Page 629 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

614 The Complete Guide to Executive Compensation

Table 10-14. (continued from previous page)
level as well as a threshold performance level (below which no bonus is paid) and a maximum
performance level (above which no further bonus payment is made). For the CEO these percentages
were 10% of salary (threshold), 100% of salary (target), and 200% of salary (maximum). Based on an
evaluation of performance, the committee awarded a bonus of 110% of salary, or $1.1 million.The
bonus targets for the other four named executives range from 60% to 75%.
Long-Term Incentives
The long-term incentive plan consists solely of stock options for the CEO and the other named
executive officers. It should be noted that from time to time the company gives stock options to all
employees of the company.All grants were effective on date of approval and were granted at 100%
fair market value.
The committee believes it appropriate that the long-term incentive represent a target opportunity for
the CEO of 200% of salary.This is because it is believed that the CEO’s focus on the company’s long-
term success should be twice as important as annual results with its target of 100% of salary. Using a
present-value formula, the committee concluded it needed to grant 60,000 shares at the then market
price of $100 a share, and it did so.
Accounting and Taxes
The above-described pay elements are all considered compensation and charged against the income
statement when paid (except the short-term incentive award, which is charged to the year for which
earned since it is paid within 75 days of the end of that year).All equity awards are expensed in accord
with FAS 123R; all cash settled awards are treated as liability awards consistent with FAS 123R. Black-
Scholes was used for the equity awards.
Additionally, the committee has been advised that the company is in compliance with the requirements
of Section 162(m) of the Internal Revenue Code, which limits the tax deduction to $1 million each for
the named executive officers unless amounts in excess meet the performance-based requirements of
this section of the code.The stock option plan has been approved by shareholders, as has the 1% of
net revenue limitation on cash payments.
Recommendation
The committee has reviewed the Compensation Discussion and Analysis (CD&A) document with
management and, based on said review and discussions, recommends to the board of directors that
the CD&A be included in the company’s 10-K and proxy statement.
Ms. Right (Chair)
Mr.Able
Mr. Ready

faded. Many companies attempt to identify likely questions prior to the meeting and then
research the appropriate response. Regardless of how much time is spent on this process,
invariably there will be unexpected questions. Nonetheless, the process is still worthwhile
because it stimulates thinking.
A starting point is the proxy statement.
• Have there been any significant changes in the compensation and incentive tables
from the previous year?
• Is there anything in the compensation committee report likely to raise questions? Any
descriptive changes regarding pay elsewhere in the proxy?