UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

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

Filed by the Registrant þ
Filed by a Party other than the Registrant o

Check the appropriate box:

o		Preliminary Proxy Statement
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þ		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to §240.14a-12

 

Guaranty Financial Group Inc.

(Name of Registrant as Specified In Its Charter)

 

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

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Notice of Annual Meeting of Stockholders and Proxy Statement

 

1300 MoPac Expressway South

Austin, Texas 78746

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held Tuesday, May 27, 2008

 

To Guaranty Financial Group Inc. Stockholders:

 

 

 

If you need help in voting your shares, please call D. F. King & Co., Inc., our proxy solicitation firm, at (800) 290-6426.

 

 

Scott A. Almy

Secretary

 

April 11, 2008

Austin, Texas

 

Your vote is important. You are invited to attend the meeting in person. Whether or not you plan to attend, and no matter how many shares you own, please mark your vote on the enclosed proxy card, sign it, date it, and return it by mail or vote by telephone or on the Internet. If you attend the meeting, you may vote in person, even if you have previously submitted a proxy. You may revoke your proxy at any time before the vote is taken by delivering to the Corporate Secretary a written revocation or a proxy with a later date or by voting your shares in person at the meeting, in which case your prior proxy will be disregarded. Please see the instructions under Questions and Answers About the Annual Meeting — How can I vote my shares before the annual meeting?; Can I vote in person at the annual meeting?

 

TABLE OF CONTENTS

 

1300 MoPac Expressway South

Austin, Texas 78746

 

PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS

 

Our Board of Directors seeks your proxy for use in voting at our 2008 annual meeting of stockholders to be held on Tuesday, May 27, 2008, and at any later meeting if the annual meeting is adjourned or postponed. This proxy statement and proxy card were mailed beginning on April 11, 2008 to all holders of our common stock entitled to vote at the annual meeting.

 

We have enclosed with this proxy statement our 2007 Annual Report to Stockholders, which includes audited financial statements. The Annual Report does not constitute any part of the material for the solicitation of proxies.

 

The Guaranty Financial Group Inc. (Company or Guaranty) Proxy Statement for the 2008 Annual Meeting of Stockholders, the Annual Report to Stockholders for the fiscal year ended December 31, 2007 and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 are available on our website at www.guarantygroup.com.

 

Holders of Company common stock as of the close of business on the record date, April 4, 2008, may vote at the 2008 annual meeting, either in person or by proxy. As of the close of business on April 4, 2008, there were 37,241,666 shares of common stock issued and outstanding and entitled to vote at the annual meeting. The common stock is the only authorized voting security of the Company, and each share of common stock is entitled to one vote on each matter properly brought before the annual meeting.

 

At the annual meeting, the stockholders will be asked to vote on the following proposals:

 

Proposal No. 1:  To elect five (5) directors to our Board of Directors. These five (5) directors will serve as directors until their terms expire or, if later, until replacement directors are elected who meet all necessary qualifications.

 

Proposal No. 2:  To ratify the Audit Committee’s appointment of Ernst & Young LLP as independent registered public accounting firm for the year 2008.

 

If your shares are registered directly in your name with our transfer agent, Computershare Trust Company, N.A. (Computershare), you are considered the “stockholder of record” with respect to those shares. This proxy statement and the enclosed proxy card and 2007 Annual Report to Stockholders have been sent directly to you.

 

If your shares are held in a stock brokerage account or by a bank or other nominee, those shares are held in “street name” and you are considered the “beneficial owner” of the shares. The proxy statement, 2007 Annual Report to Stockholders and other materials have been forwarded to you by your broker, bank or other nominee, who is the stockholder of record. You will receive separate instructions from your broker, bank or other holder of record describing how to vote your shares.

 

If you hold shares in your own name as a stockholder of record, you can cast your vote before the annual meeting by authorizing the individuals named on the enclosed proxy card to serve as your proxy to vote your shares at the annual meeting in the manner you indicate. You may do so by completing, signing and dating the enclosed proxy card and returning it in the enclosed postage-paid envelope. The telephone and Internet voting instructions serve the same purpose as the proxy card. When your proxy card or telephone or Internet vote specifies a choice with respect to a voting matter, the named individuals on the proxy card will vote your shares as you have specified. Submitting a proxy or voting through the telephone or the Internet will not affect your right to attend the annual meeting and vote in person.

 

If you are a beneficial owner of shares held in street name, your broker, bank or other nominee will provide you with materials and instructions for voting your shares. The availability of telephonic or Internet voting will depend on the bank’s or broker’s voting process. Please check with your bank or broker and follow the voting procedures your bank or broker provides to vote your shares.

 

If your shares are held in your own name as a stockholder of record and you return your signed proxy card but do not specify a voting choice on your proxy card, shares will be voted as follows:

 

 

New York Stock Exchange (NYSE) rules applicable to broker-dealers grant your broker discretionary authority to vote your shares without receiving your instructions on certain matters, which include the election of directors and the ratification of the appointment of the independent registered public accounting firm. However, your broker does not have discretionary authority to vote your shares on non-routine proposals.

 

Yes. If you hold shares in your own name as a stockholder of record, you are invited to attend the annual meeting and cast your vote at the meeting by properly completing and submitting a ballot at the meeting. If you are the beneficial owner of shares held in the name of your broker, bank or other nominee, you are invited to attend the meeting in person, but in order to vote at the meeting you must first obtain a legal proxy from your broker, bank or other nominee giving you the right to vote those shares and submit that proxy along with a properly completed ballot at the meeting.

 

If you hold shares in your own name as a stockholder of record, you may change your vote or revoke your proxy at any time before voting begins by:

 

 

We must receive your notice of revocation or later dated proxy at or prior to voting at the annual meeting for it to be effective. It should be delivered to:

 

Guaranty Financial Group Inc.
8333 Douglas Avenue, 3^rd Floor
Dallas, Texas 75225
Attention: Scott A. Almy, Corporate Secretary

 

Alternatively, you may hand deliver a written revocation notice, or a later dated proxy, to the Corporate Secretary at the annual meeting before the voting begins.

 

If you are the beneficial owner of your shares held in street name, please check with your bank or broker and follow the procedures your bank or broker provides if you wish to change your vote.

 

The presence at the annual meeting, in person or by proxy, of the holders of 37,241,666 shares (a majority of the number of shares of common stock issued and outstanding and entitled to vote as of the record date) is required to constitute a quorum to transact business at the annual meeting. Proxies marked “abstain” and broker “non-votes” (each of which are explained below) will be counted in determining the presence of a quorum.

 

If the shares present in person or represented by proxy at the annual meeting are not sufficient to constitute a quorum, the stockholders by a vote of the holders of a majority of the votes entitled to be cast by the stockholders, present in person or by proxy (which may be voted by the proxy holders at the meeting), may, without further notice to any stockholder (unless a new record date is set or the adjournment is for more than 30 days), adjourn the meeting to a different time and place to permit further solicitations of proxies sufficient to constitute a quorum. At any such adjourned meeting at which a quorum may be present, any business may be transacted that might have been transacted at the meeting as originally called.

 

An abstention occurs when a stockholder sends in a proxy with explicit instructions to decline to vote regarding a particular proposal. An abstention with respect to any proposal for the annual meeting will not be counted as a vote “cast” for or against the proposal. Consequently, an abstention with respect to any of the proposals scheduled for a vote at the annual meeting will not affect the outcome of the vote as explained below in “What are the voting requirements to elect directors and approve the proposals described in the proxy statement?”

 

Broker “non-votes” are shares held by brokers or nominees for which voting instructions have not been received from the beneficial owners or the persons entitled to vote those shares and the broker or nominee does not have discretionary voting power under rules applicable to broker-dealers so the broker is unable to vote those uninstructed shares. Brokers and nominees have discretionary voting power to vote shares with respect to all of the proposals to be voted on at the annual meeting. A broker “non-vote” with respect to a proposal will not be counted as a vote “cast” for or against the proposal.

 

Election of Directors

 

The affirmative vote of a majority of the votes cast by the stockholders present in person or represented by proxy is required for the election of each director nominee named in Proposal No. 1. This means that the votes cast “for” that nominee must exceed the votes cast “against” that nominee. Any shares not voted (whether by abstention or otherwise) will not be counted as votes cast and will have no effect on the outcome of the vote. In accordance with our Corporate Governance Guidelines, each incumbent nominee will submit, prior to the annual meeting, an

irrevocable resignation contingent on the nominee failing to receive the required vote for election and the Board of Directors accepting the resignation. For more information on the operation of our majority voting standard, see the section on “Election of Directors.” Stockholders may not cumulate votes in the election of directors.

 

Ratification of Auditors

 

The affirmative vote of a majority of the votes cast by stockholders entitled to vote at the annual meeting is required for the ratification of the appointment of our independent registered public accounting firm in Proposal No. 2. Any shares not voted (whether by abstention or otherwise) will not be counted as votes cast and will have no effect on the outcome of the vote.

 

 

We have retained D.F. King & Co., Inc. (D.F. King), a professional proxy solicitation firm, to assist in the solicitation of proxies. D.F. King’s employees and our directors, officers and employees, who have not yet been chosen, may solicit the return of proxies by personal interview, mail, electronic mail, facsimile, telecopy, telegram, telephone, and Internet. We may also issue press releases asking for your vote or post letters or notices to you on our website, www.guarantygroup.com. Our officers and employees will not receive additional compensation, but will be reimbursed for out-of-pocket expenses. D.F. King will be reimbursed for its expenses in soliciting proxies and, in addition, will receive a proxy solicitation fee not to exceed $9,000. We will request brokerage houses and other custodians, nominees and fiduciaries to forward solicitation material to the beneficial owners of stock. We will pay for all costs of solicitation.

