options are fully vested at grant date and have a typical life of ten years.

 

Under our executive stock bonus plan, we are authorized to issue up to 4,000,000 shares of the Company’s Class A common stock. The plan has two components: a performance share unit component and a restricted stock component. Under the performance share unit component, key employees of the Company are eligible to earn shares of stock upon the achievement of certain individual and corporate objectives. Share grants are subject to graded vesting over periods typically ranging from three to five years. Shares are not issued until the vesting requirements have lapsed. Dividends are not paid or accrued on unvested shares. Under the restricted stock component, the Board of Directors may elect to issue restricted shares of stock in lieu of, or in addition to, cash bonus payments to certain key employees. Employees receiving these shares have restrictions on the ability to sell the shares. Such restrictions lapse ratably over vesting periods ranging from several months to five years. For grants of restricted stock, vested and unearned shares issued are eligible to receive nonforfeitable dividends if dividends are declared by the Company’s Board of Directors.

 

Summary of Cash and Certain Other Compensation

 

The following table includes information concerning compensation for the one-year period ended December 31, 2006, concerning compensation paid to or accrued by the Company for those persons who were, at

December 31, 2006, (1) the Chief Executive Officer (2) Chief Financial Officer (including anyone who served as Chief Financial Officer during fiscal year 2006) and (3) the other three most highly compensated Executive Officers of the Company (hereinafter collectively referred to as the “Named Executive Officers”):

 

SUMMARY COMPENSATION TABLE

 

 

 

 

Grant of Plan-Based Awards Table

 

The Company maintains the Executive Stock Bonus Plan under which awards of performance share units or restricted stock may be granted to specified employees of the Company. The Company previously sponsored stock option plans under which outstanding option grants remain exercisable by prior participants in those plans. The following table sets forth certain information with respect to the non-equity incentive awards, restricted stock awards, performance share unit awards and options granted during or for the fiscal year ended December 31, 2006 to each of our Named Executive Officers.

 

 

 

 

Outstanding Equity Awards at December 31, 2006 Table

 

The following table sets forth certain information with respect to the outstanding equity awards at December 31, 2006 for each of our Named Executive Officers.

 

 

 

 

Option Exercises and Stock Vested Table

 

The following table provides information concerning the exercise of stock options during the last fiscal year and unexercised options held as of the end of the fiscal year with respect to the Named Executive Officers. It also provides information on stock awards vested during the last fiscal year with respect to the Named Executive Officers.

 

Pension Benefits at December 31, 2006 Table

 

The Company maintains a non-contributory Retirement Plan for the benefit of substantially all of the U.S. employees of the Company who were employed as of December 31, 2002. The Retirement Plan provides for annual retirement benefits at Normal Retirement Age (65) equal to 2% of the participant’s total compensation (as defined in the Retirement Plan) for all credited years of service under the Plan. The benefits are not affected by Social Security benefits payable to the participant; however, they are actuarially reduced for retirements before the Normal Retirement Age or if the retiree selects benefits other than an individual life-time annuity. Credited years of service under the Retirement Plan for Mr. Swain is 10 years and for Mr. Giblin is 12 years. Messrs. T. W. Crawford, Frawley, Bowman, and Isaac do not participate in the Retirement Plan. Effective December 31, 2002, accruals under the Retirement Plan were frozen. In place of the accruals under the now frozen Retirement Plan, the Company may make a discretionary contribution to the Defined Contribution Plan for eligible employees based on years of service and compensation as well as Company financial results. The following table provides information concerning the pension benefits at December 31, 2006 with respect to the Named Executive Officers.

 

 

Nonqualified Deferred Compensation Table

 

The Company maintains an unfunded Supplemental Executive Retirement Plan (“SERP”) for certain Executive Officers to provide benefits that would otherwise be payable under the Retirement Plan and/or Defined Contribution Plan but for limitations placed on covered compensation and benefits under the Internal Revenue Code. Effective December 31, 2002, accruals under the SERP were also frozen as to the Retirement Plan. The SERP was amended to allow the Company, when it elects to make the discretionary contribution to the Defined Contribution Plan for eligible employees, to also make an additional SERP Service Contribution to the Deferred Compensation Plan for participants of the SERP. The amounts contributed in 2006 for the Named Executive Officers are reflected in the All Other Compensation column of the Summary Compensation Table and footnote 4 thereto. The following table provides information concerning the nonqualified deferred compensation with respect to the Named Executive Officers.

 

 

EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS

 

The Company has entered into various agreements with certain of the Named Executive Officers that contain provisions regarding employment and change-in-control, as described below:

 

T. W. Crawford: Effective as of September 1, 2004, the Company agreed to a compensation package with Mr. Crawford. The compensation package set Mr. Crawford’s initial annual base salary at $600,000; Mr. Crawford’s annual base salary is currently $721,600. The compensation package provided for annual incentive compensation up to $400,000 at the discretion of the Board of Directors, and a prorated first year limit of one-third of the total allowable annual incentive compensation. The Board of Directors approved a $400,000 incentive compensation payment to Mr. Crawford for 2006. The compensation package provided for a grant of options for 500,000 shares of the Company’s Class A Common Stock under the Company’s 1997 Key Employee Stock Option Plan, which grant vests at a rate of 125,000 shares per year over a four-year period. Mr. Crawford’s compensation package also provided that he would be eligible to participate in all other executive benefit and incentive plans generally offered to the Company’s senior officers. On February 1, 2005, the Company entered into a Change of Control and Severance Agreement with Mr. Crawford. The agreement provides that in the event that Mr. Crawford’s employment with the Company is terminated due to the Company being bought or sold such that there is a material change in control, the Company agrees to provide to Mr. Crawford eighteen (18) months of Mr. Crawford’s then current base salary. A “material change in control” is defined in the Severance Agreement as the acquisition of the Company by a third party of greater than fifty (50) percent of the Class B shares of the Company. Additionally, all stock options granted to Mr. Crawford will immediately vest and become exercisable for a ninety (90) day period following the date of termination.

 

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

 

 

 

 

W. B. Swain: On October 6, 2006, the Company issued a letter agreement outlining employment terms with Mr. Swain. The letter agreement set Mr. Swain’s initial annual base salary at $290,000; indicated his eligibility to participate in all other executive benefit and incentive plans generally offered to the Company’s senior officers. Mr. Swain’s letter agreement also tendered, subject to Board approval, a restricted stock grant of 6,000 shares of Class A Common Stock under the provisions of the Executive Stock Bonus Plan.

 

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL