This proxy statement is being furnished to stockholders on behalf of our Board of Directors (our “Board”) for solicitation of proxies for use at our Annual Meeting of Stockholders (the “Annual Meeting”) to be held on Thursday, April 26, 2012, at 1:30 p.m. Pacific Time at 150 North Orange Grove Boulevard, Pasadena, California and at any adjournment or postponement thereof. The purposes of the meeting and the matters to be acted upon are set forth in the Notice of Annual Meeting of Stockholders, which appears at the beginning of this document.

Delivery of Annual Report

Our 2011 Annual Report to Stockholders is being mailed or made available to all stockholders of record on or before March 16, 2012.

Delivery of Proxy Materials

We have elected to provide access to our proxy materials on the Internet. Accordingly, we are sending a Notice of Internet Availability of Proxy Materials (the “Notice”) to our stockholders of record, while brokers and other nominees who hold shares on behalf of beneficial owners will be sending their own similar notice. All stockholders will have the ability to access the proxy materials on the website referred to in the Notice or request to receive a printed set of the proxy materials. Instructions on how to request a printed copy by mail or electronically, including an option to request paper copies on an ongoing basis, may be found in the Notice and on the website referred to in the Notice.

On or before March 16, 2012, we intend to make this proxy statement available on the Internet and to mail the Notice to all stockholders entitled to vote at the Annual Meeting. We intend to mail this proxy statement, together with a proxy card, to those stockholders entitled to vote at the Annual Meeting who have properly requested paper copies of the materials within three business days of request. You may request paper copies of the proxy statement and

proxy card from your broker, bank or nominee by following the instructions on the notice the broker, bank or other nominee provides to you.

Householding

We have adopted a procedure approved by the Securities and Exchange Commission (the “SEC”) called “householding.” Under this procedure, we are permitted to deliver a single copy of our proxy statement and annual report to stockholders sharing the same address. Householding allows us to reduce our printing and postage costs and reduces the volume of duplicative information received at your household.

For certain holders who share a single address, we are sending only one annual report and proxy statement to that address unless we received instructions to the contrary from any stockholder at that address. If you wish to receive an additional copy of our annual report or proxy statement, you may obtain one by writing to the Corporate Secretary at Avery Dennison Corporation, 150 North Orange Grove Boulevard, Pasadena, California 91103.

If you are a street name holder and wish to revoke your consent to householding and receive additional copies of our proxy statement and annual report in future years, you may call Broadridge Investor Communications Services toll-free at 1-800-542-1061 or write to Broadridge Investor Communications Services, Householding Department, 51 Mercedes Way, Edgewood, New York 11717.

Shares Entitled to Vote

Stockholders of record as of the close of business on February 27, 2012 are entitled to notice of, and to vote at, the Annual Meeting. There were 105,350,114 shares of our common stock outstanding on February 27, 2012. A list of stockholders entitled to vote will be available for inspection by stockholders at the Annual Meeting.

Voting Your Shares

You may vote by attending the Annual Meeting and voting in person or you may vote by submitting a proxy.

The method of voting by proxy differs depending on whether you are viewing this proxy statement on the Internet or reviewing a paper copy, as follows:

Telephone and Internet voting facilities will close at midnight the night before the Annual Meeting.

Shares Held in Our DirectSERVICE Investment Program

If you are a participant in our DirectSERVICE Investment Program, your shares acquired through the program may be voted by following the procedures described above.

Shares Held in Our Employee Savings Plan or Our Stock Holding and Retirement Enhancement Plan

If you are a participant in our Employee Savings (401(k)) Plan or our Stock Holding and Retirement Enhancement (SHARE) Plan, your vote will serve as a voting instruction to Evercore Trust Company, N.A., the trustee of these plans, for all shares you own through the plans. If you own shares through these plans

and your voting instructions are not received by the trustee by 11:59 p.m. Eastern Time on April 22, 2012, the trustee will vote your shares in the same proportion in which allocated shares are voted by participants in the applicable plan who timely furnish instructions. Shares of our common stock that have not been allocated to the account of any participant will also be voted by the trustee in the same proportion in which allocated shares are voted by participants in the applicable plan who timely furnish instructions.

Revoking Your Proxy or Changing Your Vote

A stockholder giving a proxy pursuant to this solicitation may revoke it at any time before it is exercised by (i) delivering a later dated paper proxy or submitting another proxy by telephone or on the Internet (your latest telephone or Internet voting instructions will be followed); (ii) delivering to our Corporate Secretary a written notice of revocation prior to the voting of the proxy at the Annual Meeting; or (iii) voting in person at the Annual Meeting. Simply attending the Annual Meeting will not revoke your proxy.

If your shares are held in “street name,” you may change your vote by submitting new voting instructions to your broker, bank or other nominee. You must contact your broker, bank or other nominee to find out how to do so.

Quorum and Votes Required

Votes cast by proxy or in person at the Annual Meeting will be tabulated by the inspectors of election appointed by our Board. The inspectors of election will also determine whether or not a quorum is present. At the Annual Meeting, determination of the existence of a quorum and tabulation of votes will occur as follows:

Voting on Additional Business

As of the date of this proxy statement, we know of no other business that will be presented for consideration at the meeting. However, if any other business properly comes before the meeting, votes will be cast pursuant to these proxies in respect of any such other business in accordance with the best judgment of the persons acting pursuant to the proxies.

Proxy Solicitation

We have retained D. F. King & Co., Inc. to assist in soliciting proxies for this meeting for a fee of $12,000, plus reimbursement for out-of-pocket expenses incident to the preparation and mailing of our proxy materials.

Submission of Stockholder Proposals for 2013 Annual Meeting

For presentation at the annual meeting scheduled to be held on April 25, 2013, stockholder proposals must be received at our principal executive offices on or before November 16, 2012. Our Amended and

Restated Bylaws (our “Bylaws”) generally provide that stockholders wishing to nominate persons for election to our Board or to bring any other business before the stockholders at an annual meeting must notify our Corporate Secretary thereof in writing 90 to 120 days prior to the first anniversary of the preceding year’s annual meeting. The notice must include, among other things, the following:

ALL STOCKHOLDERS ARE URGED TO VOTE BY TELEPHONE OR ON THE INTERNET BY FOLLOWING THE INSTRUCTIONS ON THE NOTICE OF AVAILABILITY OF PROXY MATERIALS. IF YOU HAVE PROPERLY REQUESTED AND RECEIVED A PAPER COPY OF THIS PROXY STATEMENT, YOU MAY VOTE YOUR SHARES BY (A) COMPLETING, DATING AND SIGNING THE PROXY CARD INCLUDED WITH THE PROXY STATEMENT AND PROMPTLY RETURNING IT IN THE PREADDRESSED, POSTAGE PAID ENVELOPE PROVIDED OR (B) SUBMITTING A PROXY BY TELEPHONE OR ON THE INTERNET BY FOLLOWING THE INSTRUCTIONS ON THE PROXY CARD. STOCKHOLDERS OF RECORD MAY OBTAIN A COPY OF THIS REPORT WITHOUT CHARGE FROM THE CORPORATE SECRETARY, AVERY DENNISON CORPORATION, 150 NORTH ORANGE GROVE BOULEVARD, PASADENA, CALIFORNIA 91103.

Under the oversight of our Board, we have taken a number of steps to enhance our corporate governance profile not only to ensure continued compliance with the Exchange Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act, related regulations, the rules of the SEC and the listing standards of the NYSE, but also to reflect best practices as informed by the policies of other public companies, recommendations of our outside advisors and guidelines of our stockholders and stockholder advisory firms.

Our website includes information about our corporate governance policies and practices, including our Code of Conduct; Code of Ethics for the Chief Executive Officer and Senior Financial Officers; Corporate Governance Guidelines (our “Governance Guidelines”); Independence Standards; Charters for the Audit Committee, the Compensation and Executive Personnel Committee (the “Compensation Committee”), and the Governance and Social Responsibility Committee (the “Governance Committee”); and the Audit Committee Complaint Procedures for Accounting and Auditing Matters. Our website also includes copies of our Amended and Restated Certificate of Incorporation and our Bylaws. Stockholders may access this information by going to the “Corporate Governance” section of the “Investors” tab of our website at www.averydennison.com.*

This section of the proxy statement contains information about our corporate governance policies and practices, as well as our Board.

Current Board of Directors

Our Board currently consists of the following directors:

* Wherever provided in this proxy statement, our website address is not intended to function as a hyperlink, and the information on our website is not and should not be considered part of, nor is it incorporated by reference into, this proxy statement.

Values and Ethics

The following core beliefs guide our actions and support our vision to “make every brand more inspiring and the world more intelligent”:

These values exemplify the characteristics and behaviors we expect from our leaders in support of our objectives, which are embodied in our leadership principles. They also provide the foundation for our corporate governance philosophy.

Code of Conduct

Our Code of Conduct, which applies to all of our directors, officers and employees, is built on our leadership principles, reflects our belief that there is no conflict between playing to win and being values-based and encourages ongoing dialogue about the choices we make every day to help us make great decisions. It highlights the policies that guide work-life at our company, including compliance with laws; equal opportunity and harassment-free workplace; protection and proper use of company assets and intellectual property; confidential information and insider trading; conflicts of interest; sustainability, community and social responsibility; trade compliance; and anti-bribery and corruption. Our Business Conduct GuideLine is a telephone hotline available at all hours for employees to ask questions or report potential violations of our Code of Conduct. Alleged violations are investigated under the direction of our Chief Risk Officer and senior management, with oversight from the Governance Committee.

Code of Ethics for CEO and Senior Financial Officers

In addition to our Code of Conduct, we have adopted a Code of Ethics that requires our Chief Executive Officer (“CEO”), Chief Financial Officer and Corporate Controller to act professionally and ethically in fulfilling their responsibilities. These individuals are expected to avoid actual or apparent conflicts between their personal and professional relationships and disclose any material transaction or relationship that could reasonably be expected to give rise to a conflict of interest to the Governance Committee. In addition, they are expected to cause reports and documents filed with the SEC to contain full, fair, accurate and understandable information; respect the confidentiality of information acquired in the course of the performance of their responsibilities; employ corporate assets and resources in a responsible manner; and report violations of our Code of Ethics to the Chairman of either the Audit Committee or the Governance Committee.

Corporate Governance Guidelines

Our Governance Guidelines provide the corporate governance framework for our company, and represent the beliefs of our Board with respect to the following matters, each of which is discussed in further detail in this section:

Board Composition

Our Bylaws provide for our Board to consist of between eight and 12 directors, with the exact number fixed from time to time by Board resolution. Our Board currently has set the number of directors at 11, four of whom are nominated for election at the Annual Meeting.

The ages of our directors range from 55 to 71, with an average age of 61. The lengths of service of our directors range from four months to 24 years, with an average tenure on our Board of approximately eight years. None of our directors serves on more than two other boards of SEC-reporting companies.

Director Qualifications

Selection of Director Nominees

Director nominees are recommended by the Governance Committee for nomination by our

Board and election by our stockholders. Although we do not have a formal policy regarding the consideration of diversity in identifying director nominees, the Governance Committee seeks to recommend nominees with a broad diversity of experience, profession, skill, geographic representation and background, which may include consideration of personal characteristics such as race, gender and national origin.

In considering whether to recommend a candidate as a director nominee, including candidates recommended by stockholders, the Governance Committee applies a number of criteria described in our Governance Guidelines. This assessment includes consideration of a potential nominee’s qualifications as independent; relevant business experience (considering factors such as size, the particular industry, scope, complexity and international operations); attendance; time commitments; conflicts of interest; ability to contribute to the oversight and governance of our company; and ability to represent the balanced interests of stockholders as a whole, rather than those of any special interest group in the context of the needs of our Board. The Governance Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all potential nominees. Our Board believes that the backgrounds and qualifications of the directors, considered as a group, should provide a mix of complementary experience, knowledge and abilities that will allow our Board to fulfill its responsibilities.

The Governance Committee reviews the qualifications of any candidate with those of current directors to determine coverage and gaps in experience in relevant industries and in diverse functional areas, such as finance, manufacturing, technology, and investing. Sources for identifying potential nominees may include members of the Governance Committee, other Board members, our executive officers, third-party search firms, and stockholders.

Stockholder Submission of Director Nominees

Stockholders may recommend new directors by submitting the candidate’s name,

together with the candidate’s biographical information, professional experience and written consent to nomination, to:

Julia A. Stewart, Chairman

Governance Committee

c/o Corporate Secretary

Avery Dennison Corporation

150 North Orange Grove Boulevard

Pasadena, California 91103

To be considered at the 2013 Annual Meeting, stockholder nominations must comply with the requirements described in Submission of Stockholder Proposals for 2013 Annual Meeting. The Governance Committee considers stockholder nominees on the same basis as it considers all other nominees.

Qualifications of Current Directors

The qualifications, professional experiences and areas of expertise that are particularly desirable for our directors to possess to provide oversight and stewardship of our company include the following:

2011 Director Search and Recruitment Process

During the second half of 2011, the Governance Committee oversaw our Board’s search for an independent director to replace Debra L. Reed, who resigned from our Board in June 2011 due to her other professional commitments. The Committee considered individuals nominated by directors, executive management, outside advisors and self-nominated individuals, focusing primarily on candidates with financial expertise. On November 14, 2011, upon the recommendation of the Governance Committee, our Board elected Charles H. Noski to the Board. Mr. Noski has extensive senior leadership experience, substantial financial expertise and significant public company board and corporate governance experience, as described in further detail in his biographical information included in Item 1 – Election of Directors.

Director Independence

Independence Standards

Our Governance Guidelines require that our Board be comprised of a majority of directors who satisfy the criteria for independence under NYSE listing standards. These standards

require that a majority of our directors be independent, and further that our audit, compensation and nominating committees be comprised entirely of independent directors.

An independent director is one who our Board affirmatively determines has no material relationship with our company, directly or indirectly as a partner, stockholder or officer of an entity with which we have a relationship. Our Board has adopted categorical standards to assist in annually making its affirmative determination of each director’s independence. A director is presumed to be independent if he or she meets the following categorical standards:

A director is determined to be independent by our Board only if he or she meets both the independence requirements of the NYSE and our categorical independence standards.

Independence Analysis for 2011

Our Board, through the Governance Committee, annually reviews all relevant relationships a director or director nominee has with us, including sales and purchases of products and services between us and the companies or firms with which the directors and nominees are affiliated. For 2011, the Governance Committee reviewed the following director relationships:

We also made payments to a global immigration law firm at which Mr. Barker’s brother, an immediate family member under our categorical independence standards, serves as a partner. The payments to the firm were made in the ordinary course of business and did not exceed $1 million in any of the last three fiscal years.

