Page 524 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

510 The Complete Guide to Executive Compensation

Percent Growth in Percent Cash
EPS Over Period Award Paid
15% or higher 200%

12.0%–14.9% 150%
10.0%–11.9% 100%

8.0%–9.9% 50%
Below 8.0% 0%
Table 8-86. Percent cash award based on EPS

allocation must be amortized, there is no adjustment for movement in company stock since
its market value has no impact on the dollar value of the award.

Performance-Unit Plans. It is a simple step to convert from a performance-cash to a per-
formance-unit plan—simply remove the dollar signs and the values become units. As illustrated
in Table 8-87, each unit is worth a dollar.

Performance
Grade Cash Value
Units
35 $1,500,000 1,500,000
34 1,400,000 1,400,000
33 1,300,000 1,300,000
32 1,200,000 1,200,000
31 1,100,000 1,100,000
30 1,000,000 1,000,000
29 900,000 900,000
28 800,000 800,000
27 700,000 700,000
26 600,000 600,000
25 500,000 500,000

Table 8-87. Performance-cash plan converted to performance-unit plan

Why make this conversion? Because it means never having to redo the plan if one
decides at a future date to increase the payout. To increase payouts by 10 percent, one would
have to restate the payments in Table 8-85. Namely, $1,500,00 would become $1,650,000;
$1,400,000 would become $1,540,000; and so on. However, if the plan were in units, the
number of units would not be changed, only the unit value, which would now become $1.10.
It is easy to see that a performance-unit plan can easily and quickly be adjusted on a frequent
basis to maintain the desired relationship to salary and annual incentives. Again, the payout
can be in cash, stock (valued at time of payout), or some combination. Accounting and tax
treatment are the same as performance-cash plans.