AGENDA ITEM 6: STOCKHOLDER PROPOSAL ON AN EXECUTIVE COMPENSATION PLAN

Proxy Table of Contents: Notice of the Annual Meeting Voting Procedures Corporate Governance Agenda Item 1 Compensation Committee Report Compensation Discussion and Analysis Compensation Tables and Narrative Equity Compensation Plan Information Beneficial Ownership of Company Stock Agenda Item 2 Agenda Item 3 Agenda Item 4 Agenda Item 5 Agenda Item 6 Audit Committee Report Other Governance Matters Appendix A Map to Annual Meeting of Stockholders Dow Proxy Statement Home

	Agenda Item 6 • Company’s Statement and Recommendation

A stockholder has stated that its representative intends to present the following proposal at the Annual Meeting. The Company will promptly provide the name and address of the stockholder and the number of shares owned upon request directed to the Corporate Secretary. Dow is not responsible for the contents of the proposal. If properly presented at the Annual Meeting, your Board unanimously recommends a vote AGAINST the following proposal.

Stockholder Resolution

Pay-for-Superior‑Performance Principle Proposal

Resolved: That the shareholders of The Dow Chemical Company (“Company”) request that the Board of Director’s Executive Compensation Committee adopt a pay-for-superior‑performance principle by establishing an executive compensation plan for senior executives (“Plan”) that does the following:

• Sets compensation targets for the Plan’s annual and long-term incentive pay components at or below the peer group median;
  
  
• Delivers a majority of the Plan’s target long-term compensation through performance‑vested, not simply time-vested, equity awards;
  
  
• Provides the strategic rationale and relative weightings of the financial and non-financial performance metrics or criteria used in the annual and performance‑vested long-term incentive components of the Plan;
  
  
• Establishes performance targets for each Plan financial metric relative to the performance of the Company’s peer companies; and
  
  
• Limits payment under the annual and performance‑vested long-term incentive components of the Plan to when the Company’s performance on its selected financial performance metrics exceeds peer group median performance.

Supporting Statement: We feel it is imperative that executive compensation plans for senior executives be designed and implemented to promote long-term corporate value. A critical design feature of a well-conceived executive compensation plan is a close correlation between the level of pay and the level of corporate performance. The pay-for-performance concept has received considerable attention, yet all too often executive pay plans provide generous compensation for average or below average performance when measured against peer performance. We believe the failure to tie executive compensation to superior corporate performance has fueled the escalation of executive compensation and detracted from the goal of enhancing long-term corporate value. Post-employment benefits provided to executives from severance plans and supplemental executive pensions exacerbate the problem.

We believe that the pay-for-superior‑performance principle presents a straightforward formulation for senior executive incentive compensation that will help establish more rigorous pay for performance features in the Company’s Plan. A strong pay and performance nexus will be established when reasonable incentive compensation target pay levels are established; demanding performance goals related to strategically selected financial performance metrics are set in comparison to peer company performance; and incentive payments are awarded only when median peer performance is exceeded.

We believe the Company’s Plan fails to promote the pay-for-superior‑performance principal in several important ways. Our analysis of the Company’s executive compensation plan reveals the following features that do not promote the pay-for-superior‑performance principle:

• The annual bonus is based 75% on a Company Economic Profit goal, but the company does not disclose the target level required for payout.
  
  
• Performance shares make up only 25% of the long-term incentive plan. The remainder is made up of 50% fixed‑price stock options and 25% time-based deferred stock.
  
  
• Performance share awards are peer group related; however, target payout is awarded for median performance.

We believe a plan designed to reward superior corporate performance relative to peer companies will help moderate executive compensation and focus senior executives on building sustainable long-term corporate value.

Company’s Statement and Recommendation [top]

Your Board of Directors unanimously recommends a vote AGAINST this proposal.

The Company supports pay-for-performance and has adopted executive compensation programs that place less emphasis on base salary than on performance‑based awards and equity‑based compensation. Our compensation programs are designed to attract, motivate, and retain the most talented executives and to reward them when achieving Company success in stockholder return, financial performance, and other operational measures. Our compensation programs are regularly benchmarked against a group of 20 peer companies, and are designed to compensate at the median of this group over the long-term. Actual payouts under these programs may be above or below the median based upon Company and personal performance. Greater than 80% of the Company’s top executives’ pay is considered “at-risk” based upon the achievement of specified results. The proposal specifically addresses the following performance‑based programs:

• Long-term Incentive Equity Awards (“LTI”):  LTI awards, along with Dow’s executive stock ownership guidelines, are designed to reward long-term performance, retain top talent, and promote stock ownership. All three components of the LTI program are performance‑based:
  
  
  • Performance Shares have no value unless the Company exceeds predefined performance measures.
    
    
  • Stock Options have no value to executives unless the price of Dow stock appreciates after the options are granted.
    
    
  • Deferred Stock vests over three years and will lose value if the stock price depreciates after the grant date.

The Compensation Committee of the Board of Directors (the “Committee”) feels that the current mix of Stock Options, Deferred Stock, and Performance Shares helps Dow meet all of these objectives.

• Performance Award:  50% of the Performance Award is based upon Company Economic Profit. The proposal correctly points out that the Company does not publicly disclose Economic Profit Goals. This is because disclosure of Economic Profit goals could enable competitors, customers, and suppliers to accurately estimate one of the critical financial metrics that drive business decisions. Performance Award targets are set by the Committee.

The Committee, which is comprised entirely of independent Directors, is responsible for ensuring the Company’s executive compensation policies and programs are competitive within the markets in which Dow competes for talent, and reflect the long-term investment interests of our stockholders. The Committee reviews and approves the compensation design, compensation levels, and benefits programs for all senior executives. We believe it is in the best interest of our stockholders that the Committee is able to implement an executive compensation program that rewards executives for their performance, based on the objectives it seeks to achieve. Our current structure allows the Committee to reward long-term, strategic decisions that are beneficial to Dow even though they may not result in short-term returns versus our peer companies. By contrast, this proposal would limit the Committee’s ability to calibrate and tailor the appropriate amount of compensation to reward these long-term, strategic decisions. The Committee also believes that Dow is a unique company with different strategies and goals, unique challenges and opportunities, and operates in different geographic areas than some of our peer companies. The proposal, as written, would compensate executives simply based on whether or not the Company exceeds the median performance of the peer group and would not allow for the exercise of the appropriate discretion and judgment needed by the Committee to reward long-term performance.

For all of these reasons, your Board believes that this proposal is not in the best interests of Dow or its stockholders. Accordingly, your Board unanimously recommends a vote AGAINST this proposal.

Vote Required

Approval of the resolution requires a majority of votes actually cast on the matter. For purposes of determining the number of votes cast on the matter, only those cast “for” and “against” are included, while abstentions and broker non-votes are not included.

Audit Committee Report >>