After review and discussion of the relevant facts and circumstances for each director, including the direct and indirect relationships described above, the Governance Committee concluded that – except for Messrs. Mullin and Scarborough – none of our directors had affiliations that were material or impaired the director’s independence. As a result, upon recommendation of the Governance Committee, our Board affirmatively determined that the following directors were independent: Bradley A. Alford, Peter A. Barker, Rolf L. Börjesson, John T. Cardis, Ken C. Hicks, Charles H. Noski, David E. I. Pyott, Patrick T. Siewert and Julia A. Stewart. These nine directors constitute a substantial majority, or 82%, of our 11-member Board.

Board Leadership Structure

Our President and CEO currently serves as Chairman and we have a Lead Independent Director with broad authority and responsibility. We believe that this structure is appropriate for us because it allows for one individual to speak as our leader with a cohesive vision for our company, the ability to execute that vision, and

the understanding of the significant enterprise risks that need to be mitigated or overcome to achieve that vision. Further, combined leadership at the top allows for the necessary flexibility for us to respond to the changing needs of our diverse businesses in today’s challenging economic environment. Balancing our combined Chairman and CEO roles is our Lead Independent Director who has critical duties in the boardroom to ensure effective and independent oversight. Together with robust and candid discussions at frequent executive sessions led by the Lead Independent Director (who is also the Chairman of the Compensation Committee) and with three other directors serving in leadership roles as Chairmen of the three other Committees, we believe our Board structure clearly delineates responsibility, ensures accountability and provides transparency.

Our Board believes that, in part because assigning the responsibilities of the roles of Chairman and CEO can be a useful component of succession planning, our Board leadership structure should be reevaluated periodically by our Board through the Governance Committee. The Governance Committee performed this evaluation in February 2012.

Chairman & Chief Executive Officer Dean Scarborough

Mr. Scarborough currently serves as our Chairman. Mr. Scarborough joined the Board in May 2000 when he was elected our President and Chief Operating Officer. He was elected by our Board as President and CEO in May 2005 and in that capacity is responsible for the general supervision, direction and control of our businesses and affairs. In February 2010, our non-management directors first elected Mr. Scarborough to the additional role of Chairman, effective April 2010.

In making its initial decision to combine the roles of Chairman and CEO in executive session with Mr. Scarborough not present, our Board determined that it was in the best interests of our stockholders to leverage Mr. Scarborough’s in-depth operational, financial and managerial

knowledge of our company as an employee in several leadership positions over almost thirty years with his extensive familiarity with the manner in which our Board discharges its oversight responsibilities, having served as a director for ten years, particularly given the challenging business environment due to the global economic downturn.

The Governance Committee reevaluated our Board leadership structure in February 2012 and recommended to our Board that Mr. Scarborough continue to serve as Chairman because he (i) remains best positioned to identify matters of operating and strategic importance for our Board, including the risks to which our businesses and strategies are subject, and (ii) has served as an effective bridge between management and our Board since his election as Chairman, noting that evaluations of his performance in the role had been favorable during the 2010 and 2011 Board evaluation processes. Our non-management directors determined to continue Mr. Scarborough’s service as Chairman, based on their view that the combined leadership structure enhances the Chairman/CEO’s ability to provide insight and direction on important strategic initiatives to both our Board and management. Mr. Scarborough was re-elected by our non-management directors as Chairman in February 2012; the one-year term to which he was most recently elected will begin, subject to his election by our stockholders, immediately following the Annual Meeting.

Lead Independent Director David Pyott

With the combined roles of Chairman and CEO, we believe that it is important to have a Lead Independent Director to ensure independent oversight of Board decision-making. Our Governance Guidelines describe the duties of the Lead Independent Director, which include the following:

In February 2010, in conjunction with the election of Mr. Scarborough as Chairman, our non-management directors selected Mr. Pyott as Lead Independent Director (with Mr. Pyott abstaining from the vote), effective April 2010. In initially selecting Mr. Pyott, our non-management directors recognized his familiarity with our businesses, operations and strategies, as well as his in-depth understanding of our Board after having served as our director for ten-plus years. In addition, Mr. Pyott has substantial experience leading and participating on public company boards, having served as chairman of Allergan, Inc. since February 2006 and member of the board of directors of Edwards Lifesciences Corporation since 2000.

In connection with its review of our Board leadership structure in February 2012, the Governance Committee (excluding Mr. Pyott) recommended to our Board that Mr. Pyott remain as Lead Independent Director, noting that evaluations of his performance had been favorable since he has served in that capacity and that his chairmanship of the Compensation Committee and membership on the Governance Committee provide him valuable insights on executive compensation and corporate governance matters that are of significant concern to stockholders in the current environment. Upon the Governance Committee’s recommendation (with Mr. Pyott

abstaining from the vote), our non-management directors (with Mr. Pyott abstaining from the vote) selected Mr. Pyott to serve for a one-year term as Lead Independent Director in February 2012; the one-year term to which he was most recently selected will begin, subject to his election by our stockholders, immediately following the Annual Meeting.

Executive Sessions

Our Board believes it is important to have executive sessions, which are scheduled during every regular meeting of the Board and may also occur during special meetings of the Board. During 2011, Mr. Pyott presided as Lead Independent Director at the five executive sessions of non-management directors (which excluded Mr. Scarborough) and the one executive session of independent directors only (which excluded Messrs. Mullin and Scarborough).

Board Committees

Committee Membership and Meetings

The following table shows the current membership of our Board and Committees, as well as number of meetings held by each group in 2011. As required by NYSE listing standards, all of the members of our audit, compensation and nominating committees are independent.

During 2011, there were eight meetings of our Board and 20 meetings of Committees of our Board. Each of our directors attended at least 82% of the aggregate number of meetings of our Board and Committees of which he or she was a member held during 2011, or if shorter, the period of time he or she served during the year; the average attendance of all directors in 2011 was 98%. We encourage directors to attend our annual stockholder meetings, and, except for Mr. Börjesson who was unable to attend due to a conflict with a meeting of another board on which he sits, all then-serving directors attended the 2011 Annual Meeting.

Audit Committee

Responsibilities

The Audit Committee is appointed to assist our Board in overseeing the following:

All members of the Audit Committee satisfy the enhanced independence standards for audit committee members set forth in applicable SEC rules and NYSE listing standards. Our Board has designated each of Messrs. Barker, Cardis and Noski as an “audit committee financial expert” under applicable SEC regulations.

Complaint Procedures for Accounting and Auditing Matters

The Audit Committee is responsible for ensuring that complaints related to accounting, accounting standards, internal accounting controls and audit practices are treated appropriately and has adopted procedures for the confidential, anonymous submission of complaints regarding these matters. These procedures relate to complaints for fraud or deliberate error in the preparation, evaluation, review or audit of any of our financial statements or other financial reports; fraud or deliberate error in the recording and maintaining of our financial records; deficiencies in or noncompliance with our internal accounting controls; misrepresentation or false statement to or by a senior officer or accountant regarding a matter contained in our financial records, financial statements, or other financial reports; or deviation from full and fair reporting of our financial condition. Any person, including third

parties, may submit a good faith complaint regarding accounting and auditing matters; employees may do so without fear of dismissal or retaliation of any kind. The Audit Committee oversees these procedures, which are investigated under the direction of our internal audit department in consultation with other members of senior management to the extent appropriate under the circumstances.

Stockholders and other interested parties interested in communicating regarding the Audit Committee Complaint Procedures for Accounting and Auditing Matters may write to:

John T. Cardis, Chairman

Audit Committee

c/o Corporate Secretary

Avery Dennison Corporation

150 North Orange Grove Boulevard

Pasadena, California 91103

Compensation and Executive Personnel Committee

Responsibilities

The Compensation Committee is appointed by our Board to oversee the compensation of our non-employee directors, CEO and other executive officers, which includes performing the following functions:

Compensation Committee Interlocks and Insider Participation

None of our current Compensation Committee members – or Ms. Reed, who served on the Committee through June 30, 2011 – is or has ever been an officer or employee of our company. To our knowledge, there were no relationships involving these individuals or our other directors which require disclosure in this proxy statement as a compensation committee interlock.