 

 

Representatives of our transfer agent, Computershare, will tabulate the votes and act as inspectors of election to certify the results.

 

 

We have adopted a confidential voting policy which provides that stockholder proxies, ballots, and voting tabulations that identify your vote will not be disclosed to us, our directors, officers, or employees. There are a few exceptions to this policy, such as when you make a comment on your proxy vote or when we must determine the legality of a vote.

 

Prior to December 28, 2007, we were a wholly-owned subsidiary of Temple-Inland Inc. (Temple-Inland). As of the close of business on December 28, 2007, Temple-Inland distributed 100% of the issued and outstanding shares of our common stock to the holders of record of Temple-Inland common stock as of the close of business on December 14, 2007, which we will refer to in this proxy statement as the “spin-off” or the “separation.” Each Temple-Inland stockholder received one share of our common stock for every three shares of Temple-Inland common stock held as of the close of business on December 14, 2007. Also on December 28, 2007, Temple-Inland distributed 100% of the issued and outstanding shares of Forestar Real Estate Group Inc., a wholly-owned subsidiary of Temple-Inland that operated Temple-Inland’s real estate business. For information on the spin-off agreements, see the section entitled “Certain Relationships and Related Party Transactions.”

 

The name, address and stock ownership of each person or group of persons known by us to own beneficially more than five percent (5%) of the outstanding shares of our common stock as of April 4, 2008 follows:

 

 

 

 

 

The following table sets forth information regarding the beneficial ownership of our common stock as of April 4, 2008 by:

 

 

We determined beneficial ownership as reported in the table in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the Exchange Act). Unless otherwise indicated, beneficial ownership includes both sole voting and sole dispositive power. Even though SEC rules require reporting of certain shares listed in the table, the directors and executive officers do not claim beneficial ownership of all of these shares. For example, a director or executive officer might not claim ownership of shares owned by a relative. Unless otherwise indicated, the table does not include any shares that may be held by pension and profit-sharing plans of the corporations or endowment funds of educational and charitable institutions for which various directors and officers serve as directors or trustees.

 

 

 

 

 

 

 

 

 

 

 

 

 

We have not identified any person who failed to file on a timely basis reports required by Section 16(a) of the Exchange Act during the most recent fiscal year or prior fiscal years. For this purpose, we only reviewed Forms 3, 4, and 5, amendments to these forms, and written representations supplied to us in lieu of Form 5 under the SEC’s Section 16 rules for the most recent fiscal year.

 

 

Our By-laws specify that the Board of Directors will establish by vote how many directors will serve on the Board of Directors. The By-laws also provide that the directors will be divided into three classes, which will as nearly as possible be equal in size. The Board of Directors has set the number of directors at twelve (12), with three classes of four (4) directors each.

 

Our By-laws include a voting standard in uncontested elections of directors (as is the case for this annual meeting) of a majority of votes cast in the election. Under the majority of votes cast standard, a director nominee is elected if the number of votes cast “for” the nominee exceeds the number of votes cast “against” the nominee. In contested elections (that is, those in which the number of nominees exceeds the number of directors to be elected), the voting standard is a plurality of votes cast, which means that the individuals who receive the largest number of votes cast are elected as directors up to the maximum number of directors to be chosen at the meeting.

 

Our Board of Directors also adopted a director resignation policy, which is set forth in the Corporate Governance Guidelines available on our website at www.guarantygroup.com. This policy sets forth the procedures that will apply in the event that a director does not receive the requisite majority of votes cast “for” his or her election. In summary, prior to each annual meeting of stockholders, director nominees will submit an irrevocable resignation contingent on the nominee failing to receive the required vote for election and the Board of Directors accepting the resignation. If a nominee fails to receive the required vote for election, the Nominating and Governance Committee will make a recommendation to the Board of Directors on whether to accept or reject the resignation. The Board of Directors will act on the Committee’s recommendation and publicly disclose its decision and the rationale behind it within approximately 90 days from the date of the certification of the election results. The director whose resignation is under consideration will not participate in the Committee or Board of Director’s decision. If a resignation is not accepted by the Board of Directors, the director will continue to serve. If the failure of a nominee to be elected at the annual meeting results in a vacancy on the Board of Directors, that vacancy can be filled by action of the Board. The policy also provides that the Board shall nominate for election or re-election as

directors only candidates who agree to tender irrevocable resignations consistent with the policy, and the Board of Directors shall fill director vacancies and new directorships only with candidates who agree to tender the same form of resignation tendered by other directors.

 

Directors will serve for a term of three (3) years, or until their replacements are duly elected and meet all requirements. All nominees are presently serving as directors. After review of their qualifications, the Nominating and Governance Committee recommended them as nominees to the full Board of Directors, and the full Board of Directors subsequently voted unanimously to recommend them to the stockholders as nominees. We did not pay a fee to any third party to identify or evaluate or to assist in identifying or evaluating potential nominees.

 

Each of the nominees has consented to being named in the proxy statement and to serve if elected. If any nominee becomes unavailable to serve, however, the persons named in the enclosed form of proxy intend to vote the shares represented by the proxy for the election of such other person or persons as may be nominated or designated by management, unless they are directed by the proxy to do otherwise.

 

 

 

In addition to the nominees listed above, our By-laws require that any director named to the Board to fill a vacancy, whether by an increase in the size of the Board, by the retirement or resignation of a director or otherwise, shall be submitted for election by the stockholders at the next annual meeting. Mr. McPherson was named to the Board to fill a vacancy, by an increase in the size of the Board, on February 25, 2008. Mr. McPherson is a member of the class serving until the 2009 Annual Meeting of Stockholders, but is being submitted for election at our 2008 Annual Meeting of Stockholders pursuant to the foregoing By-law requirements.

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF MR. BIEGLER, DR. McALISTER, MR. McPHERSON, MR. ROMERO AND MR. WALKER AS DIRECTORS OF GUARANTY.

 

The following information is provided with respect to directors who will continue to serve as directors until the expiration of their terms. Mr. McPherson is a member of the class serving until the 2009 Annual Meeting of Stockholders and his information is set forth above.

 

 

 

Our Nominating and Governance Committee selects nominees on the basis of recognized achievements and their ability to bring various skills and experience to the deliberations of the Board, as described in more detail in the Corporate Governance Guidelines available on our website at www.guarantygroup.com. New non-employee

director nominees, other than any current director, must be independent as defined in the listing standards of the NYSE. Nominees must not have a prohibited conflict of interest with our business or ownership, including any regulatory conflicts due to our ownership of banking and financial services operations. Priority will be given to individuals with outstanding business experience and who currently serve or have served as the president or chief executive officer of a company.

 

Our Nominating and Governance Committee considers director candidates recommended by the directors. After reviewing a potential Director’s qualifications, a suitable candidate will be invited to meet with the CEO and the Board of Directors to determine if the candidate is a good fit.

 

Our Nominating and Governance Committee considers director candidates recommended by stockholders who are entitled to vote for the election of directors at the stockholders’ meeting and comply with the notice procedures described below. Pursuant to our By-laws, notice of a stockholder’s intent to nominate a candidate for the Board of Directors must contain certain specified information regarding the nominating stockholder and the nominee. Each notice must include the following information about the nominee:

 

 

Each notice must also include the following information about the nominating stockholder:

 

 

We may require any proposed nominee to furnish such other information as may reasonably be required by us to determine the eligibility of the proposed nominee to serve as a director.

 

Our Corporate Secretary must receive this information not less than 75 days nor more than 100 days prior to the anniversary date of the immediately preceding annual meeting of stockholders. In the case of an annual meeting called for a date more than 50 days prior to such anniversary date or in the case of a special meeting of stockholders, the information must be received not later than the close of business on the 10th day following the date on which notice of such annual meeting or special meeting is first mailed to stockholders or made public, whichever occurs first. For information regarding the deadlines and procedures for director nominations by stockholders, please see “Date for Receipt of Stockholder Proposals and Nominations.”

 

The Board of Directors has determined that the following directors meet its independence standards, which are set forth in the Corporate Governance Guidelines on our website at www.guarantygroup.com: David W. Biegler, Larry R. Faulkner, Robert V. Kavanaugh, Leigh M. McAlister, Edward R. McPherson, Robert D. McTeer, Raul R. Romero, John T. Stuart III, Larry E. Temple, and Bill Walker. Mr. Dubuque does not meet the independence standards because he is an employee and our President and CEO. Kenneth M. Jastrow, II does not meet the independence standards due to his prior employment with Temple-Inland, which, under the NYSE independence standards, will preclude independence until three years after termination of such employment, or 2010. The Board defines independence as meeting the requirements to be considered independent directors as defined under the

current rules of the NYSE. The Board has established the following additional guidelines to assist it in determining director independence:

 

1. The Board shall review annually the relationships that each director has with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company). Following such annual review, only those directors who the Board affirmatively determines have no material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company) will be considered independent directors, subject to additional qualifications prescribed under the listing standards of the NYSE or under applicable law. The Board may adopt and disclose categorical standards to assist it in determining director independence. In the event that a director becomes aware of any change in circumstances that may result in such director no longer being considered independent under the listing standards of the NYSE or under applicable law, the director shall promptly inform the Chairman of the Nominating and Governance Committee.

 

2. To serve as a member of any committee of the Board, the director must meet any additional requirements of independence set forth in the committee’s charter or applicable law or listing standards of the NYSE.

 

There were no material transactions or relationships between Guaranty and any director during 2007. In making its determination that all directors except Messrs. Dubuque and Jastrow are independent, the Board considered all transactions with companies on which its directors are executive officers, but did not consider these transactions to be material because in each case they were less than 2% of our or the other company’s consolidated gross revenues.

 

In addition, the Board has considered that, from time to time, Guaranty Bank or one of its subsidiaries may make mortgage loans and/or provide home equity lines of credit to our directors, executive officers, or their immediate families. These mortgage loans and/or home equity lines of credit:

 

 

We may sell these mortgage loans and/or home equity lines of credit into the secondary market in the ordinary course of business.

 

There is no family relationship between any of the nominees, continuing directors and executive officers of Guaranty.

 

We adopted a written policy and procedures for the review, approval, or ratification of any related party transactions. A related party, for purposes of our policy, means:

 

 

The related party transaction policy provides that any transaction, arrangement or relationship between us and a related party must be reviewed by the Nominating and Governance Committee, unless pre-approved under the policy. The policy deems the following transactions, arrangements or relationships to be pre-approved:

 

 

 

Under the policy, the Nominating and Governance Committee, in the course of the review of a potentially material related party transaction, will consider, among other things, whether the transaction is in our best interest, whether the transaction is entered into on an arm’s length basis, whether the transaction conforms to our code of business conduct and ethics and whether the transaction impacts a director’s independence under the NYSE rules independence listing standards.

 

Guaranty Bank has had, and may be expected to have in the future, lending relationships in the ordinary course of business with immediate family members of executive officers and directors and affiliated companies in which they are principal stockholders. In our management’s opinion, the lending relationships with these persons were made in the ordinary course of business and on substantially the same terms, including interest rates, collateral and repayment terms, as those prevailing at the time for comparable transactions with persons not related to us and do not involve more than normal collection risk or present other unfavorable features. Guaranty Bank also offers overdraft service protection in the ordinary course of business to executive officers and directors.

 

Michael D. Calcote is our Executive Vice President and Treasurer. His spouse is employed by Guaranty Bank as Senior Vice President, Director-Governance Administration and Shareholder Services. Her compensation for 2007 was $115,577 salary, $30,000 bonus, $4,000 company match on a 401(k) plan, $5,097 3.5% company contribution to 401(k) account, and $3,150 in matching charitable contributions. This transaction was not reviewed under the Temple-Inland or our related party transaction policy because the relationship was disclosed each year under our Standards of Business Conduct and Ethics, and Mr. Calcote did not participate in any decisions affecting his spouse’s compensation or employment, all of which were considered adequate controls.

 

Prior to the spin-off from Temple-Inland we entered into a separation and distribution agreement and several other agreements with Temple-Inland and Forestar to effect the separation and provide a framework for our relationships with Temple-Inland and Forestar after the separation. These agreements govern the relationships between the parties subsequent to the completion of the spin-off and provide for the allocation between the parties of Temple-Inland’s assets, liabilities, and obligations (including employee benefits and tax-related assets and liabilities) attributable to periods prior to our separation from Temple-Inland. In addition to the separation and distribution agreement, these agreements include:

 

 

Since our related party transaction policy went into effect in December 2007, other than the spin-off agreements listed above and the other agreements entered into in connection with our spin-off, there were no transactions between such effective date and fiscal year-end 2007 that were required to be reported under

Item 404(a) of Regulation S-K where the policy did not require review, approval or ratification or where the policy was not followed.

 

Kenneth M. Jastrow, II, our Non-Executive Chairman, also serves as Non-Executive Chairman of Forestar. In addition, Larry R. Faulkner and Larry E. Temple serve as directors for both Guaranty and Temple-Inland. Messrs. Jastrow, Faulkner, and Temple have agreed to recuse themselves from any matters related to Guaranty arising under the separation, distribution and related agreements described above.

 

The Board performs a number of its functions through committees. All members and the chairman of our Audit Committee, Management Development and Executive Compensation Committee, and Nominating and Governance Committee are independent directors under the NYSE corporate governance listing standards. Each committee’s charter expressly provides that the committee has the sole discretion to retain, compensate, and terminate its advisors. Current copies of the charters of our Audit Committee, Management Development and Executive Compensation Committee, and the Nominating and Governance Committee are available on our website at www.guarantygroup.com.  

 

A description of the functions of the Board committees and the members serving on these committees follows:

 

The Audit Committee assists the Board in its oversight of:

 

 

The Audit Committee prepares a report that the rules of the SEC require be included in the annual proxy statement.

 

The Audit Committee has the sole authority to appoint, retain, compensate and terminate the independent registered public accounting firm. The Board of Directors has determined that there is at least one audit committee financial expert serving on the Audit Committee, Edward R. McPherson, who is an independent director. In addition, the Board of Directors has determined, in its business judgment, that all members of the Audit Committee are financially literate and independent as defined in the NYSE corporate governance standards. The members of the Audit Committee are Mr. Temple, who serves as Chairman of the Committee, Dr. Faulkner, Mr. Kavanaugh, Mr. McPherson, Mr. McTeer, Mr. Stuart and Mr. Walker. The Audit Committee was formed in November 2007 in connection with our spin-off and did not meet before 2008. During 2007, the Audit Committee of our subsidiary, Guaranty Bank, met four (4) times.

 

The Management Development and Executive Compensation Committee (Compensation Committee) is responsible for:

 

 

 

The Executive Vice President, Chief Human Resources Officer and President and Chief Executive Officer recommend executive compensation amounts and programs to the Compensation Committee. Hay Group, Inc. (“compensation consultant”), a compensation consultant, is engaged by the Compensation Committee to provide market data regarding executive compensation and advice regarding proposed compensation programs and amounts. The Compensation Committee obtains specific data from the compensation consultant on an annual basis and at other times upon request. The Compensation Committee also invites a compensation consultant representative to attend meetings of the committee from time to time. The Compensation Committee meets with the compensation consultant representative in executive session periodically. Once the independent directors of the Board approve any compensation recommendations of the Compensation Committee, administration of the compensation programs is delegated to the Executive Vice President, Chief Human Resources Officer and President and Chief Executive Officer.

 

The members of the Compensation Committee are Mr. Kavanaugh, who serves as Chairman of the Committee, Mr. McPherson, Mr. Romero and Mr. Walker, all of whom are independent as defined in the NYSE corporate governance standards. The Management Development and Executive Compensation Committee was formed in November 2007 in connection with our spin-off and did not meet before 2008.

 

There are no Compensation Committee interlocks among the members of the Board and no member of the Compensation Committee has a transaction reported under Director Independence; Certain Relationships and Related Transactions.

 

The Nominating and Governance Committee:

 

 

 

The Executive Vice President, Chief Human Resources Officer and President and Chief Executive Officer recommend director compensation amounts and programs to the Nominating and Governance Committee. The Nominating and Governance Committee anticipates engaging a compensation consultant to provide market data regarding director compensation and advice about proposed director compensation programs and amounts. The Nominating and Governance Committee will obtain specific data from the compensation consultant on an annual basis and at other times upon request. The Nominating and Governance Committee will also invite a compensation consultant representative to attend meetings of the committee from time to time. The Nominating and Governance Committee will meet with the compensation consultant representative in executive session periodically. Once the full Board approves any director compensation recommendations of the Nominating and Governance Committee, administration of the director compensation program is delegated to the Senior Vice President, Director-Governance Administration and Shareholder Services, who serves as an officer of a subsidiary.

 

The members of the Nominating and Governance Committee are Dr. Faulkner, who serves as Chairman of the Committee, Mr. Biegler, Dr. McAlister, Mr. McTeer and Mr. Stuart, all of whom are independent as such term is defined in the NYSE corporate governance standards. The Nominating and Corporate Governance Committee was formed in November 2007 in connection with our spin-off and did not meet before 2008.

 

The Executive Committee may exercise all the authority of the Board of Directors in the management of the business and affairs of the Company except:

 

 

The members of the Executive Committee are Mr. Jastrow, who serves as Chairman of the Executive Committee, Mr. Dubuque, Dr. Faulkner, Mr. McTeer, and Mr. Stuart. The Executive Committee was formed in November 2007 in connection with our spin-off and did not meet before 2008. The members of the Executive Committee of our subsidiary, Guaranty Bank, are Mr. Dubuque, who serves as Chairman, Mr. Jastrow, Dr. Faulkner, Mr. McTeer and Mr. Stuart.

 

Credit and Risk Oversight Committee of Guaranty Bank, a subsidiary

 

This is a board appointed committee of Guaranty Bank, a subsidiary, that oversees matters of credit and enterprise risk attributable to Guaranty Bank. The members of this Committee are Mr. Dubuque, who serves as Chairman of the Committee, Dr. Faulkner, Mr. McTeer and Mr. Stuart.

 

The Board of Directors of the Company were designated in November of 2007 prior to the spin-off and did not meet prior to 2008. This 2008 Annual Meeting is the first stockholders meeting since the Company’s spin-off and the Board’s adoption of the Company’s Corporate Governance Guidelines. Each director will be required to attend at least 75% of the aggregate of the total number of meetings of the Board of Directors and the total number of meetings held by all committees of the Board on which he or she serves for the last full fiscal year. Health permitting, all Board members are expected to attend our annual meeting of stockholders. The Board plans to hold regularly scheduled executive sessions of the Board with only non-management directors present. The Board also plans to hold a session with only independent directors for each regularly scheduled Board meeting in 2008. The Non-Executive Chairman of the Board serves as presiding director to lead non-management executive sessions of the Board.

