Page 634 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 10. The Board of Directors 619

The committee met this morning, and I’d like to report to you our actions.
1. As you know, this is the time of year when we review salaries and annual incentive awards for the
elected corporate officers, based on their performance in relation to their objectives (and the
performance of the company).
2. Given the Section 162(m) cap of $1 million tax deduction for proxy-named executives and the
fact our CEO is currently receiving a $1 million salary, the committee is proposing no change in
the salary.
3. As for the annual incentive, the board will recall that our CEO Ms. Real’s goals for this past year
were approved by the board at the beginning of the year.
4. Ms. Reals did a self-evaluation of each of these, as did the committee independently.You can see
(show slide) the results of these evaluations.
Own Committee
A. Achieve or exceed operating gross
• Increase in cash flow of 20% 6 6
– 31% achieved
• Increase in economic profit of 15% 5 3
– 12% achieved
B. Implement performance-based culture
• New pay plans in place 6 5
C. Adopt best-in-class governance practice 5 5
Average 5.8 4.8

As you can see, our CEO has a slightly higher self-assessment (5.8) than that of the committee (4.8).
Before going further I’d like to walk the board through the rationale for our ratings and that of the
self-appraisal.You have in front of you a copy of each. Let’s take them point by point. (Each rating is
reviewed and a consensus rating by the full board is obtained.)
5. Based on your overall evaluation of a 5.1, you can see by the chart attached to the performance
ratings that this would call for an award of $1,100,000, or 110% of salary.This is within the
allowable range of the shareholder-approved negative discretion formula.
6. These proposals have been reviewed by our consultant Mr. Evans, who is with us.Would you like to
make any comments?
(Consultant’s comments)
7. May I have a motion from a member of the executive compensation committee for the CEO’s
proposed incentive award of $1,100,000. Is there a second? Discussion? All members of the
committee in favor? Opposed? Motion is _____.
8. (After reaching agreement on the award) I’d like to bring in our CEO now so we can advise her of
her incentive award and thank her for her contributions. (CEO enters—thanked—told new pay).
9. I’d like to turn the meeting over to the CEO, who will walk you through a similar process for her
direct reports. (CEO makes presentation; executive compensation committee takes action on
proposals.)
10. Executive compensation committee portion of meeting ends and consultant exits the meeting.

Table 10-18. Sample scripted compensation committee report to the board