Committee Compensation Consultant

Under its charter, the Compensation Committee may select, retain and terminate a

compensation consultant to assist with the evaluation of compensation for directors, our CEO and other senior executives. The Compensation Committee has sole authority to approve the consultant’s fees and other terms and conditions governing the engagement.

During 2011, the Compensation Committee engaged Towers Watson as its compensation consultant. Towers Watson provides the Compensation Committee with compensation-related guidance by providing competitive market compensation data for senior executives; conducting periodic reviews of elements of our non-employee director, officer and employee compensation programs; identifying best practices in annual and long-term incentive planning, including performance objectives and relative weighting of components; and sharing executive compensation trends, issues and regulatory developments.

Representatives of Towers Watson were present at every Compensation Committee meeting held in 2011, and may be consulted in between meetings at the Compensation Committee’s discretion. Towers Watson performed no services for us in 2011 other than its work undertaken directly for the Compensation Committee. In 2011, Towers Watson received $171,283 in fees for its services to the Compensation Committee.

The Compensation Committee conducted its annual assessment of Towers Watson’s performance in December 2011, which included a review of various performance measures and evaluation criteria as well as the fees paid for the services. The Compensation Committee determined that it was satisfied with the performance of Towers Watson.

The Compensation Committee also evaluated Towers Watson’s independence in December 2011, determining that – in part because the firm provided no services to us outside of its work for the Compensation Committee during the year – Towers Watson was independent. Towers Watson and the Compensation Committee have had the following protocols in place since the

commencement of the engagement to establish and maintain Towers Watson’s independence from management:

The Compensation Committee intends to conduct a review of potential conflicts of interest in connection with its annual assessment of Towers Watson’s performance to comply with final rules expected to be issued by the SEC in 2012, when and as required by the regulations.

Governance and Social Responsibility Committee

Pursuant to its charter, the Governance Committee is appointed by our Board to:

Finance Committee

In addition to the aforementioned committees required by applicable SEC rules and NYSE listing standards, we also have a Finance Committee. The Finance Committee is appointed by our Board to oversee matters relating to our financial affairs and capital requirements and in that capacity performs the following activities on behalf of our Board:

Board Duties

Oversight of Risks Confronting Our Businesses

Management is responsible for the day-to-day management of risks confronting our businesses, but our Board has broad oversight responsibility for our risk management programs, including enterprise strategic risk oversight. We have a Chief Risk Officer who leads our enterprise risk management efforts and ensures that our values and ethics are being maintained globally.

Our Board as a whole oversees risks related to our corporate and business strategies, operations and enterprise risk management. In performing its oversight role, our Board is responsible for satisfying itself that the risk management processes designed and implemented by our management are functioning, and that necessary steps are taken to foster a culture of risk-adjusted decision-making within our organization. Each year, the full Board receives reports on the strategic plans and risks facing our businesses from our group and divisional leads. These risks may include financial risks, political and regulatory risks, legal risks, supply chain risks, information technology risks, and risks inherent in the way in which we do business. Employees who supervise various day-to-day risks periodically provide reports to Board Committees and, when appropriate, our Board.

Our Board has delegated to its Committees certain elements of its risk oversight function. In this context, the Audit Committee regularly discusses our risk assessment and mitigation processes to ensure that our risk management programs are effective and periodically meets in executive session with each of our Chief Financial Officer, General Counsel, Vice President of Internal Audit and our independent registered public accounting firm. In addition, the Audit Committee monitors and evaluates the effectiveness of our internal controls at least annually.

Our Board receives updates from its Committees on particular areas of risk as follows:

We identify and discuss material risks related to our businesses in our periodic reports filed with the SEC.

Oversight of Risks Associated with Compensation Policies and Practices

The Compensation Committee has designed our executive compensation program to provide incentives that do not encourage our executive officers to take unnecessary risks in managing their businesses or other employees to take unnecessary risks in carrying out their responsibilities. A majority of our executive officers’ compensation is performance-based and at risk, consistent with our executive compensation philosophy. The key elements of our compensation program that mitigate risk include the following:

As described in Compensation Discussion and Analysis, we maintain best practice compensation and corporate governance practices that collectively encourage ongoing risk assessment and mitigation.

Executive Compensation Risk Assessment

The Compensation Committee’s independent compensation consultant, Towers Watson, conducted a risk assessment of our executive compensation program. Utilizing qualitative and quantitative factors developed for its assessment, Towers Watson concluded that our executive compensation program strikes an appropriate balance between corporate risk mitigation and executive pay for performance.

Commission-Based Compensation Assessment

We reviewed all sales-based incentive compensation plans globally to assess whether those plans could potentially encourage excessive risk-taking. We documented the measures and administrative procedures for each plan and confirmed that no payment in excess of $300,000 was made pursuant to these plans. We identified the specific business risks related to these compensation plans, as well as all relevant factors that mitigated these risks, and determined that our sales incentive compensation plans do not create inappropriate risks to our company.

Based on the foregoing, we believe that our compensation policies and practices do not as a whole create risks that are reasonably likely to have a material adverse effect on our company.

Succession Planning

Our Board is actively engaged and involved in talent management to identify and cultivate our future leaders. We maintain a robust mid-year and annual performance review process, as well as a leadership development program that cultivates the leadership principles we feel are important for our future executives.

In 2011, the Compensation Committee reviewed succession planning in connection with our Board’s annual review of our overall business strategy. The Compensation Committee reviewed individuals identified as possible CEO succession candidates, including progress in current job position and career development in terms of strategy, leadership and execution. In addition, the Compensation Committee discussed leadership below the executive officer level, identifying the talent that is currently ready, or with continued development on their current trajectory with mentorship from our current leaders will be ready, to fill executive officer positions in the event of a vacancy. Similarly, our management works on developing leadership at lower levels of our organization by identifying core talent, cultivating the skills and capabilities that will

allow identified individuals to become future leaders, assessing their development in embodying our leadership principles and identifying gaps and developmental needs in skills and experience.

Through regular reports to the Board from senior management, our Board has the opportunity to meet with leaders of the company, including executive officers, business leaders and functional leaders in areas such as legal, finance, risk, and human resources. In addition, Board members have direct freedom of access to all employees, and are encouraged to make site visits to meet local management and attend company events.

Continuous Board Improvement

Director Orientation and Continuing Education

Our director education program consists of visits to our facilities and education regarding our Code of Conduct and other policies and practices relevant to our business and operations. We sponsor in-house orientation and continuing education programs for our Board and provide updates on relevant topics of interest to our Board throughout the meeting calendar. We reimburse directors who attend accredited director education programs and institutes for program fees and related expenses.

In early 2012, we conducted an orientation program for Mr. Noski, our newest director. We provided Mr. Noski with documentation regarding our strategic plans and competitors; corporate governance policies and practices; Board and Audit Committee responsibilities and processes; director compensation policies; conflict of interest policy; sustainability initiatives; and public disclosures. In addition, Mr. Noski’s orientation covered Audit Committee duties and responsibilities, including financial disclosure oversight, fraud and ethics monitoring and risk management oversight and key relationships, including independent auditor engagement and internal audit deployment. During an in-person meeting with Mr. Noski, we answered his questions related to our policies, procedures, practices, operations and businesses.