 

Stockholders and other interested parties may communicate with non-management directors by forwarding their written comments to an independent third party that has agreed to forward the comments to the Non-Executive Chairman with a copy to our General Counsel. As of the date of this proxy statement, such independent third party is The Network Inc. and such comments may be sent to:

 

The Network, Inc.

333 Research Court

Norcross, GA 30092

Attention: Call Center — Guaranty Financial Group Inc.

 

Alternatively, interested parties may send an email via web interface to The Network at www.tnwinc.com/webreport.

 

The current Non-Executive Chairman is Kenneth M. Jastrow, II. Any changes in the Non-Executive Chairman or the independent third party for purposes of communicating with the presiding director after publication of this proxy statement will be posted on our website at www.guarantygroup.com.

 

The director compensation program is designed in recognition of the time commitment and preparations required for directors to fulfill their responsibilities and to better align director compensation with stockholder returns. Alignment with stockholders is emphasized through stock ownership requirements, an annual RSU, and the ability to receive RSUs in lieu of fees. We do not currently award stock options to our directors. The current program consists of the following compensation components:

 

 

Our Director fee schedule is as follows:

 

 

Mr. Dubuque will not receive any compensation for his service on our Board other than his compensation as an employee. Mr. Jastrow’s Non-Executive Chairman Retainer is not eligible for a match under the fee deferral plan described herein.

Non-employee directors may retire at any time, but must retire by the annual meeting following their 72nd birthday, unless their terms are extended upon approval of the Board of Directors. At the time of the spin-off, Mr. Temple’s retirement age was extended to age 75. In February 2008, the Board extended the retirement age of Mr. Kavanaugh and Mr. Stuart to age 75. Directors are reimbursed for expenses incurred in attending Board and committee meetings, including those for travel, food and lodging.

 

We have computed the value of our director compensation program in accordance with SEC requirements. The fair value of RSUs was determined in accordance with Statement of Financial Accounting Standards No. 123(R). SFAS 123(R) requires us to calculate the value of the RSUs acquired through deferral of fees and match using the stock price on the date the fees are earned. However, directors do not receive any payment until they retire. At retirement, a director receives actual shares of common stock equal in value to the RSUs held in his or her account. The value of the shares received on the date the director retires may be different than the value of RSUs received at the time the fee is earned. For additional information see the section entitled “Fee Deferral Plan.”

 

 

 

 

Directors are required to hold Guaranty stock valued at three (3) times their annual retainer fee under the Board’s stock ownership guidelines. This stock ownership policy is contained in our Corporate Governance Guidelines, which is available on our website at www.guarantygroup.com. Shares of stock owned by the directors and their immediate family members count toward this requirement. RSUs also count toward this requirement.

Mr. Dubuque, and Mr. Jastrow meet the stock ownership requirements. Mr. Biegler, Dr. Faulkner Mr. Kavanaugh, Dr. McAlister, Mr. McPherson, Mr. McTeer, Mr. Romero, Mr. Stuart, Mr Temple and Mr. Walker do not meet the stock ownership requirements, but have three years from their November 2007 election to the Board to comply with the ownership guidelines.

 

Directors may participate in a fee deferral plan that encourages stock ownership. Instead of immediate payment in cash, directors may defer all fees into RSUs (a promise to make a payment measured by the value of our common stock) payable in our common stock at retirement. The RSUs will be credited quarterly based on the closing price of our common stock on regularly scheduled Board meeting dates. RSUs will have an aggregate value of 1.5 times the amount of fees deferred except for the Non-Executive Chairman Retainer which will have an aggregate value equal to the amount of fees deferred.

 

For example, assume a director defers fees on a date when our closing stock price is $12. The $12,500 quarterly fee times 1.5 equals $18,750 initial value. The $18,750 divided by the closing stock price of $12 on the date of deferral equals 1,562 RSUs. Fair market value in all cases is equal to the closing price of Guaranty stock on the NYSE on the applicable date. At retirement, the director would receive 1,562 shares of Guaranty common stock.

 

Directors who choose cash payment on a current basis instead of deferring their fees do not receive a match. The annual RSU grant is not matched. RSUs are vested when granted. Dividends will be in cash if and when paid to stockholders. At retirement, a director will be paid, in the form of a lump sum payment, the number of common shares equal to the number of RSUs credited to his or her account.

 

The Directors’ Fee Deferral Plan provides for accelerating payment in the event the director’s service terminates due to a change in control or upon death. The plan administrator may accelerate payment upon the occurrence of an unforeseeable emergency as defined by the plan.

 

Prior to the spin-off from Temple-Inland in 2007, Guaranty directors were eligible to participate in the Temple-Inland Foundation’s matching gifts program. The Guaranty Foundation, a tax-exempt foundation funded by contributions from Guaranty, was formed in October 26, 2007 and made no charitable donations on behalf of directors in 2007. Directors are eligible to participate in the Guaranty Foundation matching gifts program.

 

Directors are covered under our business travel accident insurance policy for $100,000 while traveling on our business. Directors are also covered under our director and officer liability insurance policies for claims alleged in connection with their service as a director. We have entered into indemnification agreements with each of our directors agreeing to indemnify them to the fullest extent permitted by law for claims alleged in connection with their service as a director.

 

Non-employee directors are also eligible to purchase an umbrella liability insurance policy, at a group rate, under our insurance program through a subsidiary of Guaranty.

 

The names, ages, and titles of our executive officers are:

 

 

Kenneth R. Dubuque is our President and Chief Executive Officer. Information about Mr. Dubuque is included in our “Election of Directors” section.

 

Robert B. Greenwood serves as our Senior Executive Vice President and Chief Administrative Officer. He served as our Senior Executive Vice President, Lending from December 2007 until March 2008. He served as Senior Executive Vice President for Guaranty Bank’s commercial lending segment since April 2007, and led the lending function for Guaranty Bank beginning in 2002. He has managed various elements of corporate banking and commercial lending for Guaranty Bank since 1991. He has over 37 years of experience in the banking industry, including Bank One-Texas, Alliance Bank, First City National Bank, and Fannin Bank.

 

Kevin J. Hanigan serves as our Senior Executive Vice President and Chief Banking Officer. He served as our Senior Executive Vice President, Retail Bank from December 2007 until March 2008, a position he also held with Guaranty Bank from April 2007 until March 2008. Mr. Hanigan joined Guaranty Bank in 1996, and directed the corporate banking business for Guaranty Bank from 1999 to 2007. He has over 25 years of Texas banking experience, including Bank One-Texas and its predecessor organizations, Premier Bank in Houston, and Creekwood Capital Corporation in Houston.

 

Ronald D. Murff has served as our Senior Executive Vice President and Chief Financial Officer since July 2007, a position he has held with Guaranty Bank since April 2007. Mr. Murff served as President of Guaranty Bank’s retail banking segment from 2001 to 2007, and his prior experience with Guaranty Bank and Temple-Inland was as subsidiary Chief Financial Officer. Mr. Murff served in various financial and control positions with two Texas thrifts, and began his career with Peat, Marwick, Mitchell & Co.

 

Harold L. Shults, Jr. serves as our Senior Executive Vice President, Insurance since December 2007. He has served as Senior Executive Vice President, Insurance of Guaranty Bank since April 2007, and has managed Guaranty Insurance Services, Inc. since 1995. He joined Temple-Inland in 1992 with Guaranty Insurance Services, Inc.’s predecessor company, Timberline Insurance.

 

Mark A. Crawford serves as our Senior Executive Vice President, Chief Risk Officer since December 2007. He has served as Chief Risk Officer of Guaranty Bank since 2001. He was Guaranty Bank’s Chief Credit Officer from 1998 to 2001, and Asset Review Manager from 1993 to 1998. Previously, Mr. Crawford worked with the Office of Thrift Supervision and with the Federal Reserve Bank of Dallas.

Karen J. Hartnett serves as our Executive Vice President, Chief Human Resources Officer since December 2007, a position she has held with Guaranty Bank since 2006. Prior to joining Guaranty Bank, Ms. Hartnett was an independent consultant since 2001. Ms. Hartnett was Chief Human Resources Officer for Bank United in Houston from 1991 until its sale to Washington Mutual in 2001, and during her 35-year career, she has worked with NCNB Corporation, First Republic Bank of Texas, Equimark, Zale Corporation and Mobil Oil Corporation.

 

Michael D. Calcote serves as our Executive Vice President, Treasurer. He served as Chief Financial Officer of Guaranty Bank from 2003 to 2007 and Treasurer of Guaranty Bank from 2000 to 2002. Mr. Calcote previously served in various capacities in investments and asset liability management since joining Guaranty Bank in 1990. His prior experience was with the Office of Thrift Supervision.

 

Jerry W. Hickenbottom serves as our Executive Vice President, Chief Information Officer since December 2007, a position he has held with Guaranty Bank since joining the bank in 2002. His 40-plus year career includes positions with Price Waterhouse, Gibraltar Savings in California as Chief Information Officer, and Security Pacific Bank in California and Norwest Banks in Minnesota in various technical management positions.

 

John W. Wessman serves as our Executive Vice President, Chief Marketing Officer since December 2007, a position he has held with Guaranty Bank since 2006. He previously served in a similar capacity with Encore Bank in Houston from 2000 to 2006. His financial services career includes positions with Invest Financial Corporation, AmSouth Bank, and First American National Bank of Nashville. Additionally, he worked for 6 years with McKinsey & Company.

 

Scott A. Almy serves as our Executive Vice President, General Counsel and Secretary. Mr. Almy joined Guaranty Bank in 1994 and has served as Guaranty Bank’s General Counsel and Secretary since 1999. He has also served as our General Counsel and Secretary since 2003.

