Boston Beer Co. sets 2011 growth targets

samuel-adams

(Boston, MA) – Boston Beer Co. announced its 2011 growth and executive bonus/performance goals late last month.


In light of today’s news from the Brewers Association lifting the cap so that Boston Beer Co. could remain a craft brewer, I thought it was worth posting the brewery’s performance goals for the upcoming year. There is a lot of info in the tables below so I’ve highlighted all goals in which the brewery measures itself against other craft breweries in red.

Courtesy of SECInfo.com

2011 Bonus Opportunities

At its meeting on December 14, 2010, the Compensation Committee of the Company’s Board of Directors approved bonus objectives for the Company’s named executive officers for 2011 and established Company-wide goals (the “Company 2011 Goals”) that apply to certain officers and other employees. The Company 2011 Goals consist of achieving total depletions growth of 8.8% and resource efficiencies and cost savings of at least $7.5 million, while maintaining brand health. Assessment of performance against the objectives listed below is within the purview of the Committee.

Chief Executive Officer

The Committee approved primary 2011 bonus opportunities for Martin F. Roperthe Company’s President and CEO, equal to 80% of salary, based on achieving objectives as set forth below. The Delivered Gross Profit and Margin, the Earnings Per Share and the Processing Cost goals (the ”Financial Goals”) are based on the Company’s current 2011 financial plan which does not include any estimates for the impact of the “Freshest Beer Program” as described in the Company’s earnings release dated November 4, 2010(the “FBP”). For bonus evaluation purpose, the Financial Goals will be adjusted based on the actual financial impact of the “Freshest Beer Program” in 2011.

TABLE 1 – CEO BONUS OPPORTUNITY = 80% OF BASE SALARY

Objectives to be Achieved by the Company by FY2011 Year-End

Weight

Depletions Weighted combined depletions and pricing growth* at least 10%
and EPS greater than $3.95
10%
Weighted combined depletions and pricing growth* at least 2% above craft shipments as reported by the Brewers Association, depletions volume greater than 33.7 million case equivalents and EPS greater than $3.95 15%
Delivered Gross Profit Delivered gross profit of $260 million and delivered gross profit
margin of at least 51%, after adjusting for commodity impact
from plan levels
20%
Improvement in
Processes and
Procedures in Sales
Force Execution
Systematic improvement in internal processes and procedures
relating to the sales force and wholesaler execution in the areas
of the Company’s “Sam to Standard” program, seasonal
conversion and effective use of draft surveys
10%
Savings Initiatives Combined savings of $7.5 million from delivered gross margin
and SG&A efficiency initiatives
10%
Freshness FBP successfully implemented for wholesalers covering at
least 50% of the Company’s volume
20%
Brand Management Improve brand management capabilities of organization 15%
TOTAL 100%

* Pricing growth is weighted twice as heavily as depletions growth.

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In addition, the Committee approved a further 2011 bonus opportunity for Mr. Roper equal to 80% of his primary 2011 bonus potential (which would equal an incremental 64% of his base salary) tied to achieving certain goals that would require substantial out-performance by the Company against its 2011 financial plan, as set forth below, adjusted based on the actual financial impact of the FBP:

TABLE 2 – CEO “STRETCH” BONUS OPPORTUNITY = 64% OF BASE SALARY

Weight

Objectives to be Achieved by the Company by FY2011 Year-End

(against base bonus opportunity)

Weighted combined depletions and pricing growth* above Brewers
Association reported craft beer shipment growth of at least 4%
20%
Weighted combined depletions and pricing growth* above Brewers
Association reported craft beer shipment growth of at least 7%
30%
Achieve processing costs of under $2.00 per case equivalent at
breweries owned by the Company
30%
TOTAL 80%

* Pricing growth is weighted twice as heavily as depletions growth.

Chairman

The Committee approved 2011 bonus opportunities for C. James Koch, the Company’s Chairman, equal to 100% of salary. Mr. Koch’s objectives for 2011 as a percentage of his bonus opportunities are set forth below. All Financial Goals will be adjusted based on the actual financial impact of the FBP.

TABLE 3 – CHAIRMAN BONUS OPPORTUNITY = 100% OF BASE SALARY

Objectives to be Achieved by the Company or the Chairman by FY2011 Year-End

Weight

Weighted combined depletions and pricing growth* of at least 10% and EPS
greater than $3.95
10%
Weighted combined depletions and pricing growth* of at least 2% above craft
shipments as reported by the Brewers Association, depletions volume greater
than 33.7 million case equivalents and EPS greater than $3.95
30%
Delivered gross profit of $260 million and delivered gross profit margin of at
least 51%, after adjusting for commodity impact from plan levels
20%
FBP successfully implemented for wholesalers covering at least 50% of the
Company’s volume
20%
Investment of time and resources in craft industry initiatives which support the
category and the Company.
20%
TOTAL 100%

* Pricing growth is weighted twice as heavily as depletions growth.

3

Chief Financial Officer

The Committee approved 2011 bonus opportunities for William F. Urich, the Company’s Treasurer and Chief Financial Officer, equal to 50% of his 2011 base salary, based on achieving objectives as follows:

TABLE 4 – CFO BONUS OPPORTUNITY = 50% OF BASE SALARY

Objectives to be Achieved by the Company or the CFO by FY2011 Year-End

Weight

Company 2011
Goals
The Company meets its Company 2011 Goals 30%*
Resource
Efficiency
Deliver $2.5 million of resource efficiency improvements outside
of Delivered Gross Margin
15%
Support the Operations group in indentifying and executing against
a 2011 Delivered Gross Margin goal to achieve $5 million of
savings/efficiencies by year-end 2012
15%
Improve Operations/Brewing performance measurements, KPI’s
and financial reporting. Improve SAP tracking of materials, yields
and cost reporting. Support continuous improvement process
5%
Procurement Identify and execute 2% savings for non-contracted procurement
spend and deliver $1.2 million savings

Identify and execute $1.5 million of Delivered Gross Margin
savings for full year 2012

15%
Sales Force
Effectiveness
Identify unplanned pricing opportunities (not including
opportunities created by competitive moves) of at least $500,000

Improve data and analysis delivery to Sales

10%
IT Improve effectiveness, productivity, business impact and efficiency
of IT department.
10%
TOTAL 100%

* 50% payout if depletions grow by at least 6% but less than 8.8%

Vice President of Operations

The Committee approved 2011 bonus opportunities for Thomas W. Lance, the Company’s Vice President of Operations, equal to 50% of his 2011 base salary, based on achieving objectives as follows:

TABLE 5 – VICE PRESIDENT OF OPERATIONS

BONUS OPPORTUNITY = 50% OF BASE SALARY

Objectives to be Achieved by the Company or Mr. Lance by FY2011 Year-End

Weight

Company
2011 Goals
The Company meets its Company 2011 Goals 20%*
Safety &
Quality
Reduce Total Incident Rate by 5% through improved employee
awareness, safety training and workplace conditions
10%
Reduce Total Aggregate Score by 5% while assuring quality of
shipments
10%

4

Resource
Efficiency
Achieve $5 million in Delivered Gross Margin improvements 10%
Brewery
Performance
Improve leadership and continuous improvement process, and
install high performance brewery environment to maximize
capacities, improve KPI’s, and reduce adjusted brewery cost/case
10%
Freshest Beer
Program
FBP successfully implemented for wholesalers covering at least
50% of the Company’s volume
20%
Brewery
Culture
Implement employee relations strategy to improve employee-
manager-company relations and support a progressive work
environment
15%
Capacity Develop supply chain plans that link to a 3-year supply chain vision
and support future growth
5%
TOTAL 100%

* 50% payout if depletions grow by at least 6% but less than 8.8%

Vice President of Sales

The Committee approved 2011 bonus opportunities for John C. Geist, the Company’s Vice President of Sales, equal to 50% of his 2011 base salary, based on achieving objectives as follows:

TABLE 6 – VICE PRESIDENT OF SALES

BONUS OPPORTUNITY = 50% OF BASE SALARY

Objectives to be Achieved by the Company or Mr. Geist by FY2011 Year-End

Weight

Company
2011 Goals
The Company meets its Company 2011 Goals 30%*
Depletions Grow Samuel Adams by at least 5.5% 15%
Grow Twisted Tea by at least 30% 5%
Grow Samuel Adams share in the craft category based on total IRI 5%
Class of Trade
Initiatives
Grow Sam Adams C-Store business by at least 10% 5%
Grow Twisted Tea C-Store Business by at least 40% 5%
Grow On-Premise National Accounts by at least 5% 5%
Wholesaler
Initiatives
Tracking and measuring achievement of “Sam to Standard” in all
core wholesalers, with improvements in accounts to standard by at
least 2.5%
5%
Increase number of independent on-premise accounts that carried
all 4 seasonal drafts in 2011over the number that carried all 4
seasonal drafts in 2010 by at least 10%
5%
Collect draft surveys in at least 90% of core wholesalers and
develop target account lists from such surveys
5%
Financial Obtain net mixed adjusted price increase of at least 1.5%, plus an
additional $500,000 in unplanned pricing
7.5%
Stay within Local Marketing and T&E budgets allocated to all
Sales for 2011, as adjusted throughout the year
7.5%
TOTAL 100%

* 50% payout if depletions grow by at least 6% but less than 8.8%

5

Other Executive Officer

The Committee also approved the 2011 bonus opportunity for one other executive officer, which opportunity consists of a combination of the Company achieving its Company 2011 goals and the officer achieving his individual goals. The bonus opportunity for such officer equals 50% of his 2011 base salary, with 20% of the bonus opportunity being the achievement by the Company of the Company’s 2011 goals.

Equity Compensation

Contingent Vesting Options

Based on the recommendation of the Compensation Committee, the Board of Directors approved the grant of contingent vesting options for shares of the Company’s Class A Common Stock to certain other executive officers and two senior managers for an aggregate of 13,200 shares, effective January 1, 2011, with an exercise price at the fair market value of such Common Stock on the effective date of the grant.

C. James Koch, the Company’s founder and Chairman, will be granted an option for 5,000 shares and the senior managers will each be granted an option for 1,600 shares. The number of shares as to which these options may become exercisable in any year is dependent upon the Company’s meeting certain 2011 depletions targets, as follows: 50% will be eligible to vest if 2011 depletions are at least 4.0% over 2010 depletions, and 100% will be eligible to vest if 2011 depletions are 8.8% or more over 2010 depletions.

Thomas W. Lance, the Company’s Vice President of Operations, will be granted an option for 5,000 shares. The number of shares as to which this option may become exercisable in any year is dependent uponthe Company’s meeting certain 2011 depletions targets, as follows: 50% will be eligible to vest if 50% of the Company’s volume in 2011 is participating in the Freshest Beer Program by the end of 2011; 25% will be eligible to vest if depletions are at least 4.0% or more over 2010 depletions; and 25% will be eligible to vest if 2011 depletions are 8.8% or more over 2010 depletions.

The determination will be made regarding the eligibility for vesting of these options by the Compensation Committee by mid-March 2012. Eligible shares will then vest at the rate of 20% per year over the five-year period commencing January 1, 2011, subject to accelerated vesting in certain specified circumstances. The options will lapse to the extent that the above depletions targets are not met.

Special Long-Term Retention Options

Based on the recommendation of the Compensation Committee, the Board of Directors approved the grant of options for shares of the Company’s Class A Common Stock to three executive officers for an aggregate of 175,000 shares, effective January 1, 2011 with an exercise price at the fair market value of such Common Stock on the effective date of the grant, as follows.

William F. Urich, the Company’s Chief Financial Officer, will be granted an option for 65,000 shares, all of which will vest five years from the effective date of grant.

6

John C. Geist, the Company’s Vice President of Sales, will be granted an option for 80,000 shares, 60% of which will vest five years from the effective date of grant, with the remaining shares vesting at the rate of 10% each year thereafter.

David A. Grinnell, the Company’s Vice President of Brewing, will be granted an option for 30,000 shares, 60% of which will vest five years from the effective date of grant, with the remaining shares vesting at the rate of 10% each year thereafter.

Each of the above executive officers must be an employee of the Company on the applicable vesting date or the non-vested options will lapse.

Restricted Stock Awards

In addition, upon the recommendation of the Compensation Committee, the Company’s Board of Directors approved an aggregate of $1,685,500 in restricted stock grants to be awarded to senior managers and certain key employees of the Company as of January 1, 2011. The restricted stock will vest over the five-year period commencing January 1, 2011, contingent only on continued employment, such that 20% of the shares will vest on January 1 in each of the years 2012 through 2016, subject to accelerated vesting in certain specified circumstances. No executive officers of the Company will be included in these restricted stock grants.

Approval of Class B Stockholder

All of the bonus opportunities and equity compensation grants to executive officers described above were approved by the sole holder of the Company’s Class B Common Stock.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

The Boston Beer Company, Inc.
(Registrant)
Date: December 20, 2010 /s/ Martin F. Roper
Martin F. Roper
Chief Executive Officer
(Signature)*

*Print name and title of the signing officer under his signature.

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