Board and Committee Evaluations

The Governance Committee leads an annual assessment of the performance of the Board, including our Chairman and Lead Independent Director, and our Board Committees, including the Committee Chairmen. Many of the changes to our Governance Guidelines, Committee Charters, corporate governance practices and Board processes have resulted from the annual evaluation process. The Board views the annual evaluation process as an integral part of its ongoing commitment to cultivating excellence and best practices in Board and Committee performance.

Communicating with Our Board of Directors

Stockholders and other interested parties may write to our Board, Chairman, Lead Independent Director, any Committee or Committee Chairman, or any other individual director concerning business-related matters by writing to the group or individual as follows:

Board of Directors

(or applicable group or individual)

c/o Corporate Secretary

Avery Dennison Corporation

150 North Orange Grove Boulevard

Pasadena, California 91103

Our Corporate Secretary reviews all communications received and forwards them as addressed. However, unsolicited advertisements, business solicitations, product-related inquiries, junk mail or mass mailings, resumes or other job-related inquiries – or offensive, illegal or otherwise inappropriate communications that do not substantively relate to the duties and responsibilities of our Board – may not be forwarded.

Our Bylaws provide for a Board of between eight and 12 directors, with the exact number fixed from time to time by a resolution of our Board. There are currently 11 directors on our Board, four of whom are to be elected at the Annual Meeting. At the 2011 Annual Meeting, stockholders voted to declassify our Board; as a result, director nominees elected at the Annual Meeting will hold office until the 2013 Annual Meeting and until their successors are duly elected and qualified. Continuing directors will hold office until the expiration of their current term and, if nominated to stand for re-election, will be nominated to serve a one-year term.

Each of the four nominees is presently serving as our director. All of the nominees have consented to being named in this proxy statement and serving if elected.

Majority Voting Standard for Director Elections

Our Bylaws provide for the majority voting of directors in uncontested elections and require that an incumbent director who is not re-elected tender his or her resignation from the Board. Our Board, excluding the tendering director, is required to act on the tendered resignation – taking into account the recommendation of the Governance Committee and any other factors or information it considers appropriate and relevant – and publicly disclose its decision regarding the tendered resignation, including the rationale for the decision, within 90 days from the date election results are certified. In a contested election, plurality voting is the standard for election of directors.

In voting for the election of directors, each share has one vote for each position to be filled.

Recommendation of Board of Directors

Your Board of Directors recommends that you vote FOR each of the director nominees.    The persons named as proxies will vote for the election of each of the four nominees, unless you specify otherwise. If any of them were to become unavailable prior to the Annual Meeting, the proxy would be voted for a substitute nominee designated by our Board or we would reduce the size of our Board.

2012 Director Nominees and Continuing Directors

The following pages provide information for each nominee for election at the Annual Meeting and each director whose term continues, including his or her age, positions held, current principal occupation and business experience during at least the past five years. We also indicate the names of any other public companies on which each director currently serves as a director or has served as a director during the past five years; for these purposes, “public company” means a company that is required to file reports with the SEC.

In addition to the information presented below regarding each director’s experience, qualifications, attributes and skills that led our Board to the conclusion that he or she should serve as a director – which includes senior leadership experience, industry knowledge, global operations experience, financial expertise, and public company board and corporate governance experience – we believe that each of our directors has a reputation for integrity and adherence to high ethical standards, as well as a commitment to representing the long-term interests of our stockholders. Each of them also has demonstrated an ability to exercise sound judgment, as well as a commitment to serving Avery Dennison and our Board.

		John T. Cardis

Age 70

Director since October 2004

If elected, term will expire in 2013

Board Roles:

Audit Committee Chairman

Finance Committee Member

Current Public Company Directorships:

Edwards Lifesciences Corporation

Public Company Directorships in Past 5 Years:

Energy East Corporation

Business Experience:    Mr. Cardis is currently a private investor, having retired in May 2004 as national managing partner of global strategic clients for Deloitte & Touche USA LLP, an audit, tax, consulting and financial advisory services firm. From June 1991 to June 1999, Mr. Cardis served as managing partner of the Los Angeles office of Deloitte & Touche. He was also a member of the firm’s executive committee and board of directors.

Skills and Qualifications:    Our Board concluded that Mr. Cardis should serve as our director in light of his public company board experience and forty-plus years of financial and risk management expertise acquired through auditing global public companies. In addition, Mr. Cardis has substantial senior leadership experience, having served on the executive committee of Deloitte & Touche for eighteen years, the firm’s board of directors for eight years and managing partner of the firm’s second largest U.S. office for eight years. As a major owner and manager of a real estate development company, Mr. Cardis has hands-on experience in financing, operations, marketing and sales. In light of his training as a certified public accountant (now inactive), substantial experience advising over thirty audit committees regarding accounting and risk management matters as audit partner and advisory partner, and services as chairman of the audit committee of Edwards Lifesciences, our Board has appointed Mr. Cardis Chairman of the Audit Committee. His substantial experience evaluating capital structure and financing strategies led to our Board appointing Mr. Cardis as a member of the Finance Committee.

		David E. I. Pyott

Age 58

Director since November 1999

If elected, term will expire in 2013

Board Roles:

Lead Independent Director

Compensation Committee Chairman

Governance Committee Member

Current Public Company Directorships:

Allergan, Inc. (Chairman)

Edwards Lifesciences Corporation

Public Company Directorships in Past 5 Years:

Pacific Mutual Holding Company

Business Experience:    Since April 2011, Mr. Pyott has been chairman, president and chief executive officer of Allergan, Inc., a global health care company, having also served in that capacity from April 2001 to January 2006. Mr. Pyott served as Allergan’s chairman and chief executive officer from February 2006 to April 2011, and its president and chief executive officer from January 1998 to March 2001.

Skills and Qualifications:    Our Board concluded that Mr. Pyott should serve as a director on our Board in light of his public company board service, senior leadership experience as a chairman, president and chief executive officer of a global company, and thirty-plus years of strategic, operational, R&D and marketing experience in the health care industry. Having served as chairman and chief executive officer of Allergan, as well as a member of the compensation and governance committees of Edwards Lifesciences, Mr. Pyott has been appointed by our Board as Chairman of the Compensation Committee and a member of the Governance Committee. In addition, leveraging his board stewardship experience and decade-plus familiarity with our businesses and Board processes, Mr. Pyott has been selected by our non-management directors to serve as Lead Independent Director.

		Dean A. Scarborough

Age 56

Director since May 2000

If elected, term will expire in 2013

Board Roles:

Chairman

Current Public Company Directorships:

Mattel Corporation

Public Company Directorships in Past 5 Years:

None

Business Experience:    Since April 2010, Mr. Scarborough has been our chairman, president and chief executive officer. From May 2005 to April 2010, he served as our president and chief executive officer, having served as our president and chief operating officer from May 2000 to April 2005. From November 1999 to April 2000, Mr. Scarborough served as group vice president of our Label and Packaging Materials division. Prior to November 1999, he held several other executive positions with our company.

Skills and Qualifications:    Our Board concluded that Mr. Scarborough should serve on our Board in light of his substantial leadership experience as our executive officer, including his accomplishments during the last seven years as our chief executive officer and the last twelve years as our president; his in-depth knowledge of our market-leading pressure-sensitive materials businesses; and his twenty-six years of experience managing our global operations. Our non-management directors recognize the importance of having a management voice on our Board, believing among other things that Mr. Scarborough has demonstrated expertise in the sectors in which we operate and can lead our Board with its oversight of our businesses and strategies, including mitigation of the risks related thereto.