 

Craig E. Gifford serves as our Executive Vice President and Chief Accounting Officer since December 2007. He has served as Controller of Guaranty Bank since joining the bank in 2003. Prior to that, Mr. Gifford worked for Ernst & Young LLP from 1990 to 2003, where he specialized in financial institutions and financial instruments.

 

The Board of Directors annually elects officers to serve until their successors have been elected and have qualified or as otherwise provided in our By-laws.

 

EXECUTIVE COMPENSATION

 

The compensation disclosed for our Named Executive Officers (collectively, the “Named Executive Officers”) in this Compensation Discussion and Analysis is based on compensation earned as an officer or employee of Temple-Inland’s Financial Services business segment for the 2007 fiscal year. Effective December 28, 2007, we were spun-off by Temple-Inland as a stand-alone publicly traded company. More detailed information about our spin-off is available in our Information Statement filed with the SEC as part of an 8-K on December 14, 2007 and on our website www.guarantygroup.com.

 

Our Compensation Discussion and Analysis contains statements regarding future individual and Company performance measures, targets and other goals. These goals are disclosed in the limited context of our executive compensation program and you should not take them to be statements of management’s expectations or estimates of results or other guidance. We specifically caution investors not to apply these statements to other contexts.

 

We have separated our discussion of executive compensation into the following sections:

 

 

 

Our executive compensation program is designed to attract and retain high-performing executives and to motivate and reward our executives for superior performance of specific corporate and individual goals. Prior to our spin-off from our former parent company, Temple-Inland, the compensation program for our chief executive officer, our chief financial officer and our three other most highly compensated executive officers for the year ended December 31, 2007 was designed to reflect their duties and responsibilities as division management for our former parent company. The program was also designed to reflect the size, scope and nature of our business as it related to our former parent company’s other businesses.

 

In determining the form and amount of compensation payable to our Named Executive Officers, we are guided by the following objectives and principles that reflect our position as a stand-alone company following the spin-off:

 

 

Our executive compensation objectives are closely tied to our management’s strategic plan, and our compensation program contains multiple elements, including cash and equity-based compensation that is tied to performance goals:

 

 

The alignment of goals and specific performance measurements are designed to focus executives’ attention on factors that lead to maximizing returns to our stockholders. Our SIP includes forfeiture provisions for voluntary employment termination, other than death or disability, in order to encourage retention. Our change in control agreements are intended to encourage our executives to continue to work in the best interests of our stockholders and are intended to alleviate executives’ personal financial concerns during any potential change in control.

 

Our governance practices divide responsibility for compensation oversight into three levels:

 

 

Yes. The Compensation Committee has authority under its charter to retain outside consultants to provide assistance, and our Compensation Committee currently uses a compensation consultant.

 

We recently completed our spin-off from our former parent company in December 2007. All of the compensation practices that were in place during 2007 were established by our former parent company before the spin-off. We worked with Hewitt Associates, LLC (“Hewitt”) and Temple-Inland executive compensation management prior to the spin-off to assess our compensation practices relative to that of the market and our competitors.

 

Our Compensation Committee engaged Hay Group, Inc. as its independent compensation consultant for 2008. The consultant’s role is to advise the Compensation Committee on all executive compensation matters. In this role, the consultant reports directly to the Compensation Committee and attends the regularly scheduled meetings of the Compensation Committee. The Compensation Committee requested the compensation consultant to initiate a review and assessment of our executive compensation program, including total compensation and individual pay components (e.g., base salary, bonus and equity compensation) of each of the Named Executive Officers. Our

Compensation Committee directed the compensation consultant to identify a peer group of growth-focused financial institutions, provide comparative data with respect to these peer companies from a financial and compensation perspective and provide recommendations regarding our overall compensation program for our executive officers, including our Named Executive Officers. In addition, the compensation consultant will assist us in the collection of historical compensation data and provide annual market data on cash elements as well as long-term incentive awards that is drawn from publicly available information and peer companies’ survey data. Our Compensation Committee considers the data and recommendations provided by the compensation consultant and input from management in the total mix of information used to develop our compensation program, but the final executive compensation recommendations are made by our Compensation Committee to the independent members of the Board of Directors for approval.

 

The Compensation Committee recommends to the independent members of the Board of Directors for approval all compensation decisions for the Named Executive Officers, including the grant of equity awards. Our CEO provides recommendations to the Compensation Committee for consideration with respect to the compensation decisions for the other Named Executive Officers. The CEO is assisted in the development of the pay recommendations by our Executive Vice President, Chief Human Resources Officer. The compensation consultant provides recommendations to the Compensation Committee for consideration with respect to the compensation decisions for the CEO. The Compensation Committee annually reviews and recommends to the Board for approval the compensation decisions with respect to the Named Executive Officers to help ensure such persons are fairly compensated based upon their performance and contribution to the Company’s growth, profitability and total stockholder return and that such compensation decisions support the Company’s objectives and stockholder interests.

 

Prior to our spin-off, the members of our Board of Directors served on the Board of Directors for Guaranty Bank, then a subsidiary of Temple-Inland. The Guaranty Bank Board completed an evaluation of Mr. Dubuque’s performance based on information confidentially compiled from each bank Board member. The evaluation addressed, among other things, financial performance and non-financial goals such as leadership, ethics, strategic planning, succession planning, human capital management, communications, and Board relations. The CEO’s compensation for 2007 was determined by the Temple-Inland Compensation Committee based on a formula that compared return on investment to earnings before interest and taxes.

 

We will employ a similar process as a stand-alone company beginning in 2008. Our Board of Directors will complete an evaluation of the CEO based upon information confidentially compiled from each Board member. The evaluation criteria will remain the same as outlined above, and shall also include an investor relations assessment category. The information will be provided to the Compensation Committee. Our independent directors, based on recommendations from the Compensation Committee and a recommendation from our compensation consultant, will determine the CEO’s total compensation, consistent with the terms of his employment agreement.

 

We understand that our parent company obtained benchmarking data from their compensation consultant, Hewitt, to assist them in making compensation decisions for our CEO during 2007. However, our other NEOs were division executives during 2007 for our former parent, and they were not part of the Temple-Inland benchmarking study. Prior to the spin-off, we worked with Hewitt to develop a peer group of companies that could be used as preliminary benchmark comparators for the other four NEOs. Following the spin-off, our management and Hay Group, Inc. developed a compensation peer list from which our compensation decisions for 2008 could be benchmarked (the “Compensation Peer Group”). The development of the Compensation Peer Group was driven by analyzing the following factors:

 

 

 

While the Compensation Peer Group differs from the financial peers with whom we may compare financial performance, we believe that the growth-focus of the Compensation Peer Group makes that group more relevant for purposes of our compensation benchmark analysis. A listing of the Compensation Peer Group is shown below, and those companies that also appear in our financial peer group are asterisked.

 

 

Our Compensation Committee has reviewed and approved the Compensation Peer Group and expects that this list will continue to be evaluated and adjusted in future years. In developing recommendations for Named Executive Officer compensation for 2008, our Compensation Committee utilized the Compensation Peer Group data as guidance for determining total compensation, targets and the mix of compensation elements (for example, base salary, annual bonus and long-term incentives), but focused on earnings growth as the primary driver for setting targets and making awards for each Named Executive Officer. The peer companies’ information was a reference point, but not the determining factor, in this regard.

 

We aim to target the total compensation to be paid to each of the Named Executive Officers between approximately the 50th and 75th percentiles of total compensation paid to similarly situated executive officers of the companies comprising the Compensation Peer Group, as adjusted for size. Our policy for allocating total compensation between base salary and incentive awards is to position base salary compensation at approximately the 50th percentile of base salary compensation paid to similarly situated executive officers of the companies comprising the Compensation Peer Group and total compensation at the 75th percentile of total compensation paid to similarly situated executive officers of the companies comprising the Compensation Peer Group. We believe that this allocation properly reflects our emphasis on linking the incentive compensation to Company performance and results.

 

We expect to continue to employ several methods to benchmark our executive compensation practices against other companies, including:

 

 

The compensation program for our Named Executive Officers consists of the following components:

 

 

 

The 2007 compensation program for our Named Executive Officers was influenced by our role as a subsidiary of Temple-Inland. The 2007 program rewarded executives responsible for managing businesses from distinctly different industries. Each of those distinct businesses contributed towards the aggregate performance of the parent company. However, since our company was not yet a stand-alone company, the long-term incentive component of executive compensation for 2007 was comprised of Temple-Inland stock, the performance of which was only partially influenced by our Company. We believe that this contributed towards an executive compensation program which placed greater emphasis on annual cash bonus compensation, which was more directly influenced by our Company’s individual performance, as opposed to the performance of our parent company.

 

For 2008, our Compensation Committee desires to align the compensation mix for our Named Executive Officers with total stockholder return. Our Compensation Committee intends to utilize a higher percentage of equity-based compensation and a lower percentage of cash bonuses in relation to total compensation. The table below reflects compensation prior to the spin-off for our Named Executive Officers (other than our President and CEO) as well as the approximate compensation mix that we intend to gradually achieve following the next several compensation cycles.

 

 

Our compensation program generally utilizes the same metrics and competitive market analysis for each Named Executive Officer. While the total amount of compensation to each Named Executive Officer will vary according to specific job responsibilities, the measurement criteria is identical and is based on Company-wide measurements.

 

 

In August 2007, our CEO’s salary was increased, effective January 1, 2008, pursuant to his employment agreement described below. In February 2008, our Compensation Committee approved base salary increases, also effective January 1, 2008, of our other Named Executive Officers to remain competitive with market practices, support executive recruitment and retention objectives and establish relative internal equity among Named Executive Officers. These increases are intended to reflect the additional responsibilities that are associated with the new roles of our Named Executive Officers as managers of a stand-alone, publicly-traded company. In addition, we believe these increases are consistent with the practice among our competitors as reflected in the Compensation Peer Group analysis described above.

 

 

Our Compensation Committee strives to maintain salaries at competitive levels considering an individual’s performance and contributions to our success. To ensure that our compensation remains competitive, the Compensation Committee from time to time will review information from independent surveys of peer group companies. Since the acquisition and retention of top-quality talent is imperative to our success, such survey reviews will be national in scope. The Compensation Committee will also periodically request data be compiled by the compensation consultant to establish a relationship between compensation and earnings from the Compensation Peer Group companies, from which a market value of pay can be calculated. The compensation consultant may use

a statistical technique known as regression analysis to qualify the comparisons from the Compensation Peer Group. Salaries will be reviewed periodically. In making its salary decisions, the Compensation Committee will place its emphasis on the particular Named Executive Officer’s experience, responsibilities, and performance. No specific formula will be applied to determine the weight of each factor. Our Compensation Committee intends to use incentive bonus awards rather than base salary to reward outstanding performance.

 

Yes. We have adopted an incentive bonus plan in which our Named Executive Officers participate. Under the bonus program, the Named Executive Officers are eligible to receive a bonus payment if performance meets pre-established performance criteria. The Compensation Committee retains discretion to pay less than the amount indicated by any bonus formula that is adopted. The Compensation Committee does not have the discretion to increase payments after the performance criteria have been established for the performance period. In general, bonus criteria for the Named Executive Officers relates to the achievement of our overall goals, which are approved by the Compensation Committee. For 2008, the Compensation Committee has established target bonus levels for each of the Named Executive Officers based on the achievement of performance goals relating to pre-tax operating ROA, growth in loans, core deposits and fees, and other specified strategic initiatives.

 

In February 2007, our Named Executive Officers received stock incentive awards under the terms and conditions of the Temple-Inland Stock Plan. The amounts and value of those awards are categorized in the compensation tables below. The selection of award recipients from our Company was made by our CEO, and the size and composition of the final awards was approved by Temple-Inland’s Compensation Committee. As reflected in the tables below, our CEO received a special award from Temple-Inland in May 2007 (please refer to the “What were the compensation actions in preparation for spin-off?” section below for further discussion regarding this award).

 

At the time of the spin-off from Temple-Inland, we adopted the SIP, an incentive stock plan. For performance-based equity grants, we will use performance metrics that are appropriate for the size, scope and industry of our Company. From time to time, we may grant equity awards to our Named Executive Officers outside the annual award process, such as in connection with the hiring of a new executive, for retention purposes, to reward exemplary performance, and/or for promotional recognition. We do not have a program, plan, or practice specifically designed to coordinate the grant of ad hoc awards with the release of information about us. We have adopted a process to standardize the grant dates for our equity awards and to ensure that there is no potential discretion in selecting the timing of the awards and specific grant dates.

 

Our Compensation Committee has the authority to recommend grants of various types of awards to employees under the SIP. All SIP award recommendations of the Compensation Committee are subject to ratification by the independent members of the Board. These types of awards include stock options, stock appreciation rights, restricted stock, RSUs, performance units, other stock-based awards or any combination of those awards. The SIP provides that awards may be made under the SIP for ten years following the spin-off. The maximum number of shares that can be granted to an employee during any calendar year under the SIP is the number of shares that do not exceed $3 million based on the Company’s closing stock price on the NYSE on the date of grant.

 

Stock options.  Subject to the terms and provisions of the SIP, options to purchase our common stock may be granted to eligible individuals at any time and from time to time as recommended by our Compensation Committee. Options may be granted as incentive stock options within the meaning of Section 422 of the Internal Revenue Code (the Code), or as non-qualified stock options. Subject to the limits provided in the SIP, our Compensation Committee recommends the number of options granted to each recipient. Each option grant will be evidenced by a stock option agreement that specifies whether the options are intended to be incentive stock options or non-qualified stock options and such additional limitations, terms and conditions as our Compensation Committee may recommend.

 

The exercise price for each option granted is determined in accordance with the method as defined in the SIP, except that the option exercise price may not be less than 100% of the fair market value of a share of our common stock on the date of grant. All options granted under the SIP will expire no later than ten years from the date of grant.

The method of exercising an option granted under the SIP will be set forth in the stock option agreement for that particular option.

 

The SIP provides that a stock option agreement evidencing the award of stock options may contain limitations on the exercise of options under certain circumstances upon or after the termination of employment or in the event of death or disability. Stock options are nontransferable except by will or by the laws of descent and distribution or, in the case of non-qualified stock options, as otherwise expressly permitted. The granting of an option does not afford the recipient the rights of a stockholder, and such rights accrue only after the exercise of an option and the registration of shares of our common stock in the recipient’s name.

 

Restricted stock.  The SIP provides for the award of shares of our common stock that are subject to forfeiture and restrictions on transferability, or Restricted Stock, as set forth in the SIP and as may be otherwise recommended by our Compensation Committee. Except for these restrictions and any others imposed, upon the grant of Restricted Stock the recipient will have rights of a stockholder with respect to the Restricted Stock, including the right to vote the Restricted Stock and to receive all dividends and other distributions paid or made with respect to the Restricted Stock. During the restriction period, the recipient may not sell, transfer, pledge, exchange or otherwise encumber the Restricted Stock. Any award of Restricted Stock will be subject to vesting during a restriction period following the date of grant, and vesting may be conditioned upon the achievement of service or performance goals recommended by our Compensation Committee.

 

Restricted stock units.  The SIP authorizes our Compensation Committee to recommend that the Board of Directors grant RSUs. Restricted stock units are not shares of common stock and do not entitle the recipients to the rights of a stockholder, but rather entitle the holder upon their settlement to the value of one share of our common stock. Restricted stock units granted under the SIP may or may not be subject to performance conditions. The recipient may not sell, transfer, pledge or otherwise encumber RSUs granted under the SIP prior to their vesting. Restricted stock units will be settled in cash, in an amount based on the fair market value of our common stock on the settlement date. Any award of RSUs will be subject to vesting during a restriction period following the date of grant, and vesting may be conditioned upon the achievement of certain service or performance goals recommended by our Compensation Committee.

 

Performance units.  The SIP provides for the award of performance units. The payment of the value of a performance unit is conditioned upon the achievement of performance goals applicable to the grant and may be paid in cash, shares of our common stock, or a combination thereof. The maximum value of the cash that may be paid to a participant pursuant to a performance unit granted in any year is $5 million.

 

Other stock-based awards.  The SIP also provides for grants of other stock-based awards under the plan with terms recommended by our Compensation Committee.

 

Performance goals.  The SIP provides that performance goals may be established by the Compensation Committee in connection with the grant of Restricted Stock, RSUs, performance units or other stock-based awards. In the case of an award intended to qualify for the performance-based compensation exception of Section 162(m) of the Code, such goals shall be based on the attainment of specified objective goals that the Compensation Committee recommends. Performance goals may be absolute in their terms or measured against or in relationship to other companies. Performance goals may be particular to an award recipient or the department, branch, affiliate, or division in which the participant works, or may be based on the performance of the Company, one or more affiliates, or the Company and one or more affiliates, and may cover such period as the Compensation Committee may specify. Such performance goals will be set by our Compensation Committee within the time period and other requirements prescribed by Section 162(m) of the Code and the regulations promulgated thereunder.

 

2008 grants.  In February 2008, our Compensation Committee recommended approval of annual stock incentive awards of Restricted Stock to the Named Executive Officers. In order to further focus the efforts of our Named Executive Officers on our immediate and long-term success following the spin-off, our Compensation Committee recommended approval of special one-time stock incentive awards of Restricted Stock to the Named

Executive Officers. These recommendations were approved by the independent directors of the Board, and are described in the table below:

 

 

We believe that the use of stock incentive awards properly aligns the focus of our Named Executive Officers with stockholders’ interests. We also believe that there exists a high correlation between officer retention and the granting of stock incentive awards that vest over a multi-year timeframe. Each of the stock incentive awards to the Named Executive Officers includes a vesting requirement with respect to 50% of the award, which is tied to improvement in the average after-tax ROE over a three-year period. In addition, the stock incentive awards for the Named Executive Officers have a minimum threshold of annual after-tax earnings that must be met in each of four years in order to earn the remaining 50% of their award. We believe that these two performance criteria create a clear focus for the Named Executive Officers to increase shareholder value. We believe that significant improvement in our ROE should lead to successful achievement of our strategic initiatives.

 

Our policy for setting the timing of stock option grants does not allow executives to have any role in choosing the price of their options or other stock awards. We do not “back date,” “spring load” or reprice options or other stock awards. Our general practice is to make annual grants each year at the February Board meeting. The Compensation Committee makes a recommendation and the independent members of the Board of Directors have final approval authority of awards, including the specific number of shares granted to specific individuals. These grants are valued at the closing price of our common stock on the NYSE on the Board meeting date. On occasion, newly hired high-level employees may be granted awards in connection with the start of their employment other than at the February Board meeting. Any such grants are priced at the closing price of our common stock on the NYSE on the date of the Board meeting at which the award is approved. We do not have any program, plan or practice to time option grants or other stock awards in coordination with the release of material non-public information nor do we time the release of material nonpublic information for the purpose of affecting the value of executive compensation.

 

Yes. To further align our executives’ financial interests with those of our stockholders, we have adopted the following minimum stock ownership guidelines for our Named Executive Officers:

 

Value of Ownership of Stock as a Multiple of Annual Salary

 

 

Shares owned by the executive and their immediate family members, shares held in our 401(k) plan and restricted stock and performance stock units will count toward the ownership guidelines. Our Named Executive Officers will have the later of five years (1) following the spin-off or (2) following the date on which they were initially elected as an officer of the Company to meet the stock ownership guidelines.

 

Yes. Prior to the spin-off, our Named Executive Officers participated in the Temple-Inland Financial Services Savings and Retirement Plan, our former parent’s plan. Following the spin-off, the plan name was changed to the Guaranty Financial Group Inc. Savings and Retirement Plan and our Named Executive Officers continue to participate in this plan. Guaranty became the plan sponsor and adopted a new matching formula — for each dollar that an employee, including a Named Executive Officer, contributes to his or her 401(k) account, we contribute a match of $2 up to 2% of the employee’s compensation and we match 100% of each of the next 2% of an employee’s compensation that is contributed to the plan, plus a discretionary profit sharing contribution of up to 2% based on achieving certain profitability targets. The match is vested 100% after two years of employment. Our 401(k) plan does not grant extra years of credited service to executives.

 

Yes. Prior to the spin-off, our Named Executive Officers participated in the Guaranty SERP. Following the spin-off, our Named Executive Officers participate in our SERP. The Code limits the amount of compensation that can be used in calculations under a tax-qualified defined contribution retirement plan such as our 401(k) plan. In 2007, this limit was $225,000 and in 2008 this limit is $230,000. If we make a discretionary profit sharing contribution to the 401(k) plan, we will credit under a SERP an amount equal to 2% of the executive’s pay in excess of this limit. The SERP, which is not a tax qualified plan, will be unfunded and contains a provision for acceleration of payment in the event of a change in control. The SERP does not cover pay that is based on commissions.

 

Yes. In 2008, our Named Executive Officers receive payments for premium costs under an umbrella liability policy with coverage of $5 million, and we reimburse the cost of premium for Long Term Disability coverage at 70% level coverage in our Health and Welfare Plan (described below). Our Named Executive Officers also receive a $5,000 allowance annually to cover the cost of a comprehensive physical examination because the Compensation Committee believes that there is a significant value and protection to our Company in assuring that our Named Executive Officers receive annual comprehensive physical examinations.

 

We do not provide personal use of aircraft, reimbursement for dues to luncheon or country clubs, or car allowance to our Named Executive Officers. Exceptions may be considered relating to the personal use of aircraft by our Named Executive Officers due to an extenuating circumstance, which will be disclosed and reviewed by our Board of Directors and will be accounted for in accordance with IRS regulations.

 

Yes. We offer the same health and welfare benefits to our Named Executive Officers as we do to all of our employees. These benefits include medical, dental, vision, life insurance, salary continuation for short-term disability, long-term disability, accidental death and dismemberment insurance, dependent care spending account, health care spending account, health savings account, and employee assistance program.

 

Yes. We have entered into change in control agreements with our Named Executive Officers and other executives. The CEO is party to an employment agreement whose terms are summarized below under “ What were the Compensation Actions in Preparation for the Spin-off — Employment Agreement,” which contains change in control protections. We believe that the change in control agreements will help us to attract and retain our Named Executive Officers by reducing the personal uncertainty that arises from the possibility of a change in control of our Company. During a potential change in control, we do not want executives leaving to pursue other employment out of concern for the security of their jobs. To enable our Named Executive Officers to focus on the best interest of our stockholders, we offer change in control agreements that generally provide severance benefits to Named Executive Officers whose employment terminates as a result of a change in control. These agreements generally require a “double trigger” of both a change in control and a termination of employment before any benefits are paid.

For the first two years following the spin-off, however, only a qualifying termination of employment (as defined in the agreements) is required for the Named Executive Officers with change in control agreements because we assumed the responsibility for their Temple-Inland change in control agreements at the spin-off. Mr. Dubuque had a severance contract with Temple-Inland requiring payment of three times his compensation and all other Named Executive Officers had severance contracts with Temple-Inland requiring payments of twice their compensation upon a qualifying termination of employment following a change in control of Temple-Inland.

 

In February 2008, our Compensation Committee recommended and the independent directors approved a change in control agreement to supplement the existing change in control agreements for the Named Executive Officers. Under the existing change in control agreement, if a Named Executive Officer were to experience a qualifying termination of employment, he or she would be entitled to, among other things, a severance payment of two times salary and bonus, two years of continued health and welfare benefits and perquisites and two years of service credits for certain benefits. Under the supplemental agreement, upon such a qualifying termination of employment, the officer would be entitled to a severance payment of one times salary and bonus, one year of continued health and welfare benefits and perquisites and one year of imputed service credits. This is in addition to the payments and benefits the Named Executive Officer would receive under the existing change in control agreement. The supplemental change in control agreement requires the executive to sign a release in order to receive the additional benefits and pay set forth in the agreement. Although the supplemental agreements are not yet effective, we anticipate that the Named Executive Officers will enter into the supplemental change in control agreements. Mr. Dubuque’s agreement remains as stated above.

 

The amount of severance and benefits under the change in control agreements was determined based on competitive market practices for executives at this level. Executives at this level generally require a longer timeframe to find comparable jobs because there are fewer jobs at this level in the market. The executives often have a large percentage of their personal wealth dependent on the status of our Company, given the requirement to hold a multiple of their salary in stock and the fact that a large part of their compensation is stock-based.

 

Severance benefits are generally negotiated with a particular executive and the amount depends on the circumstances of his or her departure. The CEO is the only executive who has an employment agreement with pre-established severance benefits, other than the change in control agreements discussed above.

 

If an executive leaves under circumstances that call into question whether any compensation amounts paid to him or her were validly earned, we would pursue any legal rights we deemed appropriate in the circumstances.

 

Section 162(m) of the Code generally limits the tax deductibility of compensation of the CEO and the three other most highly compensated executive officers (other than the CFO) of a publicly-held company to $1 million per executive. There is an exception to the limit on deductibility for performance-based compensation that meets certain requirements. We intend that compensation paid to our Named Executive Officers not be subject to the limitation on tax deductibility under Section 162(m) of the Code so long as this can be achieved in a manner consistent with our other compensation objectives.

 

For accounting purposes, salaries, bonuses, the fair value of stock based compensation and other benefits are charged to expense as earned. For tax purposes, salaries, bonuses and other benefits are taken as a tax deduction when paid to the executive or contributed to a tax-qualified retirement plan subject to the Section 162(m) limitation described above. For tax purposes, stock based compensation awards are generally taken as a tax deduction when the award is vested or exercised by the executive.

 

Yes, tally sheets for each of the Named Executive Officers are reviewed by the Compensation Committee and the independent directors of the Board for compensation each year. These tally sheets list the executive’s salary, proposed bonus and stock awards, and the 401(k) matching contribution, SERP retirement, health and welfare benefits.

 

Our Compensation Committee which is composed entirely of independent directors reviews our compensation programs and philosophies. Our Executive Vice President, Chief Human Resources Officer and President and Chief Executive Officer provide information to the Compensation Committee. These executives consult with the other executive officers about compensation amounts for executives and other employees who report to them. The Compensation Committee makes a recommendation and the independent members of the Board of Directors have final approval authority of all compensation plans. The President and CEO does not participate in discussions regarding his own compensation.

 

The Compensation Committee establishes, administers, and approves bonus programs for non-executive employees and approves the aggregate amount of bonus pools for each business segment. Each executive officer recommends individual bonus amounts for employees under his or her direction, and the Senior Executive Vice President or Executive Vice President in charge of the applicable business segment approves the individual amounts.

 

The Compensation Committee makes a recommendation and the independent members of the Board of Directors have final approval authority of all stock award recipients and the amount of each award. No executive is involved in setting the exercise price of the awards.

 

The Compensation Committee has delegated to the President and CEO the responsibility for approving health and welfare programs for all employees. Executive officers participate in the same health and welfare programs as other employees. Our benefit programs require executives who earn more to pay more for their benefits.

 

The Compensation Committee has also delegated to certain of our Company’s management the responsibility to maintain the tax qualification status of the 401(k) plans, to approve 401(k) plan provisions and formulas and to oversee its administration. In addition, an investment committee is appointed and the members of this committee oversee the investment of 401(k) plan fund choices. The investment committee reports annually to the Board.

 

Yes. Our Compensation Committee has recommended and the Board has ratified the payment of regular quarterly dividends on restricted stock equivalents based on dividends paid on our common stock. The restricted stock is treated by us as owned by the executive on the grant date and awards are subject to forfeiture if the executive leaves before the vesting period is over or minimum performance criteria is not met. Therefore, the executive receives the benefit of dividends until such time as he or she forfeits the stock. In that way, the executive is treated as though he or she is a stockholder, which aligns his or her interest with our stockholders. It is also a retention incentive, because executives will have to weigh the possibility of losing the dividends if they do not stay through the vesting period.

 

Yes. Our executive officers are required to hold 100 percent of the net shares acquired through the exercise of options in Guaranty stock until they meet our ownership guidelines. The Compensation Committee maintains discretion to reduce or eliminate future long-term incentive awards for an executive who is not making adequate progress toward meeting the stock ownership guidelines or does not retain the required level of net shares acquired through the exercise of options in our stock.

 

No. Gains from exercising stock options, the vested value of restricted stock, RSUs or performance stock units, or dividends on restricted stock or performance stock units are not considered in setting other benefits such as life insurance, or disability benefits.

 

Yes. Prior to the spin-off eligible employees participated in the Temple-Inland Foundation matching gifts program, which matched donations made by employees and directors 3-for-1 for the first $1,000; 2-for-1 for the next $1,000; and 1-for-1 for the next $1,000, for total possible matching donations of up to $6,000 per person. Following the spin-off, full-time employees, including our Named Executive Officers, with at least one year of service are eligible to participate in the Guaranty Foundation Matching Gifts Program. Our non-employee directors are also eligible to participate in this program. Contributions must be at least $25 up to a maximum of $2,500. The Guaranty Foundation will match each dollar contributed, on a dollar-for-dollar basis, up to $2,500 in total each year for each qualifying full-time employee. For example, on a $1,000 contribution to a qualified charitable organization, Guaranty Foundation will match that gift, on a dollar-for-dollar basis, increasing the total gift to $2,000. Contributions must be made individually from personal funds and pooling of contributions is not permitted.

 

Base salary.  The increase in our CEO’s salary was a term of his employment agreement described below and became effective January 1, 2008.

 

Mr. Dubuque’s historical pay differs from the historical pay of the other Named Executive Officers for several reasons. First, as CEO of the financial services business unit within Temple-Inland, Mr. Dubuque’s stock award level under the Temple-Inland plan was higher than those available to division-level executives such as our other Named Executive Officers. Second, as an executive officer of Temple-Inland, Mr. Dubuque participated in a Temple-Inland Supplemental Executive Retirement Plan that was not available to our other Named Executive Officers. Mr. Dubuque also participated in a deferred compensation program at Temple-Inland that allowed him to defer his annual bonus and receive additional stock credits for the amounts deferred. None of our other Named Executive Officers deferred their annual bonuses.

 

Equity award.  On May 4, 2007, Mr. Dubuque was given an award of 30,000 Temple-Inland RSUs that would have vested on May 4, 2010. Mr. Dubuque’s RSUs were canceled on August 9, 2007 and new units in the same amount and vesting at the original vesting date were issued so that the 1% minimum ROI criteria could be updated (1% ROI over fiscal years 2008, 2009, and 2010). The RSUs have a potential vesting date of May 4, 2010. As a result of the spin-off, the original RSUs were split into three portions on a 1-for-3 ratio for each of the three companies (Temple-Inland, Guaranty and Forestar). The compensation committees of each of the companies will determine in May 2010 whether the ROI performance criteria have been met by their company and will determine at that time whether to pay the awards or exercise their negative discretion.

 

Employment agreement.  We executed an employment agreement with Mr. Dubuque on August 9, 2007 that became effective as of the spin-off. The agreement has a three-year term, but is automatically extended by one year on the first anniversary of the effective date and each anniversary thereafter unless notice of nonrenewal is given at least one year in advance of such anniversary date.

 

During the term of the agreement, Mr. Dubuque will receive a base salary, which may not be reduced below its level at the time the agreement became effective ($650,000) or any increase subsequently granted. He will be eligible for a performance-based annual cash bonus, employee benefits, equity awards, and other perquisites. Other perquisites consist of personal umbrella liability insurance, premium for Long Term Disability insurance and allowance for comprehensive physical. There are no parameters on the performance-based annual cash bonus, such as a maximum amount, and it is entirely within the discretion of our Compensation Committee except that it shall be substantially no less favorable than the bonus program applicable to our other senior executives.

 

Upon a qualifying termination of employment (defined generally in the same manner as under the change in control agreements described in the “Do we offer change in control agreements” section) during the first two years

following the effective date of the agreement or within two years following a change in control (defined in the same manner as under the change in control agreements described above), Mr. Dubuque would be entitled generally to the same benefits (including excise tax gross-up protection) as described above under the change in control agreements, except that Mr. Dubuque would receive a multiple of three times pay and benefits, and also would be credited with three extra years of service for purposes of determining his eligibility for any retiree medical or life insurance benefits. If Mr. Dubuque were to experience such a qualifying termination of employment after the first two years of the agreement and not within two years following a change in control, he would be entitled to those same benefits, except that the severance would be based on two times salary and bonus, health and welfare benefits and perquisites would continue for two years, and imputed service credit would be limited to an additional two years. Upon termination of employment for death or disability, Mr. Dubuque would receive a cash lump-sum payment equal to the sum of his annual base salary and a pro-rata portion of his target bonus. Mr. Dubuque would be required to execute a release of claims, and he has agreed that he will not compete with us for two years following his termination of employment for any reason.

 

Retirement benefits.  Following the spin-off, Mr. Dubuque received a distribution in January 2008 of $2,415,399 of all amounts he had accrued under the Temple-Inland SERP and he also received a distribution of 130,132 shares of Temple-Inland common stock for past years’ bonuses he previously deferred under Temple-Inland’s deferred bonus program. These amounts were paid by Temple-Inland. Mr. Dubuque also received 43,376 shares of Guaranty common stock and 43,376 shares of Forestar common stock for past years’ bonuses he previously deferred under Temple-Inland’s deferred bonus program.

 

Pre-spin-off equity awards.  Each of the Named Executive Officers were granted stock options and other equity awards with respect to Temple-Inland common stock during periods prior to the spin-off. Details with respect to such grants as of the end of 2007 are included in the tables below.

 

In connection with our spin-off and the spin-off of Forestar from our former parent company, all outstanding options were equitably adjusted effective December 28, 2007 into three separate options: one relating to our common stock, one relating to Forestar common stock, and one relating to Temple-Inland common stock. The adjustment was made so that immediately following the distribution the number of shares relating to each option and the per share option exercise price of the original Temple-Inland stock option was proportionally allocated among the three types of stock options based upon the distribution ratios and relative per share trading prices of the Forestar, Guaranty, and Temple-Inland common stock immediately following the distribution. All Forestar and Guaranty options issued as part of this adjustment and the Temple-Inland options continue to be subject to their original vesting schedules. Further, for purposes of vesting and the post-termination exercise periods applicable to such stock options, Temple-Inland’s Compensation Committee determined that continued employment with Forestar, Guaranty, or Temple-Inland will be viewed as continued employment with the issuer of the options.

 

Restricted stock and RSUs and performance stock units have been adjusted in the same manner that stockholders of Temple-Inland had their shares adjusted, including participation in quarterly dividends and special dividends, and will continue to vest over the normal vesting cycle. These equitable adjustments were intended to preserve the economic value of the awards immediately prior to the spin-off.

 

The following tables contain compensation information for services in all capacities to Temple-Inland prior to the spin-off and to Guaranty after the spin-off for the periods shown for our Named Executive Officers. All of the information included in those tables reflects compensation earned by the individuals for services with Temple-Inland prior to the spin-off and with Guaranty after the spin-off for the periods shown. All references in the following tables to stock options, Restricted Stock, PSUs, and RSUs relate to awards of stock options, Restricted Stock, PSUs and RSUs granted by Temple-Inland in regard to Temple-Inland common stock.

 

We believe Temple-Inland’s Compensation Committee generally attempted to maintain a balance between the different elements of compensation, but that it did not establish specific allocation formulae to determine the proportion of each element of compensation in relation to the other elements.

Cash bonus.  Under a plan approved by Temple-Inland stockholders, Temple-Inland’s Compensation Committee established a potential maximum bonus award for Mr. Dubuque equal to the cash value of 150,000 phantom shares of Temple-Inland common stock. Under the bonus formula, Mr. Dubuque was eligible to receive a bonus if performance exceeded pre-established return criteria. Temple-Inland’s Compensation Committee retained the discretion to pay less than the maximum amount indicated by the formula based on equitable comparisons with Temple-Inland officers and other business segment executives. In light of these considerations, Temple-Inland’s Compensation Committee used its discretion to set Mr. Dubuque’s 2007 bonus at $550,000.

 

For our other employees, including the other Named Executive Officers, a bonus pool of no more than 9% of Guaranty’s pre-tax earnings was determined based on our pre-tax return on equity and change in pre-tax earnings levels. Each year, the bonus pool was increased or decreased 10% for every one percentage point change in our return on equity as compared with the prior year. The resulting pool was then allocated to individual employees with 60% based on the employee’s line of business performance and the remainder based on Guaranty’s performance. Mr. Dubuque prepared the recommended allocations, including those for the other Named Executive Officers, which were reviewed and approved by our Compensation Committee.

 

Stock awards.  Under plans approved by Temple-Inland stockholders prior to the spin-off, Temple-Inland’s Compensation Committee could grant three types of stock awards to executive officers: options, RSUs, and performance stock units. A dollar value was established for the stock awards in consultation with Temple-Inland’s compensation consultant after reviewing competitive market data for similar executives at other companies. This market data included a review of proxy data and survey data compiled by Temple-Inland’s compensation consultant, Hewitt Associates. The dollar value of the awards could be at or above the mid-range of what other companies may offer in any given year. RSUs contained a minimum return threshold, while performance units would only be paid if Temple-Inland’s performance was in the top half compared with its peer group. Prior to the spin-off, the Temple-Inland Compensation Committee converted all outstanding performance stock units to RSUs with 1% minimum ROI criteria. We believe the Temple-Inland Compensation Committee also considered previous grants, tenure, and responsibilities of the executives.

 

The amounts and forms of compensation reported below do not necessarily reflect the compensation our Named Executive Officers will receive following the spin-off. Future compensation levels will be determined based on the compensation policies, programs and procedures established by our Compensation Committee, and approved by the independent directors of the Board.

 

The following table summarizes all compensation earned in 2007 by our Chief Executive Officer, our Chief Financial Officer, and our three most highly compensated executive officers, other than our Chief Executive Officer and our Chief Financial Officer, who were serving as executive officers at year-end 2007: