Page 429 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 8. Long-Term Incentives 415

Performance Rating
Numeric Verbal Description
Significantly surpassed or
4 Outstanding
surpassed over major obstacles
Surpassed over obstacles or
3 Superior
achieved over major obstacles
Surpassed or
2 Very good achieved over obstacles
almost achieved over major obstacles
Achieved or
1 Good almost achieved over obstacles or
partially achieved over major obstacles
Partially achieved
0 Acceptable
Little accomplishment over major obstacles
Little accomplished
0 Marginal
Nothing accomplished over major obstacles
0 Unacceptable Nothing accomplished
Promotability Rating
2 Excellent Likely for more than one promotion

1 Good Likely for at least one promotion soon
Table 8-7. Performance and promotability ratings

The problem with a promotability factor is that the chairman/CEO has no further
promotion possibilities. Some companies address this issue by assessing whether—or imply-
ing that—their CEO could run a much larger, complex organization. Hmm, is this a message
for executive recruiters?
Many companies do not grant options to those close to normal retirement age, although
this may be counter to age discrimination laws. It would be better to make the grant but
limit the exercise period after retirement. On the other hand, a few plans will permit the
optionee to exercise after retirement to the full term of the grant, thereby removing another
barrier to retirement. Some may want to limit such an extended exercise on the condition the
individual does not engage in competition with the company, act contrary to any written
agreement, or act in a way that the company reasonably determines to be materially harmful
to it. Those who argue that the option is in part a reward for past efforts (especially a factor
in determining number of shares) question even the 10-year limit on the option. Why not
15, 20, or more years?
Non-Employees. In addition to employees, companies can make grants to non-employees.
However, these can only be nonstatutory type grants. The most common group included are