		Julia A. Stewart

Age 56

Director since January 2003

If elected, term will expire in 2013

Board Roles:

Governance Committee Chairman

Compensation Committee Member

Current Public Company Directorships:

DineEquity, Inc. (Chairman)

Public Company Directorships in Past 5 Years:

IHOP Corporation (DineEquity predecessor)

Business Experience:    Since June 2008, Ms. Stewart has been chairman and chief executive officer of DineEquity, Inc. which owns, operates and franchises the IHOP and Applebee’s restaurant chains. Ms. Stewart was chairman and chief executive officer of IHOP Corporation, DineEquity’s predecessor entity, from May 2006 to May 2008, having served as president, chief executive officer and chief operating officer from May 2002 to April 2006.

Skills and Qualifications:    Our Board concluded that Ms. Stewart should serve as a director on our Board in light of her strong senior leadership experience as chairman, president and chief executive officer of the world’s largest full-service restaurant company, as well as her substantial operational and marketing experience in the dining industry. As chairman and chief executive officer of DineEquity, Ms. Stewart is primarily responsible for brand positioning, risk assessment, financial reporting and corporate governance, and she brings her expertise in these areas to our Board not only as director, but also as Chairman of the Governance Committee and member of the Compensation Committee.

		Bradley A. Alford

Age 55

Director since April 2010

Term expires in 2013

Board Roles:

Compensation Committee Member

Current Public Company Directorships:

None

Public Company Directorships in Past 5 Years:

None

Business Experience:    Since January 2006, Mr. Alford has been chairman and chief executive officer of Nestlé USA, a food and beverage company. From 2003 to 2005, Mr. Alford served as president and chief executive officer of Nestlé Brands Company, an operating unit of Nestlé USA, after holding various leadership positions in the U.S. and abroad since joining Nestlé SA, the world’s largest food and drinks maker, in 1980.

Skills and Qualifications:    Our Board concluded that Mr. Alford should serve as our director in light of his substantial senior leadership experience as chairman and chief executive officer of a consumer packaged goods company with over $10 billion in sales, his vast knowledge of the consumer goods industry and food and beverage sector into which our Label and Packaging Materials and Specialty Materials businesses sell, and his significant international experience gained from assignments outside the United States, including in geographic markets which we serve. In addition, our Board recognized that Mr. Alford’s significant experience integrating businesses can assist our Board in overseeing future acquisitions. As chief executive officer of a company with over 25,000 employees, Mr. Alford brings significant experience with executive compensation program design and succession planning to the Compensation Committee, to which our Board has appointed him.

		Peter K. Barker

Age 63

Director since January 2003

Term expires in 2014

Board Roles:

Finance Committee Chairman

Audit Committee Member

Current Public Company Directorships:

Fluor Corporation

Public Company Directorships in Past 5 Years:

GSC Investment Corp.

Business Experience:    Since September 2009, Mr. Barker has served as chairman of California for, and a member of the executive committee of, JPMorgan Chase & Company, a global financial services firm. From November 1971 to November 2003, Mr. Barker was affiliated with Goldman Sachs & Co., an investment banking, securities and investment management firm, serving as a general partner from 1982 to 1998.

Skills and Qualifications:    Our Board concluded that Mr. Barker should serve as a director on our Board in light of his financial expertise cultivated during thirty-seven years of experience in the investment banking and investment management profession. Mr. Barker has advised companies on capital structure, strategic planning, financing, recapitalization, acquisitions and divestitures. In addition, Mr. Barker has substantial senior leadership experience, leading a division with over 18,000 employees and helping oversee a $100+ billion global organization. Our Board recognized Mr. Barker’s board experience, including his previous membership on the finance committees of two public companies and the audit committees of four public companies, in appointing him Chairman of the Finance Committee and a member of the Audit Committee.

		Rolf L. Börjesson

Age 69

Director since January 2005

Term expires in 2013

Board Roles:

Finance Committee Member

Governance Committee Member

Current Public Company Directorships:

None

Public Company Directorships in Past 5 Years:

None

Business Experience:    Since May 2008, Mr. Börjesson has been the retired chairman of Rexam PLC, a consumer packaging company traded on the London Stock Exchange. From May 2004 to April 2008, Mr. Börjesson was Rexam’s non-executive chairman, having served as chief executive officer from 1996 to May 2004.

Skills and Qualifications:    Our Board concluded that Mr. Börjesson should serve as a director on our Board in light of his in-depth understanding of Europe, a key geographic market for our businesses, as well as his forty-plus years of operational and marketing experience in the consumer packaging and manufacturing industries into which our Label and Packaging Materials and Specialty Materials divisions sell. In addition, Mr. Börjesson led a company with global operations for over a decade and has served on the board of directors of companies publicly traded in the United Kingdom, Sweden and Finland. Recognizing his prior service on the finance committee of Rexam and on the nominating committees of two other foreign-listed companies, our Board has appointed Mr. Börjesson a member of the Finance Committee and the Governance Committee.

		Ken C. Hicks

Age 59

Director since July 2007

Term expires in 2014

Board Roles:

Audit Committee Member

Governance Committee Member

Current Public Company Directorships:

Foot Locker, Inc. (Chairman)

Public Company Directorships in Past 5 Years:

J.C. Penney Company, Inc.

Business Experience:    Since February 2010, Mr. Hicks has been chairman, president and chief executive officer of Foot Locker, Inc., a specialty athletic retailer, having served as president, chief executive officer and director since August 2009. From January 2005 to July 2009, Mr. Hicks was the president and chief merchandising officer of J.C. Penney Company, Inc., a retail company, having served as its president and chief operating officer from July 2002 to December 2004. From January 1999 to February 2002, Mr. Hicks was president of Payless ShoeSource, Inc., specialty family footwear retailer.

Skills and Qualifications:    Our Board concluded that Mr. Hicks should serve on our Board in light of his senior leadership experience as a president, chief executive officer and chief merchandising officer. Mr. Hicks’ twenty-eight years of senior marketing and operational experience in the retail industry into which our Retail Branding and Information Solutions division sells provides our Board and management with valuable insights that help us better assess our strategies for the business and mitigate any related risks. In light of his experience certifying financial statements as chief executive officer of a public company and overseeing governance-related matters as chairman of that company, our Board has appointed Mr. Hicks as a member of the Audit Committee and the Governance Committee.

		Peter W. Mullin

Age 71

Director since January 1988

Term expires in 2013

Board Roles:

Finance Committee Member

Current Public Company Directorships:

None

Public Company Directorships in Past 5 Years:

Mrs. Fields Holding Company, Inc.

Business Experience:    Since November 2008, Mr. Mullin has been chairman emeritus of MullinTBG, an executive compensation, benefit planning and corporate insurance consulting firm. In addition, Mr. Mullin has served as chairman of M Financial Holdings, Inc., one of the largest reinsurance companies in the United States, and its wholly-owned subsidiary, M Life Insurance Company, since June 1999. From March 2006 to October 2008, Mr. Mullin was chairman of MullinTBG. Mr. Mullin was chairman and chief executive officer of Mullin Consulting, Inc. from 1999 to February 2006.

Skills and Qualifications:    Our Board concluded that Mr. Mullin should serve as our director in light of his senior leadership experience as a chairman and chief executive officer, and his financial expertise developed during forty years of experience in the executive compensation and corporate insurance industries. In addition, Mr. Mullin’s service as director, trustee or in other leadership roles on several non-profit, educational and charitable organizations, demonstrates a commitment to social responsibility recognized by our Board. Our Board has determined that Mr. Mullin is not independent; as a result, he does not serve on any committee requiring only independent directors under NYSE listing standards. Mr. Mullin is, however, a member of the Finance Committee.

