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

 

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Filed by a party other than the Registrant o

 

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o  Preliminary Proxy Statement

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

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to Rule 14a-12

 

SPRINT NEXTEL CORPORATION

(Name of Registrant as Specified In Its Charter)

 

 

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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT

MAY 10, 2011

 

We will hold the annual meeting of shareholders of Sprint Nextel Corporation on Tuesday, May 10, 2011 at 10:00 a.m. Central time at The Ritz Charles, Overland Park, 9000 W. 137th Street, Overland Park, Kansas 66221 (913-685-2600).

 

The purpose of the annual meeting is to consider and take action on the following:

 

 

 

 

We are taking advantage of Securities and Exchange Commission rules that allow us to furnish proxy materials to you via the Internet. Unless you have already requested to receive a printed set of proxy materials, you will receive a Notice Regarding the Availability of Proxy Material, or Notice. The Notice contains instructions on how to access proxy materials and vote your shares via the Internet or, if you prefer, to request a printed set of proxy materials at no additional cost to you. We believe that this approach provides a convenient way for you to access your proxy materials and vote your shares, while lowering our printing and delivery costs and reducing the environmental impact associated with our annual meeting.

 

Shareholders of record as of March 11, 2011 can vote at the annual meeting. On or about March 28, 2011, we mailed the Notice or, for shareholders who have already requested to receive a printed set of proxy materials, this proxy statement, the accompanying proxy card and the annual report on Form 10-K for the year ended December 31, 2010. Please vote before the annual meeting in one of the following ways:

 

 

Your vote is very important. Please vote before the meeting using one of the methods above to ensure that your vote will be counted. Your proxy may be revoked at any time before the vote at the annual meeting by following the procedures outlined in the accompanying proxy statement.

 

By order of the Board of Directors,

 

James H. Hance, Jr.

Chairman of the Board of Directors

 

Overland Park, Kansas

March 28, 2011

 

TABLE OF CONTENTS

 

 

These proxy materials are delivered in connection with the solicitation by our board of directors of proxies to be voted at our annual meeting of shareholders, which will be held at The Ritz Charles, Overland Park, 9000 W. 137th Street, Overland Park, Kansas 66221 at 10:00 a.m. Central time on Tuesday, May 10, 2011. On or about March 28, 2011, we mailed to our shareholders entitled to vote at the meeting the Notice or, for shareholders who have already requested to receive printed materials, this proxy statement, the accompanying proxy card and the annual report on Form 10-K for the year ended December 31, 2010. Our principal executive offices are located at 6200 Sprint Parkway, Overland Park, Kansas 66251.

 

At the annual meeting, shareholders will be asked to:

 

 

The close of business on March 11, 2011 has been fixed as the record date for the determination of shareholders entitled to notice of, and to vote at, the 2011 annual meeting or any adjournments or postponements of the 2011 annual meeting.

 

As of the record date, the following shares were outstanding and entitled to vote:

 

 

A complete list of shareholders entitled to vote at the 2011 annual meeting will be available for examination by any shareholder at 6200 Sprint Parkway, Overland Park, Kansas 66251 for purposes pertaining to the 2011 annual meeting during normal business hours for a period of ten days before the annual meeting and at the time and place of the annual meeting.

 

You are a “record holder” if you hold our shares directly in your name through our transfer agent, Computershare Trust Company, N.A. as a shareholder of record. If you hold our shares through a broker, bank,

financial institution, trust or other nominee, then you are a holder of our shares in “street name.” If you hold your shares in “street name,” you must instruct the broker or other nominee about how to vote your shares.

 

A broker “non-vote” occurs when a shareholder holding in “street name” fails to provide voting instructions to his or her broker or other nominee. Under the rules of the New York Stock Exchange, or NYSE, if you do not provide such instructions, the firm that holds your shares will have discretionary authority to vote your shares with respect to “routine” matters. Of the seven items to be considered at our annual meeting, only the appointment of KPMG (Item 2) is considered “routine.” Those non-routine items for which a shareholder’s broker or other nominee does not have discretion to vote are treated as broker “non-votes.”

 

Important:  Under current NYSE rules, your broker can no longer vote your shares for the election of directors without your instructions. If you do not provide voting instructions to your broker, your shares will not be voted or counted towards any of the items other than Item 2 (Appointment of KPMG). It is, therefore, particularly important that you instruct your brokers how you wish to vote your shares.

 

In order to carry on the business of the meeting, we must have a quorum. A quorum requires the presence, in person or by proxy, of the holders of a majority of the votes entitled to be cast at the meeting. We count abstentions and broker “non-votes” as present and entitled to vote for purposes of determining a quorum.

 

Required Vote to Elect the Directors (Proposal 1; Item 1 on the Proxy Card)

 

Each of the ten nominees for director will be elected as a director if the votes cast for each such nominee exceed the number of votes against that nominee, assuming that there is a quorum represented at the annual meeting. A summary of our majority voting standard appears on page 24 under “Board Committees and Director Meetings — The Nominating and Corporate Governance Committee — Majority Voting.”

 

Required Vote to Ratify the Appointment of KPMG as our Independent Registered Public Accounting Firm (Proposal 2; Item 2 on the Proxy Card)

 

The affirmative vote of a majority of votes cast in person or by proxy by holders of our shares entitled to vote on the matter is required to ratify the appointment of KPMG as our independent registered public accounting firm for 2011.

 

Required Vote to Approve the Non-Binding Advisory Vote on our Executive Compensation (Proposal 3; Item 3 on the Proxy Card)

 

The affirmative vote of a majority of votes cast in person or by proxy by holders of our shares entitled to vote on the matter will constitute the shareholders’ non-binding approval with respect to our executive compensation programs. The board will review the voting results and take them into consideration when making future decisions regarding executive compensation, but the results will not be binding on us.

 

Required Vote to Recommend, by a Non-Binding Advisory Vote, for the Frequency of Advisory Votes on our Executive Compensation (Proposal 4; Item 4 on the Proxy Card)

 

This proposal allows shareholders to indicate their preference for whether the advisory vote on executive compensation in Item 3 above should be held every one, two or three years, or to abstain from the vote. The frequency option that receives the highest number of votes cast will be considered the preferred frequency. The board will review the voting results and take them into consideration when making future decisions regarding the frequency of the advisory vote on executive compensation, but the results will not be binding on us.

Required Vote to Approve the Shareholder Proposals (Proposals 5, 6, and 7; Items 5, 6, and 7 on the Proxy Card)

 

The affirmative vote of a majority of votes cast in person or by proxy by holders of our shares entitled to vote on the matter is required to approve the shareholder proposals, if presented at the annual meeting.

 

Treatment of Abstentions, Not Voting and Incomplete Proxies

 

Abstentions will have no effect on the vote for Proposals 1 or 4, but it will have the same effect as a vote against Proposals 2, 3 and 5 through 7. Broker non-votes for non-routine proposals (Proposals 1 and 3 through 7) will also have no effect on the vote for the proposals. If a proxy does not specify how to vote, the stock represented by that proxy will be considered to be voted in favor of Proposals 1, 2 and 3, voted “Every Year” on Proposal 4, and voted against Proposals 5 through 7. Unless a shareholder checks the box on the proxy card or provides instructions to withhold discretionary authority, the proxies may use their discretion to vote on other matters introduced at the 2011 annual meeting.

 

Giving a proxy means that you authorize the persons named in the proxy card to vote your shares at the 2011 annual meeting in the manner directed. You may vote by proxy or in person at the meeting. To vote by proxy, you may use one of the following methods if you are a record holder:

 

 

We request that you vote as soon as possible. When the proxy is properly submitted, the shares of stock represented by the proxy will be voted at the 2011 annual meeting in accordance with the instructions contained in the proxy.

 

If your shares are held in “street name” by a broker or other nominee, you should review the voting form used by that firm to determine whether you may provide voting instructions to the broker or other nominee by telephone or the Internet.

 

Your vote is important. Accordingly, you should vote via the Internet or by telephone; sign, date and return the enclosed proxy card if you received it by mail; or provide instructions to your broker or other nominee whether or not you plan to attend the annual meeting in person.

 

You have the power to revoke your proxy or change your vote at any time before the proxy is voted at the annual meeting. You can revoke your proxy or change your vote in one of four ways:

 

 

If you choose any of the first three methods, you must take the described action no later than the beginning of the 2011 annual meeting. Once voting on a particular matter is completed at the annual meeting, you will not be able to revoke your proxy or change your vote. If your shares are held in street name by a broker or other nominee, you must contact that institution to change your vote.

 

This solicitation is made on behalf of our board of directors, and we will pay the cost and expenses of printing and mailing this proxy statement and soliciting and obtaining the proxies, including the cost of reimbursing brokers, banks and other financial institutions for forwarding proxy materials to their customers. Proxies may be solicited, without extra compensation, by our officers and employees by mail, telephone, email, personal interviews or other methods of communication. We have engaged the firm of Georgeson Shareholder Communications, Inc. to assist us in the distribution and solicitation of proxies and will pay Georgeson a fee of $9,000 plus out-of-pocket expenses for its services.

 

If you are an employee of Sprint Nextel who has a right to vote shares acquired through your participation in our 401(k) plan, you are entitled to instruct the trustee, Fidelity Management Trust Company, how to vote the shares allocated to your account. The trustee will vote those shares as you instruct. You will receive voting information for any shares held in your 401(k) plan account, as well as any other shares registered in your own name.

 

If you do not instruct the trustee how to vote your shares, the 401(k) plan provides for the trustee to vote those shares in the same proportion as the shares for which it receives instructions from all other participants. To allow sufficient time for the trustee to vote, your voting instructions must be received by the trustee by May 5, 2011.

 

Rules of the Securities and Exchange Commission, or the SEC, allow us to deliver multiple Notices in a single envelope or a single copy of an annual report and proxy statement to any household where two or more shareholders reside if we believe the shareholders are members of the same family. This rule benefits shareholders by reducing the volume of duplicate information they receive at their households. It also benefits us by reducing our printing and mailing costs and reducing the environmental impact associated with our annual meeting.

 

We mailed Notices in a single envelope, or a single set of proxy materials, as applicable, to each household this year unless the shareholders in these households provided instructions to the contrary in response to a notice previously mailed to them. However, for shareholders who previously requested a printed set of the proxy materials, we mailed each shareholder in a single household a separate proxy card or voting instruction form. If you prefer to receive your own copy of the proxy materials for this or future annual meetings and you are a record holder, you may request a duplicate set by writing to Sprint Nextel Shareholder Relations, 6200 Sprint Parkway, Mailstop KSOPHF0302-3B424, Overland Park, Kansas 66251, by email at shareholder.relations@sprint.com or by calling 913-794-1091, and we will promptly furnish such materials. If a broker or other nominee holds your shares, you may instruct your broker to send duplicate mailings by following the instructions on your voting instruction form or by contacting your broker.

 

If you share a household address with another shareholder, and you receive duplicate mailings of the proxy materials this year, you may request that your household receive a single set of proxy materials in the future. If you are a record holder, please contact Sprint Nextel Shareholder Relations using one of the contact methods described above. If a broker or other nominee holds your shares, you should follow the instructions on your voting instruction form or contact your broker.

 

If you hold some shares as a record holder or through our 401(k) plan, and other shares in the name of a broker or other nominee, we must send you proxy materials for each account. To avoid receiving

duplicate sets of proxy materials, you may consolidate accounts or consent to electronic delivery as described in the following section.

 

We are able to distribute the annual report and proxy statement to shareholders in a fast and efficient manner via the Internet. This reduces the amount of paper delivered to a shareholder’s address, eliminates the cost of sending these documents by mail and reduces the environmental impact associated with our annual meeting. You may elect to view all future annual reports and proxy statements on the Internet instead of receiving them by mail. Alternatively, you may elect to receive all future annual reports and proxy statements by mail instead of viewing them via the Internet. To make an election, please log on to www.proxyvote.com and enter your control number.

 

If you have enrolled for electronic delivery, you will receive an email notice of shareholder meetings. The email will provide links to our annual report and our proxy statement. These documents are in PDF format so you will need Adobe Acrobat^® Reader to view these documents online, which you can download for free by visiting www.adobe.com. The email will also provide a link to a voting web site and a control number to use to vote via the Internet.

 

Your votes are kept confidential from our directors, officers and employees, subject to certain specific and limited exceptions. One exception occurs if you write opinions or comments on your proxy card. In that case, a copy of the proxy card is sent to us.

 

Shareholders, their guests and persons holding proxies from shareholders may attend the annual meeting. Seating, however, is limited and will be available on a first-come, first-served basis. If you plan to attend the meeting, you are required to bring proof of ownership to the meeting. For instance, a brokerage account statement showing that you owned our shares on March 11, 2011 is acceptable proof.

 

Shareholders may listen live by phone or audio webcast to our annual meeting. The dial-in numbers for the conference call will be posted at www.sprint.com/investors/shareholders/annualmeeting before the meeting. Lines are limited and will be available on a first-come, first-served basis. Shareholders may access the audio webcast of our annual meeting at the same web address. This is an audio-only webcast with no video or other materials. Shareholders will not have an opportunity to ask questions via the phone or audio webcast.

 

The following table provides information about the only known beneficial owners of five percent or more of our common stock.

 

For purposes of the table below, beneficial ownership is determined based on Rule 13d-3 of the Securities Exchange Act of 1934, which states that a beneficial owner is any person who directly or indirectly has or shares voting and/or investment or dispositive power.

 

 

 

 

The following table states the number of shares of our voting common stock beneficially owned as of March 11, 2011 by each director, named executive officer and all directors and executive officers as a group. Except as otherwise indicated, each individual named has sole investment and voting power with respect to the shares owned.

 

 

 

 

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than 10% of a registered class of our equity securities, to file with the SEC and the NYSE initial reports of beneficial ownership and reports of changes in beneficial ownership of our shares and other equity securities. These people are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file, and we make these reports available at www.sprint.com/investors/sec.

 

To our knowledge, based solely on a review of the copies of these reports furnished to us and written representations that no other reports were required, during 2010 all Section 16(a) filing requirements applicable to our directors, executive officers and beneficial owners of more than 10% of our equity securities were met, with the exception of Charles R. Wunsch, our general counsel, who amended his Form 3 to report 2,048 shares held at the time he became an executive officer that were inadvertently unreported in the original filing due to an administrative oversight.

 

We currently have ten seats on our board. Each of the ten nominees, if elected, will serve one year until the 2012 annual meeting and until a successor has been elected and qualified. The persons named in the accompanying proxy will vote for the election of the nominees named below unless a shareholder directs otherwise. Each nominee has consented to be named and to continue to serve if elected. If any of the nominees becomes unavailable for election for any reason, the proxies will be voted for the other nominees and for any substitutes.

 

The board believes that it is necessary for each of our directors to possess qualities, attributes and skills that contribute to a diversity of views and perspectives among the directors and enhance the overall effectiveness of our board. As described on pages 23-24 under “Board Committees and Director Meetings — The Nominating and Corporate Governance Committee — Director Nomination Process,” the Nominating and Corporate Governance Committee, which we refer to as the Nominating Committee, considers all factors it deems relevant when evaluating prospective candidates or current board members for nomination to our board, all within the context of an assessment of the needs of our board at that point in time.

 

All our directors bring to our board significant executive leadership experience derived from their service as executives and, in most cases chief executive officers, of large corporations. They also all bring extensive board experience and a diversity of views and perspectives derived from their individual experiences working in a broad range of industries and occupations. The process undertaken by the Nominating Committee in recommending qualified director candidates is described in more detail below on pages 23-24 under “Board Committees and Director Meetings — The Nominating and Corporate Governance Committee — Director Nomination Process.” Certain individual experiences, qualifications and skills of our directors that contribute to our board’s effectiveness as a whole are described in the following paragraphs.

 

 

Our Board of Directors recommends that you vote “FOR” the election of the ten nominees for director in this Proposal 1.

 

Our outside directors are directors who are not our employees. The compensation of our outside directors is partially equity-based and is designed to comply with our Corporate Governance Guidelines, which provide that the guiding principles behind our outside director compensation practices are: (1) alignment with shareholder interests, (2) preservation of outside director independence and (3) preservation of the fiduciary duties owed to all shareholders. Our outside directors are also reimbursed for direct expenses relating to their activities as members of our board of directors.

 

The following table provides compensation information for our directors who served during 2010. Compensation information for Mr. Hesse, our President and Chief Executive Officer, can be found in the “Executive Compensation” section of this proxy statement.

 

 

 

 

Annual Retainers, Additional Retainers and Meeting Fees

 

Our outside directors are each paid $80,000 annually (which represents a $10,000 increase from prior years) plus meeting fees and the following additional retainers:

 

 

For each meeting attended, we pay our outside directors the following fees:

 

 

Our directors are entitled to participate in our Deferred Compensation Plan, a nonqualified and unfunded plan under which our outside directors can defer receipt of all or part of their annual and additional retainer fees and meeting fees into various investment funds and stock indices, including a fund that tracks our shares of common stock. In 2010, no directors participated in our Deferred Compensation Plan. Also, our directors may participate in our Directors’ Shares Plan, under which they can elect to use all or part of their annual and additional retainer fees and meeting fees to purchase shares of our common stock in lieu of receiving cash payments. Our outside directors can also elect to defer receipt of these shares. In 2010, no directors participated in our Directors’ Shares Plan. On an annual basis, our outside directors are given the opportunity to either enroll in or discontinue their participation in one or both of these plans. Our directors are also provided the opportunity to elect before the end of each calendar year to defer the receipt of shares underlying a portion of any RSU awarded in the following calendar year. Two of our directors elected to defer the receipt of shares underlying their 2011 RSU award vesting in 2012.

 

Restricted Stock Units

 

Beginning in 2011, each of our outside directors will receive a targeted annual grant of $110,000 in RSUs representing shares of our common stock. For 2010, each of our outside directors received a targeted annual grant of $100,000 in RSUs. Generally, the RSUs are granted each year on the date of the annual meeting of shareholders and each grant vests in full upon the subsequent annual meeting. Any new outside board member joining our board receives a grant of prorated RSUs upon his or her appointment that vests in full upon the subsequent annual meeting. The dollar value of the outside directors’ targeted annual grant is prorated for the time period between the date of the director’s initial appointment to our board and the date of the subsequent annual meeting. The prorated RSU grant is intended to offer a competitive compensation package to our outside directors, immediately align the interests of outside directors with our shareholders’ interests and be prorated consistent with the manner in which the cash retainers are paid upon an outside director joining our board.

 

Stock Ownership Guidelines

 

Our director stock ownership guidelines require our outside directors to hold equity or equity interests in our shares with a fair value of at least three times the annual retainer fee. Each outside director is expected to meet this ownership level by the third anniversary of the director’s initial election or appointment to our board. Our director stock ownership guidelines provide our board with flexibility to grant exceptions based on its consideration of individual circumstances. As of December 31, 2010, of the six current outside directors who have served on our board for three or more years, all six were in compliance with our director stock ownership guidelines. The same stock and stock equivalents that count towards the stock ownership guidelines for our executive officers (as described below under “Executive Compensation — Compensation Discussion

and Analysis — Stock Ownership Guidelines”) are used to determine our outside directors’ compliance with the director stock ownership guidelines.

 

In addition, active outside directors are required to retain for a period of at least 12 months all shares or share equivalents (e.g., options or RSUs) received from us, except for shares sold for the payment of taxes as a result of shares becoming available to the outside director or delivered to pay for the acquisition of additional shares through the exercise of a stock option or otherwise. The 12-month period begins on the date any restrictions or vesting periods have lapsed on the shares or share equivalents (including stock options). The outside directors are subject to this holding period until they leave our board.

 

Other Benefits

 

We believe that it serves the interests of our company and our shareholders to enable our outside directors to utilize our communications services. Accordingly, each outside director is entitled to receive wireless devices, including accessories, and the related wireless service, wireline long distance services and long distance calling cards with a maximum limit of $12,000 per year. Outside directors may also receive specialized equipment, on an as-needed basis, with equipment valued at greater than $1,000 requiring Compensation Committee approval. In addition to the value of the communications service, the value of any additional services and features (e.g., ringers, call tones, directory assistance), and the value of the wireless devices, replacements and associated accessories are included in the value of the communications benefit. The value of any communications benefits realized by a director is subject to applicable income taxes, which taxes are paid by the director. There may be other circumstances in which devices are provided to board members (such as demonstration, field testing and training units, or devices for use while traveling internationally); these devices must be returned or they will be converted to a consumer account and applied toward the wireless devices under this communications benefit.

 

Under our charitable matching gifts program, the Sprint Foundation matches contributions made to qualifying organizations on a dollar-for-dollar basis, up to the annual donor maximum of $5,000. The annual maximum contribution per donor, per organization is $2,500. As described in the director compensation table, Messrs. Bethune, Glasscock and Hance were the only outside directors for whom the Sprint Foundation provided matching charitable contributions in 2010.

 

We currently do not offer retirement benefits to outside directors.

 

Our board and senior management devote considerable time and attention to corporate governance matters. We maintain a comprehensive set of corporate governance initiatives that include the following:

 

 

 

We value the views of our shareholders and other interested parties. Consistent with this approach, our board has established a system to receive, track and respond to communications from shareholders and other interested parties addressed to our board or to our outside directors. A statement regarding our board communications policy is available at www.sprint.com/governance. Any shareholder or other interested party who wishes to communicate with our board or our outside directors may write to our General Counsel and Corporate Secretary, who is our Board Communications Designee, at the following address: Sprint Nextel Corporation, 6200 Sprint Parkway, Overland Park, KS 66251, KSOPHF0302-3B424, or send an email to boardinquiries@sprint.com. Our board has instructed the Board Communications Designee to examine incoming communications and forward to our board, or individual directors as appropriate, communications deemed relevant to our board’s roles and responsibilities. The Board has requested that certain types of communications not be forwarded, and redirected if appropriate, such as: spam, business solicitations or advertisements, resumes or employment inquiries, service complaints or inquiries, surveys, or any threatening or hostile materials. The Board Communications Designee will review all appropriate communications and report on the communications to the chair of or the full Nominating Committee, the full board, or the outside directors, as appropriate. The Board Communications Designee will take additional action or respond to letters in accordance with instructions from the relevant board source. Communications relating to accounting, internal accounting controls, or auditing matters will be referred promptly to members of the Audit Committee in accordance with our policy on communications with our board of directors.

 

Since 2007, our board has determined that designating an independent director to act as the non-executive Chairman serves the best interests of the company and our shareholders and the unique qualifications and skills of our non-executive Chairman. The Board believes that this structure enhances our board’s oversight of, and independence from, management, the ability of our board to carry out its roles and responsibilities on behalf of the shareholders and the Company’s overall corporate governance. In addition, each of our board’s standing committees, except the Executive Committee, consist entirely of independent directors, as determined on an annual basis by our board using the criteria set forth in our Corporate Governance Guidelines and described below.

James H. Hance, Jr. currently serves as our Chairman. As detailed in our Corporate Governance Guidelines, the responsibilities and authority of our Chairman are designed to facilitate our board’s oversight of management and ensure the appropriate flow of information between our board and management, and include the following:

 

 

The Chairman and the other directors may, from time to time, with the CEO’s knowledge and in most instances with members of management present, meet with outside parties on issues of importance to all shareholders.

 

Each of our standing committees has a charter that describes such committee’s primary functions. A current copy of our Corporate Governance Guidelines and the charter for each standing committee of our board is available at www.sprint.com/governance or by email at shareholder.relations@sprint.com. Our charters and our Corporate Governance Guidelines were adopted by our board and are annually reviewed and revised as necessary.

 

Our board has adopted a definition of director independence that in several areas exceeds the listing standards of the NYSE. Our Corporate Governance Guidelines require that at least two-thirds of our board be independent. Under our Corporate Governance Guidelines, our board will determine affirmatively whether a director is “independent” on an annual basis and disclose these determinations in our annual proxy statement. That determination is set forth below. A director will not be independent unless our board, considering all relevant circumstances, determines that the director does not have a material relationship with us, including any of our consolidated subsidiaries. A director will not be independent if:

 

 

 

Our board may determine that a director who does not meet the standards in the fifth, sixth or eighth bullet points above nevertheless is independent. Following any such determination, our board will disclose a detailed explanation of its determination in our annual proxy statement. In no event will our board make such determination for a director for more than two consecutive years.

 

Our board uses the following definitions to determine director independence:

 

 

In determining the independence of the outside directors, our board considered whether our outside directors, their immediate family members, and the companies with which they are employed as an executive officer (if applicable) have any relationships with our company that would prevent them from meeting the independence standards listed above, as well as the listing standards of the NYSE. In performing its review, our board considered the responses provided by the outside directors in their director questionnaires and determined that the following director nominees for re-election at the 2011 annual meeting have no material relationship with our company and are independent using the definition described above: Mrs. Hill and Messrs. Bennett, Bethune, Glasscock, Hance, Ianna, Nilsson, Nuti and O’Neal. Based on these standards, each

of our outside directors who are standing for re-election are independent directors. The Audit Committee, the Finance Committee, the Compensation Committee, and the Nominating Committee are composed entirely of independent directors.

 

The board takes an active role in overseeing management of the company’s risks, both through its own consideration of risks associated with our operations and strategic initiatives and through its committees’ consideration of various risks applicable to such committees’ areas of focus, which are comprised solely of independent directors. The Audit Committee reviews enterprise risks as part of its purpose to assist our board in fulfilling our board’s oversight responsibilities with respect to the company’s enterprise risk management program. The Audit Committee receives regular reports regarding enterprise risk management matters from members of management who oversee the company’s Corporate Audit Services and Internal Audit organization, or internal audit, and informs our board of such matters through regular committee reports. In addition to receiving regular reports from the Audit Committee concerning our enterprise risk management program, our board also reviews information concerning other risks through regular reports of its other committees, including information regarding financial risk management from the Finance Committee, compensation-related risk from the Compensation Committee and governance-related risk from the Nominating Committee.

 

Our management is responsible for day-to-day risk management. Our management and internal audit areas serve as the primary monitoring and testing function for company-wide policies and procedures, and manage the day-to-day oversight of the risk management strategy for our ongoing business. This oversight includes identifying, evaluating, and addressing potential risks that may exist at the enterprise, strategic, financial, operational, and compliance and reporting levels.

 

We believe the division of risk management responsibilities described above is an effective approach for addressing the risks facing the company and that our board leadership structure supports this approach.

 

Board Meetings

 

During 2010, our board held seven meetings. Our board has the following standing committees: an Audit Committee, a Finance Committee, a Compensation Committee, an Executive Committee and a Nominating Committee. Directors are expected to devote sufficient time to prepare properly for and attend meetings of our board, its committees and executive sessions, and to attend our annual meeting of shareholders. All directors attended at least 75% of the meetings of our board and board committees on which they served during 2010, and all but one of the directors who served on our board at the time of our 2010 annual meeting attended that annual meeting.

 

Meetings of Outside Directors

 

In addition to board and committee meetings, our outside directors meet without management present at least three times per year in conjunction with regularly scheduled board meetings.

 

The Audit Committee

 

The primary purpose of the Audit Committee is to assist our board in fulfilling its oversight responsibilities with respect to:

 

 

 

The Audit Committee also has sole authority for the appointment, retention, termination, compensation, evaluation and oversight of our independent registered public accounting firm. The committee’s principal responsibilities in serving these functions are described in the Audit Committee Charter.

 

Our code of ethics, The Sprint Nextel Code of Conduct, is available at www.sprint.com/governance or by email at shareholder.relations@sprint.com. It describes the ethical and legal responsibilities of directors and employees of our company and our subsidiaries, including senior financial officers and executive officers. All of our directors and employees (including all senior financial officers and executive officers) are required to comply with The Sprint Nextel Code of Conduct. In support of the ethics code, we have provided employees with a number of avenues for the reporting of potential ethics violations or similar concerns or to seek guidance on ethics matters, including a 24/7 telephone helpline. The Audit Committee has established procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters, including the confidential, anonymous submission by our employees of any concerns regarding questionable financial and non-financial matters to the Ethics Helpline at 1-800-788-7844, by mail to the Audit Committee, c/o Sprint Nextel Corporation, 6200 Sprint Parkway, Overland Park, KS 66251, KSOPHF0302-3B424, or by email to boardinquiries@sprint.com. Our Chief Ethics Officer reports regularly to the Audit Committee and annually to the entire board on our ethics and compliance program.

 

The Chair of the Audit Committee is Mr. Glasscock. The other members are Messrs. Bennett and Hance. Each of the members is financially literate and able to devote sufficient time to serving on the Audit Committee. Our board has determined that each of the Audit Committee members is an independent director under the independence requirements established by our board and the NYSE corporate governance standards. Our board has also determined that Messrs. Bennett, Glasscock and Hance each possess the qualifications of an “audit committee financial expert” as defined in the SEC rules. The Audit Committee met ten times in 2010.

 

The Finance Committee

 

The primary functions of the Finance Committee include:

 

 

The Chair of the Finance Committee is Mr. Bennett. The other members are Messrs. Glasscock and Hance. Each member of the Finance Committee satisfies the independence requirements established by our board and the independence requirements of the NYSE corporate governance standards. The Finance Committee met nine times in 2010.

 

The Compensation Committee

 

The primary functions of the Compensation Committee include:

 

 

 

Additional information regarding the Compensation Committee’s processes and procedures can be found below in “Executive Compensation — Compensation Discussion and Analysis.” Generally, the committee’s primary processes for establishing and overseeing outside director compensation and the role of company personnel and compensation consultants are similar to those regarding executive compensation. Any appropriate changes to outside director compensation are made following recommendation to our board by the Compensation Committee. In accordance with its charter, the Compensation Committee may delegate authority to subcommittees or any committee member when appropriate.

 

The Chair of the Compensation Committee is Mr. Bethune. The other members are Mrs. Hill and Messrs. Nuti and O’Neal. Each member of the Compensation Committee satisfies the independence requirements established by our board and the independence requirements of the NYSE corporate governance standards. The Compensation Committee met nine times in 2010.

 

Compensation Committee Interlocks and Insider Participation

 

Mrs. Hill and Messrs. Bethune, Nuti and O’Neal served on the Compensation Committee during 2010. There were no compensation committee interlocks or insider participation during 2010.

 

The Executive Committee

 

The primary function of the Executive Committee is to exercise powers of our board on matters of an urgent nature that arise between regularly scheduled board meetings.

 

The Chair of the Executive Committee is Mr. Hesse. The other members are Mrs. Hill and Messrs. Bennett, Bethune, Glasscock and Hance. The Executive Committee did not meet in 2010.

 

The Nominating and Corporate Governance Committee

 

The primary function of the Nominating Committee is to ensure that our company has effective corporate governance policies and procedures and an effective board and board review process. In fulfilling this function, the committee:

 

 

Director Nomination Process

 

In evaluating prospective candidates or current board members for nomination, the Nominating Committee considers all factors it deems relevant, including, but not limited to, the candidate’s:

 

 

 

The Nominating Committee reviews with our board the appropriate characteristics and background needed for directors. This review is undertaken not only in considering new candidates for board membership, but also in determining whether to nominate existing directors for another term. The committee determines the current director selection criteria and conducts searches for prospective directors whose skills and attributes reflect these criteria. To assist in the recruitment of new members to our board, the committee employs one or more third-party search firms. All approvals of nominations are determined by the full board.

 

Consistent with our Corporate Governance Guidelines, the Nominating Committee places a great deal of importance on identifying candidates having a variety of views and perspectives arising out of their individual experiences, professional expertise, educational background, and skills. In considering candidates for our board, the Nominating Committee considers the totality of each candidate’s credentials in the context of this standard.

 

It is the policy of the Nominating Committee also to consider candidates recommended by shareholders, using the same key factors described above for purposes of its evaluation. A shareholder who wishes to recommend a prospective nominee for our Board should notify the Corporate Secretary in writing with supporting material that the shareholder considers appropriate. The Nominating Committee will also consider whether to nominate any person nominated by a shareholder pursuant to the provisions of our bylaws relating to shareholder nominations as described in “Nominations of Individuals to Serve as Directors” below.

 

Majority Voting

 

Our bylaws provide that each nominee for director in an uncontested election will be elected if the votes cast “for” that nominee exceed the votes cast “against” that nominee. Votes cast do not include abstentions and broker non-votes. The date for determining if an election is contested or uncontested has been set at 14 days before we file our definitive proxy statement. This requirement is intended to help us determine for our proxy statement whether director nominees will be elected under a majority or plurality standard prior to soliciting proxies.

 

Our Corporate Governance Guidelines provide that an incumbent nominee who receives fewer votes “for” than “against” in an uncontested election is expected to tender promptly his or her resignation. The committee will recommend, and our board will determine, whether or not to accept the tendered resignation within 90 days of the certification of the shareholder vote with respect to the director election. Our board’s decision will be publicly disclosed.

 

Our board agreed to permit the rights issuable pursuant to our rights plan to expire in June 2007 in accordance with the plan. We currently do not have a shareholder rights plan in place.

 

The Chair of the Nominating Committee is Mrs. Hill. The other members are Messrs. Bethune, Ianna, Nilsson and O’Neal. Each member of the Nominating Committee satisfies the independence requirements established by our board and the independence requirements of the NYSE corporate governance standards. The Nominating Committee met five times in 2010.

 

The Audit Committee has reviewed and discussed our audited consolidated financial statements with management. The Audit Committee has also discussed with the independent registered public accounting firm the matters required to be discussed by the Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board, or PCAOB, in Rule 3200T.

 

The Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and has discussed with the independent registered public accounting firm its independence.

 

The Audit Committee met with senior management periodically during 2010 to consider the adequacy of our internal controls and discussed these matters with our independent registered public accounting firm and with appropriate financial personnel. The Audit Committee also discussed with senior management our disclosure controls and procedures and the certifications by our CEO and our Chief Financial Officer, or CFO, which are required for certain of our filings with the SEC. The Audit Committee met privately with the independent registered public accounting firm, our internal auditors and other members of management, each of whom has unrestricted access to the Audit Committee.

 

Based on the reviews and discussions referred to above, the Audit Committee recommended to the board that our audited consolidated financial statements be included in our annual report on Form 10-K for the year ended December 31, 2010 for filing with the SEC.

 

The Audit Committee

Larry C. Glasscock, Chair

Robert R. Bennett

James H. Hance, Jr.

 

This compensation discussion and analysis describes the current compensation program for our named executive officers, who are: Daniel R. Hesse, President and CEO; Robert H. Brust, CFO; Keith O. Cowan, President, Strategic Planning and Corporate Initiatives; Steven L. Elfman, President, Network Operations and Wholesale; and Robert L. Johnson, Chief Service Officer.

 

Executive Summary

 

Our compensation decisions in 2010 for our named executive officers were influenced strongly by our three key priorities that have remained unchanged for three years: customer experience is the foundation of building . . . a strong brand, which leads to attracting and retaining customers, fundamental to . . . generating operating cash flow.

 

Our incentive plans in 2010 have focused our executives on these priorities to drive our turnaround efforts. To that end, our 2010 performance objectives have compensated our executives for delivering results in:

 

 

We built momentum during 2010 on these key priorities. Highlights of our performance that influenced the performance–based payments earned in 2010 by the named executive officers are:

 

 

 

 

 

 

 

Free cash flow is the cash provided by our operating activities less the cash used in our investing activities other than short-term investments and equity-method investments during the applicable period; net

service revenue is the total revenue (excluding revenue from equipment) from our postpaid and prepaid wireless business and our wireline segment, including wholesale and other non-equipment revenue sources.

 

As described in more detail below, our performance on our priorities influenced the named executive officer compensation decisions for 2010. Our compensation program has long been heavily weighted toward variable compensation, but for 2010 and continuing into 2011, it became increasingly based on performance objectives and targets. Our performance goals for named executive officer 2010 incentive compensation were appropriately balanced between short- and longer-term operating objectives under our key priorities that we view are the primary drivers of sustainable shareholder value creation and critical to our continued success. The amounts realized under our 2010 incentive compensation plans for our named executive officers are highly sensitive to the degree to which these objectives are achieved and to changes in shareholder value, and are appropriately balanced between cash and equity and current and deferred payments.

 

In 2010, our named executive officers received minimal perquisites, entitlements or non-performance-based compensation, with the exception of market-competitive salaries and modest benefits that are comparable to those provided to all employees. Our severance benefits also remained moderate, with change-in-control benefits payable only upon a change of control in connection with a termination of employment and no excise tax gross-ups. In addition, our named executive officers received no supplemental executive retirement plan benefits.

 

The mix of our fixed and variable compensation opportunities for 2010, as presented in tabular format and explained in more detail on page 31, can be illustrated by the following:

 

 

What follows is a discussion of the primary elements of our 2010 named executive officer compensation decisions illustrating the above points and the correlation of those compensation decisions to our 2010 performance.

 

Base Salary

 

Base salary is designed to attract and retain executives. Our named executive officers’ salaries are based on a number of factors, including the nature, responsibilities and reporting relationships of the position, individual performance of the executive, salary levels for incumbents in comparable positions at peer companies, as well as other executives within our organization, and experience and tenure of the executive. Consistent with our priority to improve cash flow, our named executive officers did not receive base salary increases in 2010. See “— Summary Compensation Table.”

 

Short-Term Incentive Compensation Plan (“STIC plan”)

 

Our STIC plan is our annual cash bonus plan used to create a strong financial incentive for achieving or exceeding critical operating and financial objectives, which we believe will ultimately result in an increase in shareholder value.

For the 2010 STIC plan, the Compensation Committee continued from the 2009 STIC plan using two six-month performance periods for determining the amount of plan payments because it wanted to maintain flexibility to revisit the performance criteria at mid-year. This flexibility enables the setting of goals that are sufficiently challenging to justify and support the costs associated with payout at various levels of performance. Such flexibility also protects against the possibility of a compensation windfall or deficit during a period in which the economic and telecommunications environment is still highly volatile. The first performance period was from January 1, 2010 through June 30, 2010, and the second was from July 1, 2010 through December 31, 2010. Each performance period had discrete performance objectives, and employees employed on December 31, 2010 vest in any payout for either period.

 

In February 2010, the Compensation Committee established financial and operational objectives and their respective weightings and targets for the first half-year performance period, and established their weightings and targets for the second half-year performance period in July 2010. The objectives were selected to support our key priorities as explained above, and the weightings were designed to emphasize stabilizing our revenues, which are crucial to our turnaround:

 

 

The increased weighting in 4G subscribers for the second performance period was to provide an incentive for executives to leverage the company’s marketplace position as the first national wireless carrier to deploy a 4G network and devices that use that network. The increased weighting drew equally from the weightings of the two other objectives that were weighted highest for the first half-year performance period.

 

These weighed objectives on an annualized basis are illustrated in support of our key priorities as follows:

 

 

To further our goal of tying a significant portion of each named executive officer’s total annual compensation to our business performance, our STIC plan provides for a payment equal to the named executive officer’s targeted opportunity only if our actual results meet the targeted objectives. Similarly, a payment in excess of a named executive officer’s targeted opportunity may be made if our actual performance exceeds the targeted objectives, a payment below opportunity may be made if our actual performance is below the target objectives but exceeded the minimum threshold level, and no payout would be made if our actual performance does not exceed the minimum threshold level. Further, under the terms of our STIC plan, the Compensation Committee retains the discretion to reduce the size of any award or payout.

 

With respect to adjusted OIBDA, our 2010 results were $5.719 billion relative to our target of $5.8 billion, so the payout associated with this objective was slightly below target. Our 2010 results for postpaid churn were 1.95% relative to our target of 2%, so the payout associated with this objective was above

target. With respect to the net service revenue, we recognized $29.894 billion relative to our target of $29.969 billion, so the payout associated with this objective was also slightly below target. We do not disclose our 4G performance targets because to do so would result in competitive harm to us, however, the Compensation Committee established targets for reasonably expected growth in this new business for us. During 2010, our 4G subscriber base significantly exceeded our target achievement level for this objective, so the payout significantly exceeded the target payout level for this objective.

 

The Compensation Committee established an annual Section 162(m) objective for the named executive officers potentially subject to Section 162(m) at a small fraction of a percentage of our adjusted operating income excluding depreciation. The Compensation Committee exercised its discretion to make payments under the STIC plan at levels below the payout achieved under the Section 162(m) objective for 2010.

 

For the 2010 STIC plan, the Compensation Committee approved the aggregate payout percentage, as compared to targeted opportunity, for our named executive officers at approximately 114.6%.

 

Long-Term Incentive Compensation Plan (“LTIC plan”)

 

Our LTIC plan serves all of our compensation objectives, utilizing time-based vesting requirements to encourage retention, linking payment of performance-based awards to achievement of financial objectives critical to our long-term success, and granting equity awards to directly link executive interests with those of our shareholders.

 

Except for Mr. Brust as described below, the 2010 LTIC plan consisted of three types of awards granted by the Compensation Committee at its meeting in March 2010:

 

 

We believe the establishment of three separate performance periods enhances our ability to maintain ongoing focus on achievement of the most critical milestones for the next three years that are integral to our continued improvement. It also allows our Compensation Committee to set appropriately aggressive, yet not unattainable, targets, as well as mitigate risk of a windfall if we were to experience unforeseen overachievement over a three-year period. To ensure that our executives remain focused on sustaining long-term performance, however, the payment of these performance-based awards will not occur until after the end of all three performance periods.

 

For 2010, the Compensation Committee established the following objectives, weighted equally to support our key priority to generate cash as noted above:

 

 

Our free cash flow target for 2010 was $1.9 billion, against which our performance was $2.407 billion (as adjusted from our reported free cash flow of $2.512 billion to include the repayment of debt associated with an investment in which we held a controlling financial interest) and our net service revenue target for 2010 was $29.969 billion, against which our performance was $29.894 billion, resulting in a total weighted 123% achievement for 2010. The Compensation Committee also established a Section 162(m) objective for the named executive officers potentially subject to Section 162(m) at a small fraction of a percentage of our adjusted operating income excluding depreciation. The achieved result under the section 162(m) objective exceeded the achieved result under the free cash flow and net service revenue objectives.

 

The Compensation Committee retained the ability to change the performance objective for the second and third annual performance periods, but, at its meeting in early 2011, continued free cash flow and net service revenue, weighted equally, as the 2011 objectives for these awards, because generating cash remains critical to our continued improvement.

 

 

The Compensation Committee retained the ability to change the performance objective for the second and third annual performance periods, but, at its meeting in early 2011, continued free cash flow and net service revenue, weighted equally, consistent with those for the performance units as described above.

 

 

For Mr. Brust, pursuant to the terms of his amended employment agreement dated December 22, 2009, his 2010 LTIC plan target opportunity of $3 million was allocated equally in value in stock options and RSUs, all of which will vest on May 1, 2012, subject to compliance with non-compete and non-solicitation covenants under his employment agreement. The number of stock options granted is based on the estimated fair value of each option determined using the Black-Scholes valuation model. The number of RSUs awarded is based on the 30-day average closing price of our common stock.

A summary of the salary and target opportunities of the primary elements of compensation with respect to each of our named executive officers for 2010 is set forth in the table below:

 

 

The amounts indicated under the column entitled “2010 Long-Term Incentive Compensation Plan — Target Opportunity” represent the named executive officers’ 2010 LTIC plan target opportunity as opposed to the grant date fair value of, or the actual amount earned under, their 2010 LTIC plan awards. The grant date fair values of the 2010 LTIC performance-based RSU awards as reported in the “— Grants of Plan-Based Awards” table below differ from the respective portion of the named executive officers’ target opportunities above in part because the performance objectives and targets for two-thirds of those awards (for years 2011 and 2012), will not be established until the beginning of the respective performance periods. Further, the sum of all three years’ grant date fair values of the 2010 LTIC plan stock option and performance-based RSU awards for the named executive officers (the 2010 grant date fair value of awards for Mr. Brust) will differ from the respective portion of the target opportunities above because of the methodology used to convert the dollar value of the opportunities allocated to those awards to a number of shares underlying them as described in footnotes 2 and 3 to the “— Summary Compensation Table.” Finally, actual amounts earned by a named executive officer, if any, may be above or below the executive’s target opportunity and depend on a variety of factors, including whether the executive meets the applicable service- or performance-based vesting requirements, changes in our share price, and, in the case of the performance units, to what extent the applicable performance goals are attained.

 

Our Executive Compensation Philosophy

 

Our executive compensation program is designed to attract and retain qualified and experienced executives who can contribute to our growth and to motivate them to achieve critical operating and financial objectives we believe will promote our growth. The Compensation Committee uses strategies in determining our compensation programs and overall remuneration packages for the named executives officers that align the interests of our executives with those of our shareholders, mitigate the possibility that our executives undertake excessively risky business strategies and adhere to corporate governance best practices.

 

The Compensation Committee strives to limit non-performance based compensation and perquisites while delivering a total compensation package competitive within the marketplace in which we compete for talent in a tax- and financially-efficient manner. We tie a substantial portion of our executives’ remuneration opportunities directly to our performance through short- and long-term incentive compensation plans that include performance objectives most critical to driving our continued financial and operational improvement and long-term shareholder value. We believe our incentive compensation must strike a balance between rewarding achievement of our short-term objectives and rewarding long-term shareholder return and must be highly sensitive to the degree to which those results are realized. We consider the use of equity awards under our LTIC plan an important factor in encouraging our executives to think and act like owners of our company.

 

Role of Compensation Consultant and Executive Officers

 

For 2010 and year-to-date 2011, the Compensation Committee has retained Frederic W. Cook & Co., Inc., or Cook, as its independent compensation consultant. Cook provides no services to us other than advisory services for executive and director compensation and works with management only at the request and under the direction of the Compensation Committee. In 2008, to ensure independence, the Compensation Committee

adopted a policy on executive compensation consultants that codifies this relationship. Representatives of Cook attend Compensation Committee meetings at the Compensation Committee’s request and make themselves available to, and do, provide guidance to the Compensation Committee on a variety of compensation issues as they arise. The primary point of contact at Cook frequently communicates with the chair of the Compensation Committee and interacts with all the Compensation Committee members without management present.

 

Cook has reviewed the compensation components and levels for our named executive officers and advised the Compensation Committee on the appropriateness of our compensation programs, including our incentive and equity-based compensation plans, retention incentives and proposed employment agreements, as these matters arose during the year. The Compensation Committee has directed that Cook provide this advice with a view toward our overall executive compensation philosophy as described above. Cook prepares benchmarking data discussed below, reviews the results with the Compensation Committee, and provides recommendations and an opinion on the reasonableness of new compensation plans, programs and arrangements.

 

In addition to its normal work in supporting the Compensation Committee and providing ongoing advice on compensation levels, design and trends, in 2010 Cook conducted a comprehensive review of our entire executive compensation program — including direct and indirect elements of compensation — to determine how the program operates in support of our short- and long-term financial and strategic objectives and how it aligns with evolving corporate governance “best practices.” Cook presented the findings of this comprehensive analysis to our board.

 

Our CEO periodically discusses the design of and makes recommendations with respect to our compensation programs and the compensation levels of our other named executive officers and certain key personnel with the Compensation Committee.

 

Our Process for Setting Executive Compensation

 

The Compensation Committee annually reviews the compensation packages of our named executive officers and other key personnel, as presented in the form of “tally sheets.” These tally sheets set forth all components of compensation, a summary of the outstanding equity holdings of each named executive officer as of year-end and the value of such holdings under various assumed share prices, the value of benefit plans and programs and perquisites. The tally sheets also set forth the estimated value that each of our named executive officers would realize upon separation under various scenarios.

 

The Compensation Committee did not directly use the tally sheets as a basis to determine or modify the compensation of the named executive officers. However, the Compensation Committee uses these tally sheets when considering adjustments to base salaries, and awards of equity-based or other remuneration and in establishing incentive plan target opportunity levels:

 

 

Although the Compensation Committee reviews and considers the amounts realizable by our named executive officers under different termination scenarios, including those in connection with a change in control, as well as the current equity-based award holdings, these are not primary considerations in the assessment and determination of annual compensation for our named executive officers.

Use of Proxy Statement and Market Survey Benchmarking Data

 

To assist in setting total compensation levels that are reasonably competitive, the Compensation Committee reviews market trends in executive compensation and a competitive analysis prepared by Cook. This information is derived from the most recent proxy statement data of companies in a peer group of telecommunications and high-technology companies and, where limited in its functional position match to our executives, is supplemented with data on our peer group from a published compensation survey prepared by Towers Watson.

 

Taking into consideration the suggestions of Cook, the Compensation Committee determines companies for our peer group based on similarity of their business model and product offerings as well as comparability from a size perspective, including annual revenue, market capitalization, net income, enterprise value and number of employees. For example, our revenue is above the median of our peer group while our enterprise value is below the median. The Compensation Committee approved the use of the following 14 companies in our peer group for its 2010 executive compensation benchmarking analyses:

 

AT&T, Comcast, Computer Sciences, Dell, DIRECTV, Hewlett-Packard, Motorola, Qualcomm, Qwest Communications, Sun Microsystems, Texas Instruments, Time Warner Inc., Verizon and Xerox.

 

For 2010, Cook provided the Compensation Committee with an analysis of the compensation of the named executive officers of each of the peer group companies as well as a summary of data at the 25th percentile, median and 75th percentile for each element of compensation. Our pay philosophy is to target total compensation at the median of our peer group to reflect our relative position within it.

 

The Compensation Committee does not follow a specific formula in making its pay decisions, but rather uses benchmarks as a frame of reference and exercises its judgment by taking into consideration a multitude of other important factors such as experience, individual performance and internal pay equity. Furthermore, our executives’ realized pay is ultimately dependent on company performance. With respect to our named executive officers’ total targeted compensation for 2010, one of the officers was below median and four officers were above the median.

 

Other Components of Executive Compensation

 

Our named executive officers’ total rewards opportunities consist of a number of elements, in addition to those primary components described above, important to our compensation philosophy:

 

 

 

The Sprint Nextel Change in Control Severance Plan, which we refer to as the CIC plan, provides severance benefits to a select group of senior management, including Messrs. Hesse, Cowan, Elfman and Johnson, in the event of a qualified termination of employment in connection

with a transaction that results in a change of control. Mr. Brust does not participate in the CIC plan, but his employment agreement provides for certain benefits in the event of a termination in connection with such a transaction. Any of these benefits payable would be reduced to the extent of any severance benefit otherwise available under any other applicable policy, program or plan so that there would be no duplication of benefits. The benefits upon a change in control to which our named executive officers are entitled, as described in “— Potential Payments upon Termination of Employment or Change of Control,” are likewise competitive within our peer group.

 

Tax Deductibility of Compensation

 

Section 162(m) of the Internal Revenue Code limits to $1 million the amount of non-performance-based remuneration that we may deduct from our taxable income in any tax year with respect to our CEO and the three other most highly compensated executive officers, other than the CFO, at the end of the year. Section 162(m) provides, however, that we may deduct from our taxable income without regard to the $1 million limit the full value of all performance-based compensation.

 

Our base salary and perquisites and other personal benefits are not considered performance-based remuneration and therefore are subject to the limit on deductibility. Our STIC plan and LTIC plan awards may be considered performance-based compensation if certain requirements are met, including among others that the maximum number of stock option or full value share awards and the maximum amount of other cash performance-based remuneration that may be payable to any one executive officer has been disclosed to and approved by shareholders prior to the award or payment.

 

The Compensation Committee considers Section 162(m) deductibility in designing our compensation program and incentive-based compensation plans. In general, we design our short-term and long-term incentives plans to be compliant with the performance-based compensation rules of Section 162(m) in order to maximize deductibility. However, in certain circumstances, the Compensation Committee has determined it necessary in order to retain executives and attract candidates for senior level positions to offer compensation packages in which the non-performance-based elements exceed the $1 million Section 162(m) limit.

 

The awards under our 2010 STIC plan and our 2010 LTIC plan are considered performance-based compensation under Section 162(m), except for (i) the performance unit award to Mr. Hesse allocated to the 2011 and 2012 calendar year performance periods, which exception was necessary due to the limits set under the LTIC plan, and (ii) the 2010 STIC plan award and the 2010 LTIC plan performance-based RSUs to Mr. Johnson due to the terms of his employment agreement.

 

Clawback Policy

 

We have a “clawback” policy, which provides that, in addition to any other remedies available to us under applicable law, we may recover (in whole or in part) any bonus, incentive payment, commission, equity-based award or other compensation received by certain executives, including our named executive officers, if our board or any committee of our board determines that (a) such bonus, incentive payment, commission, equity-based award or other compensation is or was based on any financial results or operating objectives that were impacted by the officer’s knowing or intentional fraudulent or illegal conduct, and (b) recovery is appropriate.

 

Stock Ownership Guidelines

 

We have stock ownership guidelines for our executive officers and other members of our senior management team. The board believes ownership by our senior executives of a meaningful financial stake in our company serves to align their interests with those of our shareholders. Our guidelines require that our CEO hold shares of our common stock with a value equal to five times his base salary, and that the other

named executive officers hold shares of our common stock with a value equal to three times their respective base salaries. Eligible shares and share equivalents counted toward ownership include:

 

 

Persons subject to the stock ownership guidelines have five years beginning on the date on which the person becomes subject to the ownership guidelines, or until December 31, 2012 if later, to achieve the ownership requirement. As of December 31, 2010, all of our named executive officers had met the stock ownership guidelines.

 

Other Compensation Decisions for 2010

 

Compensation of Robert Brust

 

In consideration of Mr. Brust’s continued employment with us beyond his initial employment term, Mr. Brust received a bonus of $400,000 during 2010.

 

Compensation of Steven Elfman

 

During 2010, Mr. Elfman was awarded a lump sum payment in the amount of $300,000 related to his successful leadership of the 2009 Network Advantage project, which was the outsourcing of the day-to-day execution of services and maintenance of our networks.

 

Compensation of Keith Cowan

 

In July 2010, we provided for the continued vesting and exercisability of Mr. Cowan’s then-current equity awards and a prorated payout of the performance units awarded under the 2009 and 2010 LTIC plans, notwithstanding the terms of such awards to the contrary, in consideration of his continued employment with us until the earliest of June 29, 2011, his resignation for “good reason” (as that term is defined in his employment agreement), his resignation mutually agreeable to us, or his involuntary termination not for cause.

 

2010 One-Time Stock Option Exchange Program

 

In 2010, our shareholders approved a one-time stock option exchange program that was designed to improve employee retention and engagement through the restoration of economic value to certain stock options held by some employees without creating a material additional expense to us. The named executive officers as of the date of the program were ineligible for the program; however, Mr. Johnson did participate in the program because he was not a named executive officer at the time of the exchange offer. The program allowed for certain underwater stock options to be exchanged for a smaller number of stock options with an exercise price set as the fair market value of our common stock on the date the replacement options were issued. Replacement stock options were granted on June 17, 2010 in exchange for eligible underwater stock options that holders elected to exchange. The replacement stock options vest 50% on June 17, 2011 and 50% on June 17, 2012. The per share exercise price for the replacement options issued in the stock option exchange is $4.64. The replacement options expire on June 17, 2017. Approximately 75% of the employees that were eligible for the program chose to participate in the program and 92% of the eligible options were exchanged for replacement options.

Analysis of Compensation Decisions for 2011

 

2011 STIC Plan

 

In February 2011, the Compensation Committee evaluated the overall effectiveness of our 2010 STIC plan and determined it was important to continue the flexibility of two six-month performance periods in order to set reasonable performance objectives in our rapidly evolving business and economic environment. While our 2010 STIC plan emphasized a drive toward revenue generation, the Compensation Committee determined that our 2011 STIC plan should balance our senior management team’s and other plan participants’ focus among our most critical financial and strategic objectives, which remain as growing service revenue and operating income while increasing subscriber growth and reducing churn. To that end, the Compensation Committee established the following objectives of our 2011 STIC plan for the first six-month performance period, each equally weighted at 20%:

 

 

The Compensation Committee also established the targets for each performance objective for the first six-month performance period; the second six-month performance period objectives, weightings and targets will be set at the beginning of that performance period.

 

2011 LTIC Plan

 

Following evaluation of our recent LTIC plans and assessment of the near-term factors critical to driving long-term shareholder value, the Compensation Committee also established the terms of the 2011 LTIC plan. This plan continues granting the entirety of an executive’s targeted 2011 LTIC opportunity in the form of performance-based opportunities: 50% in performance units (approximately 49% for Mr. Hesse), 30% in performance-based restricted stock units (approximately 36% for Mr. Hesse) each with three-year cliff vesting and three annual performance periods consistent with the rationale for the design of the 2010 LTIC Plan as described under “Executive Summary — Long-Term Incentive Compensation Plan,” and 20% in non-qualified stock options (approximately 15% for Mr. Hesse) that vest in three equal portions on each of the first, second and third anniversaries of the grant date.

 

The 2011 LTIC plan continues our prior years’ focus on generating cash through establishing free cash flow and net service revenue as the equally-weighted performance objectives for the first annual performance period. The cash payout of the performance units may range from 0% to 150% based on achievement of the targets established under those objectives during the three performance periods, and the threshold and maximum payout level for the restricted stock units is 100% of target under those objectives. The Compensation Committee establishes targets for each performance period at the beginning of that period. The Compensation Committee may establish different objectives and weightings for the second and third annual performance periods.

 

For Mr. Hesse, the mix of LTIC plan awards was more heavily weighted by the Compensation Committee toward the components in which vesting is dependent on achievement of specific financial objectives. In particular, the numbers of shares underlying Mr. Hesse’s awards that are subject to performance-based vesting exceeds the number of shares underlying the awards that are subject to time-based vesting. This approach is intended to ensure that long-term compensation earned by our CEO, who is the executive most accountable to shareholders, is most sensitive to performance against long-term goals.

 

2011 Compensation Opportunities

 

As part of its annual evaluation of the balance of the primary elements of our executive compensation, in particular in relation to our peer group so as to promote retention and motivation of our executive talent,

the Compensation Committee also decided to adjust certain executives’ compensation for 2011. Accordingly, Mr. Hesse’s STIC plan opportunity for 2011 increased from 170% of his base salary to 200% and his target LTIC plan opportunity for 2011 increased to $12 million from $10 million. For 2011, Mr. Elfman’s target LTIC plan opportunity increased to $3.25 million. Mr. Johnson’s annual base salary increased to $483,000 and his target LTIC plan opportunity for 2011 increased to $1.4 million.

 

New Chief Financial Officer Compensation

 

After finalizing a search for the replacement of Mr. Brust when he departs as CFO in 2011, the Compensation Committee approved an employment agreement for Joseph J. Euteneuer to be effective on his hire date, incorporating the terms of his compensation package, the primary components of which are: annual base salary of $775,000; STIC plan target opportunity of 130% of base salary; $3,500,000 in 2011 LTIC plan target opportunity; $500,000 sign-on bonus payable in two installments; and a sign-on award of 125,000 restricted shares of our common stock vesting on the third anniversary of his hire date. As part of our recruiting efforts, we agreed to pay Mr. Euteneuer’s legal fees in connection with the negotiation of his employment agreement.

 

The Compensation Committee has reviewed and discussed Sprint Nextel’s Compensation Discussion and Analysis with management. Based on these reviews and discussions, the Compensation Committee recommended to the board that Sprint Nextel’s Compensation Discussion and Analysis be included in this proxy statement.

 

The Compensation Committee

Gordon M. Bethune, Chair

V. Janet Hill

William R. Nuti

Rodney O’Neal

 

We have assessed whether there are any risks arising from our compensation policies and practices for our employees and factors that may affect the likelihood of excessive risk taking. Based on that review, we have concluded that our compensation policies and practices are not reasonably likely to have a material adverse effect on the company.

 

In coming to this conclusion our human resources department reviewed the company’s incentive plans, surveying sales and non-sales related compensation programs as well as, executive and non-executive compensation programs. Pay philosophies, performance objectives and overall incentive plan designs were reviewed. Human resources personnel discussed plan elements with representatives from the finance department and reviewed the assessment with representatives from the legal department. Design features were assessed to determine whether there is likelihood that incentive plans could encourage excessive risk-taking resulting in a material adverse effect on the company and to ensure that appropriate governance is in place to mitigate risk under unforeseen circumstances. The results of this assessment were reviewed by the Compensation Committee.

 

The table below summarizes the compensation of our named executive officers that is attributable to the fiscal years ended December 31, 2010, 2009, and 2008. The named executive officers are our CEO and president, our CFO, and our three other most highly compensated executive officers ranked by their total compensation in the table below.

 

Each of our named executive officers has an employment agreement with us. For more information regarding our compensation philosophy and a discussion of the elements of our compensation program, see “— Compensation Discussion and Analysis.”

 

 

 

 

 

 

 

 

The table below summarizes awards under our short- and long-term incentive plans, and other option awards, to our named executive officers in 2010. These awards consisted of the following:

 

 

 

 

 

 

The grant date fair value of the 2010 performance-based RSUs for the 2010 performance period is set forth below.

 

 

Includes grant date fair value of options granted on March 16, 2010 as follows:

 

 

Includes the target opportunity of performance units for the 2010 annual performance period under the 2009 LTIC Plan, as follows:

 

 

The table below summarizes option awards that were exercised and stock awards that vested in 2010 with respect to each of our named executive officers.

 

 

 

 

The table below summarizes option and equity awards outstanding as of December 31, 2010 held by each of our named executive officers.