		Charles H. Noski

Age 59

Director since November 2011

Term expires in 2014

Board Roles:

Audit Committee Member

Current Public Company Directorships:

Microsoft Corporation

Public Company Directorships in Past 5 Years:

Air Products & Chemicals, Inc.

Automatic Data Processing, Inc.

Morgan Stanley

Business Experience:    Mr. Noski has served as vice chairman of Bank of America Corporation since June 2011, having served as its executive vice president & chief financial officer from May 2010 to June 2011. From December 2003 to May 2005, Mr. Noski was corporate vice president & chief financial officer of Northrop Grumman Corporation, after serving as a senior advisor for The Blackstone Group from March to November 2003. Mr. Noski was senior executive vice president and chief financial officer of AT&T Corporation from December 1999 to February 2002, and served as AT&T’s vice chairman of from February to November 2002. Mr. Noski served Hughes Electronics Corp. in various leadership roles from 1990 to 1999, including president and chief operating officer and corporate senior vice president and chief financial officer. Mr. Noski began his career with Deloitte & Touche LLP in 1973, and served as an audit partner for seven years until 1990.

Skills and Qualifications:    Our Board concluded that Mr. Noski should serve as a director on our Board in light of his financial expertise as a former partner of a global independent registered public accounting firm and former chief financial officer of global financial services, telecommunications and aerospace companies. In addition, Mr. Noski brings valuable insights gained during his tenure on public company boards in a variety of global industries. Our Board recognized Mr. Noski’s service as chairman of the audit committees of two public companies and his chairmanship of the Financial Accounting Standards Advisory Council in appointing him to the Audit Committee.

		Patrick T. Siewert

Age 56

Director since April 2005

Term expires in 2013

Board Roles:

Audit Committee Member

Finance Committee Member

Current Public Company Directorships:

None

Public Company Directorships in Past 5 Years:

None

Business Experience:    Since April 2007, Mr. Siewert has been a managing director for The Carlyle Group, a global alternative investment firm. From February 2006 to March 2007, he was a senior advisor to The Coca-Cola Company, the world’s largest beverage company, having served as its group president for Asia from August 2001 to February 2006.

Skills and Qualifications:    Our Board concluded that Mr. Siewert should serve as a director on our Board in light of his financial expertise as managing director of an investment firm, his operational experience with a global company in the beverage sector of the consumer goods industry into which our Label and Packaging Materials division sells, and his background in the consumer and retail industries in Asia, a region in which we manufacture many of the products for our Retail Branding and Information Solutions division and a geographic market that is driving our sales growth in emerging markets. In addition, Mr. Siewert has served on the board of directors of several international companies. Because of his extensive financial and investment experience, as well as his experience with overseeing accounting and auditing matters in foreign jurisdictions, our Board has appointed Mr. Siewert to the Audit Committee and the Finance Committee.

The table on the following page provides information regarding compensation earned by or awarded to our non-employee directors during 2011. The components of our non-employee director compensation are described below.

Deferrable Cash Compensation

Our non-employee directors earn an annual retainer of $65,000, which is prorated for the period of his or her service during the year, except that the Lead Independent Director earns an annual retainer of $85,000. In addition, the Chairman of the Audit, Compensation, Finance and Governance Committees receives an annual retainer of $15,000, $12,500, $7,500 and $7,500, respectively, for his or her service in that capacity. Non-employee directors also receive $1,500 per Board meeting attended; $2,000 per Committee meeting attended as Chairman; and $1,500 per Committee meeting attended as member. Directors are reimbursed for travel expenses incurred to attend Board meetings.

Non-employee directors may choose to receive their retainers and meeting fees in (i) cash; (ii) deferred stock units (“DSUs”) to an individual account established in their name under the Directors Deferred Equity Compensation Plan (“DDECP”), which are converted into shares of our common stock upon the director’s resignation or retirement; or (iii) a combination of cash and DSUs. Dividend equivalents, representing the value of dividends per share paid on shares of our common stock calculated with reference to the number of DSUs held as of a quarterly dividend record date, are credited in the form of additional DSUs to the accounts of directors who participate in the DDECP on the dividend payable date.

Messrs. Börjesson, Cardis and Siewert have elected to receive their retainers and meeting fees in cash; Mr. Hicks receives half of his retainer and meeting fees in cash and the

other half in DSUs. The remaining directors receive their retainers and meeting fees in DSUs, except for Mr. Mullin who defers his fees to an individual account established under the Directors Variable Deferred Compensation Plan (“DVDCP”). Fees deferred under the DVDCP accrue earnings at the rate of return of certain bond and equity investment funds managed by an insurance company.

Equity Compensation

Each non-employee director who was a member of our Board on April 28, 2011 received an annual equity grant of approximately $100,000, denominated 50% in restricted stock units (“RSUs”) and 50% in stock options. Each such director received 1,170 RSUs and an option to purchase 4,664 shares of our common stock at an exercise price of $42.725, the closing price of our common stock on the date of grant. In connection with his election to our Board on November 14, 2011, Mr. Noski was awarded an equity grant that was prorated from the date of his election to the date of the Annual Meeting, resulting in his receipt of 797 RSUs and an option to purchase 3,177 shares of our common stock at an exercise price of $26.135, the closing price of our common stock on the date of grant. The RSUs and stock options vest ratably over three years, except that all unvested RSUs and stock options held by a director retiring from our Board at or after age 72 fully vest on the retirement date. The stock options expire after ten years.

The amount of RSUs granted to non-employee directors was determined using the aggregate grant date fair value in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation – Stock Compensation (“ASC Topic 718”), adjusted for foregone dividends. The amount of stock options granted to non-employee directors was determined using the aggregate grant date fair value, without adjustment for forfeitures, using the Black-Scholes option-pricing model.

Stock Ownership

To further align our directors’ interests with those of our stockholders, our stock ownership policy requires that non-employee directors acquire and maintain a minimum equity interest in our company equal to the lesser of (i) five times the annual Board retainer (currently $325,000) divided by our stock price or (ii) 6,500 shares.

The Governance Committee reviewed non-employee director ownership levels in February 2012 and determined that nine of our directors had exceeded the minimum ownership level required by the policy and our two newest directors were on track to meet the minimum

ownership level within five years of joining our Board, as required by our stock ownership policy.

To our knowledge, based solely on our review of their written representations, none of our directors purchased financial instruments designed to hedge or offset any decrease in the market value of our common stock held, directly or indirectly, by them.

Matching Gift Program

We match up to $10,000 per year of each non-employee director’s contributions to charitable organizations or educational institutions.

This Compensation Discussion and Analysis (this “CD&A”) provides an overview and analysis of the principles and practices underlying our executive compensation program. In Tabular and Narrative Compensation Disclosures, we provide a series of tables with compensation information for our following named executive officers (our “NEOs”) for 2011:

Chairman, President and

Chief Executive Officer;

Senior Vice President and

Chief Financial Officer;

President,

Specialty Materials and

New Growth Platforms;

President,

Retail Branding and

Information Solutions; and

President,

Label and Packaging Materials.

Stockholders are urged to carefully review and consider this CD&A, together with the information contained in Tabular and Narrative Compensation Disclosures, in casting their advisory vote to approve our executive compensation. See Proposal 2 – Advisory Vote to Approve Executive Compensation.

THIS CD&A CONTAINS “FORWARD-LOOKING STATEMENTS” WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE EXPECTED RESULTS,

PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS.

Executive Summary

Our 2011 Performance^† and Link to Pay Decisions

Due to our entry into a definitive agreement to sell our Office and Consumer Products (“OCP”) business, unless otherwise indicated, the following discussion of our 2011 performance reflects only continuing operations.

Increased Cash Returns to Stockholders

In 2011, we returned more cash to stockholders by increasing our annual dividend by 25% to $1.00 per share from $0.80 per share in 2010. In addition, our Board authorized the repurchase of an additional five million shares of our common stock in January 2011, bringing the total number of shares available for repurchase under this and prior Board authorizations to approximately six million.

Despite the headwinds of challenging economic conditions and increased raw material inflation, we positioned ourselves in 2011 for greater future cash returns to stockholders by:

As a result of our disciplined financial management, implementation of productivity improvements and portfolio rationalization efforts, as of January 31, 2012, we anticipated further increased return of cash to stockholders during 2012. To that end, our Board increased our quarterly dividend by 8% in January 2012 to $0.27.

Challenging 2011 Resulted in No 2011 Bonuses for NEOs or Payouts for Performance Units Eligible for Vesting

In 2011, we delivered results that reflected the impacts of challenging global economic conditions on the markets we serve and rising

raw material costs. By countering these pressures with increased prices and further improvements in productivity, we achieved the following results:

These financial metrics served as the performance objectives under our 2011 bonus plan. Since we did not achieve the threshold level for any of the objectives, none of our NEOs received a bonus for 2011.

In addition, the threshold level for the relative total shareholder return (“TSR”) performance objective established by the Compensation Committee for the 2009-2011 MTIP was not achieved; as a result, the PUs granted thereunder were cancelled and no compensation related to the grant was received by eligible executives, including our NEOs.

Based on our 2011 performance, our CEO recommended to the Compensation Committee that his salary not be increased for 2012. The Compensation Committee approved our CEO’s recommendation.

2012 Outlook

We remain committed to the long-term profitable growth of our Pressure-sensitive Materials and Retail Branding and Information Solutions businesses on behalf of you, our

stockholders. As of January 31, 2012, the date on which we announced our financial results for the 2011 fiscal year, we anticipated the following for 2012:

Total Realized Compensation for 2011

While we provide consistent and competitive compensation opportunities for our NEOs, in furtherance of our pay-for-performance philosophy, the actual compensation realized by them varies year-to-year based on our performance.

The following Total Realized Compensation Table shows the compensation actually earned by our NEOs in each of the last three years. It is not intended as, nor should it be considered as, a substitute for the Summary Compensation Table required by SEC regulations. Whereas the Summary Compensation Table includes the change in the actuarial present value of pension benefits to which NEOs are entitled, the Total Realized Compensation Table excludes these

amounts because they are based on the assumptions we use for financial reporting purposes and do not reflect amounts paid to or realized by our NEOs. In addition, amounts under the stock award and option award columns of the Summary Compensation Table reflect the fair value of these awards granted to NEOs in a particular year based on the awards’ grant date value for financial reporting purposes. The Total Realized Compensation Table instead includes any value realized by our NEOs from the exercise of stock options and vesting of RSUs and PUs (before payment of applicable withholding taxes and brokerage commissions), as shown in the Option Exercises and Stock Vested Table of this and prior proxy statements. See Tabular and Narrative Compensation Disclosures.

As shown in the table, the total compensation realized by our NEOs in each of the years presented was substantially lower than their total compensation as shown in the Summary Compensation Table. In addition, further to the Compensation Committee’s pay-for-performance philosophy, the compensation realized by our NEOs varied based on our overall performance during the period. Having not achieved the threshold level of performance for the objectives established for our 2011 bonus plan, our NEOs received no cash bonus for the year and therefore realized lower total compensation for 2011. Conversely, total realized compensation peaked in 2010 due to our having achieved more than the maximum level of performance for the objectives established for our 2010 bonus plan.

Effective Executive Compensation Governance Practices

Our executive compensation program incorporates the following governance practices, which we believe collectively ensure that the program serves the long-term interests of our stockholders:

Pay for Performance

Executive Compensation Philosophy

The Compensation Committee has developed a strategy and supporting plans that tie a significant portion of executive compensation to our success in meeting specified performance objectives and positively influencing the appreciation of our stock price. The objectives of this strategy are to attract and retain the best possible executive talent, motivate these executives to achieve our near-

and long-term goals, link the interests of our executives with those of stockholders through equity-based compensation and recognize individual contributions in light of our overall business results.

The Compensation Committee believes that our incentive plans should balance our mid- and long-term corporate objectives by providing upside opportunity for exceeding performance targets and downside risk for missing performance targets. In addition, the program balances retention with reward for stockholder value creation, while also ensuring that the elements of the program, individually and in the aggregate, do not encourage excessive risk-taking.

Substantial Majority of NEO Compensation at Risk

The Compensation Committee establishes target NEO compensation to provide packages that align compensation with our financial performance over time, with reference to market practices. The Compensation Committee structures our performance-based compensation program to reward NEOs based on our corporate performance, as well as the individual executive’s contributions, to motivate our executives and align their compensation with stockholder interests. As shown in the following charts, the substantial majority of our NEOs’ total direct compensation opportunity in 2011 was performance-based and at risk.

Incentive Compensation Tied to Performance Objectives

The Compensation Committee allocates executive incentive compensation between cash and equity based on its assessment of our objectives and market practices.

Performance-Based Cash Compensation

In February 2011, the Compensation Committee established the performance objectives and weightings for our 2011 bonus plan, reflecting our 2011 operating plan. The target performance objectives (which included our OCP business, the results of which are now reflected as discontinuing operations in our financial statements) were as follows:

Because we did not achieve the threshold level for any of these objectives, the financial modifier under our 2011 bonus plan was 0%. With corporate performance significantly below plan, none of our NEOs received a bonus for the year. See Annual Cash Bonus in this CD&A for more information.

Performance-Based Equity Compensation

The target 2011 long-term equity incentive opportunity represented approximately 77% and 75% of our CEO’s and other NEOs’ total performance-based compensation, respectively. At its regularly-scheduled February meeting, the Compensation Committee approved the long-term equity incentive compensation of our NEOs, which in 2011 was denominated 60% in an option to purchase shares of our common stock and 40% in PUs that are eligible to vest at the end of a three-year period only if we achieve the designated performance objective. The Compensation Committee believes that these long-term incentives appropriately align executive compensation with the long-term interests of stockholders because appreciation of our stock price directly impacts the realizable value of option exercises and the vesting of shares realizable upon the vesting of PUs. The vesting of PUs in 2011 was exclusively tied to the achievement of TSR. TSR measures the return that we have provided for our stockholders, including share price movements and dividends reinvested.

The PUs granted to our NEOs under the 2009-2011 MTIP were eligible for vesting based on our relative TSR compared to the other companies in the S&P 500 Industrials and Materials subsets at year-end 2011. The threshold level for the performance objective was not achieved; as a result, the PUs were cancelled and no compensation related to the grant was received by our NEOs.

Pay-for-Performance Alignment

In 2010, Towers Watson analyzed the alignment of NEO compensation with our financial performance in relation to 49 companies in the S&P 500 Industrials and Materials subsets ranging from one-half to two times our size. Based in part on this analysis, the Compensation Committee determined that our pay-for-performance alignment was strong because our:

Balanced Compensation Program

The key elements of our NEO compensation program in 2011 were:

Base Salary

Base salaries provide executives with monthly income to compensate them for services rendered during the year and are determined after consideration of the following factors: