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Executive Compensation Recent Trends, Changes, and Highlights

May 9, 2003
Related Topics: Variable Pay, Compensation Design and Communication, Featured Article, Benefits
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Aconsulting company, Sibson Consulting (the human-capital consultingdivision of The Segal Company), recently reviewed a random sampling oflarge-company proxy statements filed with the SEC. Sibson looked at variousaspects of executive compensation: short-term incentives, long-term incentivesand ownership guidelines.

    The compensation plan information represents a random sampling of ProxyStatements filed with the SEC from the period Feb. 1, 2003 to March 15, 2003.Generally, Sibson reviewed the proxies of companies with name recognition andextracted plans, plan features or policies which are either (i) innovative orunique, or (ii) representative of a trend. With regard to representativeplans/policies, for example, dozens of companies have recently instituted stockownership requirements (guidelines) for their executive officers; Sibson did notinclude all that it observed, but rather included a few of the programs withinteresting features.

Short-Term Incentives

  • Greater disclosure in regard to mechanics and target opportunities

  • Common to revise bonus plans, especially in regard to measures. Most commonjustification is better alignment with shareholders; e.g., see Dana’sadditional multiplier to bonus payout based on relative TSR

  • Many increased the relative weight on hard financial measures. We observedquite a few economic or value-based measures; e.g., economic profit, EVA

  • Relative decline in the use of discretion; while "strategic milestones"continue to be somewhat prevalent, boilerplate language increasingly replacedwith specific description of non-financial goals

  • Several companies altered annual incentive plans to payout partially inrestricted stock; e.g., Bank One

  • Several freezes or reductions in salary levels; e.g., NCR

  • The provision to voluntarily defer cash pay is somewhat prevalent

COMPANY DESCRIPTION
Alcoa
(New)
We have approved changes within the annual cash incentive program, which program continues to use a balanced scorecard format. The balanced scorecard approach combines financial and non-financial measures to determine incentive targets and awards. We continue to weight these goals 60% financial and 40% non-financial. Return on capital is the primary financial measure. There will be a greater focus on fewer key measures to strengthen the focus within individual business units.
Baker Hughes (Existed in 2002 also) Performance goals are approved each year by the Compensation Committee and are based upon financial and/or strategic objectives of the Company. During fiscal year 2002, the corporate objective was based on (i) earnings per share and (ii) Baker Value Added, a metric that measures operating profit after tax less the cost of capital employed. Baker Value Added integrates the profit and loss results and balance sheet investments of the Company by assuring that the cost of any capital used to earn those profits is fully taken into account.

Where executives have business unit responsibilities, a portion of the goal may be based on financial performance measures that support business unit performance. This portion varies with the position of each individual and the particular objectives of the Company.
Bank One (Introduced in 2001)  In addition, one-third of all awards under the Bonus Plan are delivered in the form of restricted shares and a substantial component of overall compensation is provided in the form of stock option grants.
Dana
(TRS modifier new in 2003)
For 2002, the Committee approved performance objectives which included corporate operating income and ROIC, as well as five strategic operating objectives tied to the Company’s restructuring goals. The Committee also approved an additional bonus modifier based on Dana’s total shareholder return relative to 24 industry peer companies. These peer companies differ somewhat from the peer companies we use for compensation comparisons.
Eastman Kodak (New) As a result of this study, the Committee approved a new annual executive assessment and reward program for the Company beginning in 2002. This plan establishes a new way to set executive expectations and goals, measure executive performance and differentiate rewards based on results. Its chief features are greater focus on revenue growth, fewer key goals, a new assessment of people leadership and greater discretion in assessing rewards. In addition to revenue, economic profit will be the other performance measure used in funding the plan’s award pool. Both measures will be measured annually, rather than on a three year weighed average basis, as was the case with the plan’s prior performance measure, Economic Value Added (EVA).
Merck
(Already in place)
Individual bonus awards are determined with reference to Company-wide, division, area, team and individual performance for the previous fiscal year, based on a wide range of measures that permit comparisons with competitors’ performance and internal targets set before the start of each fiscal year. Performance measures for 2002 covered operational, strategic and human resources areas. Approximately 70 percent of the objectives were based on quantitative measures of performance. The operational measures were earnings per share growth and sales growth compared to other leading healthcare companies (AstraZeneca, Bristol-Myers Squibb, GlaxoSmithKline, Johnson & Johnson, Eli Lilly, Novartis, Pfizer, Pharmacia, Roche Holding, Schering-Plough and Wyeth) and the change in the Company’s return on operating assets versus the prior year. The Company used the same high standards for earnings per share growth, sales growth and return on operating assets that have been applied in prior years, notwithstanding that 2002 would be a "transition year" (as communicated to stockholders in December 2001), with financial results significantly impacted by patent expirations.
NCR
(New)
In support of cost reduction objectives, the Committee approved a one-year 5% reduction in the salary payments otherwise payable during 2002 to each executive officer.
NCR In establishing criteria upon which the annual incentive bonus for 2003 will be determined for all corporate executive officers, the Committee eliminated the performance goal of return on equity and re-weighted the two remaining performance goals, pre-tax earnings versus the 2003 operating plan and earnings per share growth versus the Peer Group, to 80% and 20%, respectively.
PNC Financial (Recent 2001) At PNC's 2001 annual meeting, shareholders also approved amendments to the 1996 Executive Incentive Award Plan which authorize the Committee to grant incentive awards that are payable entirely in cash, entirely in shares of the Corporation's common stock, or in a combination of cash and shares of common stock. Shares of common stock issued pursuant to the terms of an incentive award may be subject to such transfer restrictions or forfeiture provisions as the Committee may specify. To the extent that an incentive award is paid in the form of shares of common stock, the amended 1996 Executive Incentive Award Plan also authorizes the issuance of additional shares of common stock to the participant.
Verizon 
(New)
Changes in Compensation Practices for 2003. The Committee has decided to explicitly exclude, beginning in 2003, the net impact of pension and post-retirement benefits from Verizon’s operating results in determining the senior management group’s short-term incentive awards.

Long-term Incentives

  • Re-design is very common, including the addition of performance-basedfeatures and lengthened vesting periods

  • Many have supplemented plain-vanilla options with an additional vehiclesuch as restricted stock or performance-based cash plan; e.g., Baker-Hughes

  • Many have changed their LTI plan designs and/or mix. Most prevalent change isa shift toward restricted stock, but on the other hand several are shiftingtoward long-term cash. In total, many companies went from a single stock optionto a blended program of stock options plus either cash or stock.

COMPANY DESCRIPTION
Alcoa 
(New)
Our approach to stock options was also reviewed and several changes were approved, beginning with the January 2003 grant. Stock options will now vest one-third in each of the three years from the date of the grant (was 1 year), and the reload feature of new options will be subject to cancellation or modification.
AMD Although your approval of the amendment to the Option Plans and the Option Exchange is not required by law, regulations or our Option Plans, we believe that sound corporate governance dictates that the Option Exchange not be implemented unless it is approved by you.
Avery Dennison (Already in-place) Stock options are granted with an exercise price equal to the market price of the common stock on the date of grant and with a ten-year term. Options for the executive officers (including the individuals whose compensation is detailed in this proxy statement) vest nine years and nine months from the date of grant, subject to accelerated vesting beginning three years from the date of grant if the Company meets a return on total capital, which measures Company’s return on total capital against that of a specified group of other companies approved by the Compensation and Executive Personnel Committee. Options for executives who do not participate in the LTIP vest 25% per year over four years. This approach is designed to promote the creation of stockholder value over the long-term since the full benefit of the compensation package cannot be realized unless stock price appreciation occurs over a number of years.
Baker Hughes (Recent) In order to maintain a strong link to stockholders and provide a more balanced long-term incentive program, the Compensation Committee approved the implementation of a long-term performance plan in 2001, subject to shareholder approval, which was obtained in April 2002. This plan compares Baker Hughes' relative total shareholder return to a group of industry peer companies. In December 2001, performance-related awards were approved by the Compensation Committee for senior executives. If the Company ranks first or second in relative total shareholder return for the two-year period ending December 31, 2003, as compared to the rankings of designated oilfield services competitors, the Company will issue shares of restricted stock equal to a dollar value specified for each participating executive and for each ranking. If company-wide performance ranks third or lower, no awards will be earned. The Company just completed the first year of the plan, and we are currently below first or second ranking as of December 2002.
Caterpillar 
(Already in-place)
Our option plan also includes a long-term incentive feature offered to executive officers and other high-level management employees. Under this feature, a three-year company performance cycle is established each year. If the company meets certain threshold, target, or maximum performance goals at the end of the cycle, participants receive a cash payout. We have the ability to apply different performance criteria for different cycles, as well as the discretion to adjust performance measures for unusual items such as changes in accounting practices or corporate restructurings. For the 2002-2004 cycle and beyond, the committee decided to change the metric for the long-term plan from after-tax ROA to a metric combining company EPS and return on equity (ROE). This change was made to better align our officers' interests with those of our stockholders.
Cinergy 
(installed 2000)
This approach provides a greater upside potential for outperforming peer companies, plus downside risk for under-performing. Approximately 120 management employees, including all executive officers, participate in the LTIP. The LTIP consists of overlapping three-year performance cycles, with a new three-year performance cycle starting each January 1. The cycle that ended December 31, 2002 covered calendar years 2000 through 2002, and the cycle that started on January 1, 2003 continues through December 31, 2005. For each current performance cycle, the annualized target award opportunity as a percentage of base salary (including applicable non-elective contributions made to the 401(k) Excess Plan) ranges from 20% to 160% depending on the participant's position. The target LTIP award values are 160% of base salary for the Chief Executive Officer and 90% of base salary for each of the other named executive officers. Stock options comprised 25% of the total award opportunity under the cycles that began January 1, 2001, 2002, and 2003, and the Value Creation Plan (discussed below) comprised the other 75%. The Value Creation Plan portion of the LTIP consists of a target grant of performance shares for each cycle. These performance shares generally vest only to the extent that Cinergy's total shareholder return ("TSR") targets for the cycle are met as compared with the TSR of a peer group of companies. The peer group is derived from the S&P Electric Supercomposite Index, in which Cinergy is included. TSR means share price appreciation plus dividends, divided by the stock price at the beginning of the cycle. Prospectively, Cinergy plans to pay performance share awards 50% in Cinergy common stock and 50% in cash.
Coke 
(New)
In July 2002, the Company made a decision to voluntarily adopt SFAS No. 123 relating to the expensing of equity compensation. Under SFAS No. 123, the fair value of options and stock SARs are expensed over the vesting period of the option or stock SAR. The Company is requesting this Amendment for a number of reasons: 1) The book expense under SFAS No. 123 of a stock SAR and an option with the same terms is equal. 2) It is expected that share utilization through the use of stock SARs will be less than that of option grants. 3) Stock SARs allow flexibility to grant an alternative equity vehicle and take advantage of favorable laws of some foreign jurisdictions.
Coke 
(Already in-place)
We continue to believe that the broad-based plans, which are offered every three years, help us retain key managerial talent, and last year approved a plan allowing approximately 4,000 of our top managers and executives, including our five most highly paid executive officers, to defer up to 50% of their base salary in 2003 and receive a 9 1/2% interest rate provided they satisfy the continued employment requirement. However, we have also decided to treat all of our executives on a consistent basis under these plans, which is an objective shared by investors, and will therefore no longer offer such plans to our five most highly paid executives on an annual basis even though their annual salary over $1 million will not be deductible by the company for federal tax purposes.
Deere (John )
(New)
In fiscal 2003, Deere is introducing a new, multiyear incentive plan, the John Deere Mid-Term Incentive Bonus Plan (the "Mid-Term Plan") to create additional rewards when excellent financial results are achieved on a sustained (4-year) basis. Company-wide shareholder value added will be used to determine awards earned under the Mid-Term Plan. Deere stockholders are being asked to approve the Mid-Term Plan at the February, 2003 stockholders meeting.
Eaton Corp (New—i.e., annual dilution guidelines) Based on these studies and the consulting firm's recommendations, the Committee has established annual guidelines designed to limit the dilutive effect of the Company's stock option grants. Further, the Committee has adjusted the performance goals under the Company's short-term incentive plan to insure that the performance metrics are aligned with the Company's earnings growth objectives. Sixty-three percent of the 2002 aggregate cash compensation of the executive officers named in the compensation table was based directly on specific financial performance.
Furniture Brands (Already in place) Awards of Restricted Stock with a restriction period to end after three years with respect to one-third of the award, four years with respect to the second one-third, and five years with respect to the final one-third. These awards will only be granted to executive officers at Furniture Brands International and the Chief Executive Officers of the primary operating companies (currently eleven persons). Only 10% of each participant's long-term incentive opportunity will be represented by these awards. At present the Committee expects to make awards of Restricted Stock every three years. Awards of performance-based stock options, with the term of the option being linked to the Company's achievement against a target cumulative earnings per share figure for the three-year period following the award. These awards will be granted to executive officers at Furniture Brands International and senior-level officers of its operating companies (currently 31 persons). 40% of a participant's long-term incentive opportunity will be represented by these awards. At present the Committee expects to make awards of performance-based options every other year. Awards of stock options. Annual grants will be made to persons who are officers of Furniture Brands International or of its operating companies (currently 84 persons), and periodic awards will be made to other employees who are not officers but who make a meaningful contribution to the increased value of the Company (currently 65 persons).
IBM 
(New disclosure)
The Company has emphasized differentiation in executive stock awards, and a targeted, skill-based approach in developing its stock program for non-executives. As a result, annual usage has remained below the level typically seen in the information technology industry.
John Deere 
(New)
Awards under the Omnibus Plan in 2003 will continue to be reduced both to meet modified program objectives as well as to allocate available shares over the remaining expected life of the Omnibus Plan. Additionally, beginning in 2003 awards to executives will consist partially of restricted stock units that will vest after several years and be non-transferable until retirement. This change in award design is intended to reinforce the focus on long-term sustained higher levels of Deere performance as well as support the stock ownership guidelines for senior management. In order to continue the stock-based program, Deere’s stockholders are being asked to approve additional shares and an extension of the term for the Omnibus Plan at the February, 2003 stockholders meeting.
Kraft 
(New)
Beginning in 2003, awarding equity grants in shares of restricted stock rather than fixed-priced stock options to executives; and The Committee decided, beginning in 2003, to grant equity awards in the form of restricted stock (or deferred stock for executives located outside of the U.S.) rather than fixed-priced stock options. The value of the restricted stock will be reflected as a compensation expense in the Company's financial statements, making the cost of our executive compensation programs more transparent to stockholders. The grant of restricted stock, together with the decrease in the overall proportion of equity awards to total compensation, will result in lower share utilization. Restricted stock awards in 2003 will vest three years from the grant date.
Kraft 
(unclear)
Shifting a portion of "at-risk" compensation from equity-based awards to cash incentive awards under the Long-Term Performance Incentive Award program.
Lucent 
(New)
  • New plan intends "to make participation and grant size more closely aligned with performance"

  • Extended option vesting period from 3 years to 4

  • Limitation on Shares Issued Other Than for Stock Options and Stock Appreciation Rights granted in relation to Stock Options. The amount of shares that may be issued in respect to awards other than stock options and stock appreciation rights is limited under the 2003 Plan to 51 million shares (which is equivalent to 30% of the 2003 Plan reserve).

  • No annual "Evergreen" Provision. The 2003 Plan provides for a fixed allocation of shares, thereby requiring shareowner approval of any additional allocation of shares.

  • Maximum Option Term of Seven Years. Maximum stock option term is seven years, which provides a stronger link to performance than a typical ten year term.

  • Limitation of the use of Non-shareowner Approved Plan. The approval of the 2003 Plan and the subsequent amendment to the 1997 Plan will limit our use of the 1997 Plan that was not approved by shareowners. The 1997 Plan will limit the number of awards that could be granted to an amount equal to the number of awards subsequently cancelled, if any, due to their expiration or forfeiture from February 19, 2003 through December 31, 2003.

  • No Discount Stock Options. The 2003 Plan prohibits the grant of a stock option with an exercise price of less than the fair market value of Lucent common stock on the date the stock option is granted.

NCR 
(New)
During 2002, the Company conducted a compensation review in light of a number of developments including the Company's adoption of an accounting standard (SFAS 123) for expensing the estimated value of stock option awards, effective with January 2003 awards. As a result, the Committee approved a 2003 long-term incentive program that significantly reduces share usage compared with the past and provides competitive total compensation opportunities. As one of the changes under that program, in January 2003, the Committee approved annual stock option shares that were reduced 10% compared with January 2002 stock option shares for Mr. Chenault and other executive officers (except for two officers whose guidelines were changed to reflect job responsibilities) and for other stock option recipients overall. These stock options have fair market value exercise prices, become exercisable in four equal annual installments starting one year from grant (compared with the three-year vesting schedule used last year), and have ten-year terms....the Committee included a prohibition against repricing outstanding stock options without shareholder approval in the 2002 Stock Incentive Plan.
PNC Financial (Already in-place) The number of stock options granted by the Committee to executive officers is determined as follows. A number of stock options is established that would position the executive officer competitively relative to the Peer Group in terms of long-term compensation. This number is called the baseline amount and is used as a reference point for upward and downward adjustments to the stock option grant level based on the Corporation's total shareholder return in comparison with the Peer Group. If the Corporation's total shareholder return is significantly higher or lower than the Peer Group's median return, the number of options granted may be adjusted above or below the baseline amount. The baseline amount is reestablished periodically in order to maintain the Corporation's competitiveness in long-term compensation.
Progressive 
(New)
Beginning in 2003, the Company plans to grant restricted stock to executives as the primary long-term incentive component of compensation, instead of stock options. Under a restricted stock grant, the executive is awarded shares of the Company’s common stock, subject to certain restrictions on vesting and transferability. Restricted stock may vest according to a traditional time-based formula or based on the achievement of certain performance goals, as established by the Committee at the time of the grant. The Committee believes that the benefits of moving to restricted stock as the primary long-term incentive for Company executives include: achieving a better alignment of the interests of executives and shareholders; enhancing executives’ understanding of the value of the equity component of their compensation; and increasing the accuracy and transparency of the Company’s financial reporting, since the accounting treatment and valuation of restricted stock is less subjective as compared with stock options.
Progressive Corp (In place) In 2002, two forms of non-qualified stock options were granted to management employees. Traditional time-based stock options were granted to the named executive officers and approximately 610 other management employees of the Company. In addition, the named executive officers and approximately 47 other senior managers received stock option grants with the vesting date determined, in part, upon the achievement of specific business results. Both forms of the stock options have an exercise price which is equal to the market price of the Company’s Common Shares on the date of grant, have a ten-year term and may be exercised at any time after vesting until the expiration of the options’ term. The time-based stock options vest in equal annual increments, from three to five years after the date of grant. The performance-based stock options will vest and become exercisable upon the date which is the earlier of (1) the date of the public dissemination of a news release reporting earnings for the Company and its subsidiaries for the first calendar year or quarter as of which the Company and its subsidiaries have generated net earned premiums of $10 billion or more over a period consisting of four consecutive calendar quarters at a combined ratio of less than 100, or (2) January 1, 2007.
Verizon 
(all new; only SO before)
As noted above, in 2003, Verizon also began expensing the fair market value of employee stock options granted on or after January 1, 2003. In addition, for 2003 the Committee has determined that, given the changing market environment, the senior management group’s long-term incentive compensation will consist of a mix of non-qualified stock options and performance stock units. This will not change the value of the long-term incentive compensation paid and will result in the Company granting fewer stock options to its executives. Performance stock units represent shares of Verizon stock that will become payable after the completion of a three-year performance cycle. Actual payment of the performance stock units will be determined based on Verizon’s Total Shareholder Return (TSR) relative to the TSR of the companies that make up the Standard & Poor’s 500 and to the TSR of a group of companies included in Verizon’s telecom peer group. If Verizon’s relative TSR position does not meet a specific minimum threshold percentage, no units will be payable under the program. The value of the award will increase or decrease to the extent that Verizon’s relative TSR position increases or decreases compared to that of the companies in the Standard & Poor’s 500 and the companies in Verizon’s telecom peer group. The value of each performance stock unit is equal to the fair market value of a share of Verizon’s common stock on the date of the grant and will change as the value of Verizon’s common stock changes. All units that become payable under the program will be paid in shares of Verizon common stock. This combination of non-qualified stock options and performance stock units will continue to align the interests of its executives with that of Verizon’s shareholders.
Sears 
(Recent 2001)
In 2001, the Company initiated the Long-Term Performance Incentive Program (the LTPIP) for selected senior executives. The LTPIP seeks to align participating executive’s financial incentives with the Company’s strategic direction and initiatives, thereby resulting in increasing shareholder return. Executives were granted a number of performance units tied to achievement of stretch financial goals with multi-year performance periods and modified by the extent to which Sears achieves total shareholder returns in excess of the market. The size and value of executives’ LTPIP awards will fluctuate commensurate with performance against these stated financial goals. A significant portion of the payments made under the LTPIP will be in the form of shares, further aligning executive interests with those of shareholders. The program was designed to achieve significant, lasting change that successfully repositions the Company for future growth, thereby enhancing shareholder value.

Ownership

  • The recent installation of ownership guidelines is very common; also commonis an increase in ownership multiples (value held as multiple of salary)

  • Some companies enforce their guidelines (e.g., Merck requiring a hold ofshares acquired until ownership position achieved)

  • Several companies implemented holding requirements (or, as Bank One,ownership guidelines plus holding requirement)

COMPANY DESCRIPTION
Bank One (introduced in 2001) Committee has established stock ownership guidelines for members of the Planning Group that require a minimum ownership level as well as a requirement that each executive retain at least 75% of all equity-based awards in excess of the guideline ownership level.
Caterpillar Caterpillar is one of the few companies to establish and adhere to strict ownership guidelines in connection with stock option grants. Pursuant to these guidelines, adjustments to the number of options granted may be made if the officer does not meet his or her stock ownership requirements. Officers are encouraged to own a number of shares at least equal to the average number of shares for which they received options in their last five option grants and have five years to meet this target. Twenty-five percent of vested unexercised options apply toward the ownership target.
Coke 
(New)
Senior executives should be required to hold for at least one year the net shares of our stock that they receive by exercising stock options. For this purpose, "net shares" means the number of shares obtained by exercising the option, less the number of shares the executive sells to: (a) cover the exercise price of the options; and (b) to pay the company withholding taxes. This requirement applies to the CEO, the vice chairmen, and the senior vice presidents of the company.
Eastman Kodak
(not new; ownership program already in place)
Share Ownership Program: The interests of the Company’s executives should be inseparable from those of its shareholders. The Company aims to link these interests by encouraging stock ownership on the part of its executives. One program designed to meet this objective is the Company’s share ownership program. Under this program, each senior executive is required to own stock of the Company worth a multiple of his or her base salary. These multiples range from one times base salary to four times base salary for the CEO. To assist the program’s participants in meeting their ownership requirements, the Company permitted them to receive their January 2001 stock option grant in the form of restricted units of the Company’s common stock. For purposes of determining the number of units to be granted in place of the stock option award, the options were valued at 90% of their then Black-Scholes value. As shown in the Summary Compensation Table on page 17, all of the named executive officers elected to receive restricted stock units.
Eaton Corp 
(In place)
The Committee has adopted guidelines that limit the Company's regular total stock option grants, during any five-year period, to a maximum of 10% of the Company's outstanding shares.
Kraft 
(New)
Implementing new Stock Ownership Guidelines. In 2002, the Committee approved new stock ownership guidelines for approximately 200 executives to further align their interests with those of our stockholders. Under these guidelines, executives will be expected to acquire and maintain Company stock in an amount equal to a multiple of their base salary as determined by their position. The guidelines range from two times base salary to six times base salary for the Co-Chief Executive Officers. Executives are expected to attain their ownership guidelines within five years.
Lucent
(New)
Effective with the stock option grants to be awarded in fiscal 2003, officers will be required to retain for one year 100% of the net gain on all stock option exercises.
Merck 
(In place)
The Committee expects the Chief Executive Officer and other executive officers named in the Summary Compensation Table to hold Merck Common Stock in an amount representing a multiple of base salary. For the Chief Executive Officer, the multiple is ten; for the other executive officers, the multiple is five. The Committee further expects that, until such multiples are reached, the Chief Executive Officer and the other executive officers hold a proportion of shares that may be purchased from the net gain on stock option exercise, after deducting exercise price, taxes and transaction costs. For the Chief Executive Officer, the proportion is 70 percent; for the other executive officers, the proportion is 60 percent.
Monsanto 
(recent)
Accordingly, the committee has implemented stock ownership requirements for approximately 30 executives. Stock ownership requirements are five times base salary for the Company’s chief executive officer; four times base salary for the chief operating officer; three times base salary for eleven other senior executives and one times base salary for the remaining executives. Unexercised stock options or restricted shares are not counted in satisfying these requirements. The committee has established target dates when each executive must meet stock ownership requirements.
Water Pik 
(In place)
Under this program, certain key executives may purchase shares or designate already-owned shares of our Common Stock that the Company matches with a grant of restricted Common Stock equal to 50 percent of the number of shares purchased or designated by the participant. The restricted shares will generally vest only if the participant holds the purchased or designated shares for five years. In addition, prior to the date that the restricted shares would otherwise vest, the restrictions will lapse if there is a change in control of the Company or the participant retires or dies. Under the terms of our SARP, for 1999, participant executives could make a one-time purchase or designation of a number of shares having a market price equal to a maximum of two times the participant's annual base salary. Those executives who purchased shares under the SARP during 1999 were not eligible to make additional purchases under the SARP during 2000. Two senior executives that did not participate in the SARP during 1999 made purchases under the SARP during 2000 equal to one times their annual base salaries. During 2001, seven executive officers made purchases under the SARP equal to one times annual base salary. During 2002, three senior executives made purchases under the SARP equal to one times their annual base salaries and one senior executive made a purchase at an amount less than his annual base salary.

Other

  • Updated competitive pay assessments, often based on expanded peer group.Generally companies are providing more thoughtful justification for theircompetitors for talent than in the past. It has become almost universal thatcompanies do not compare to their proxy performance peers; many companiesprovide ample justification on why their pool for talent is broader than theirinvestor peers.

  • Many companies are careful to assert that perquisites are within reason;others make mention of perquisite reductions (see Bank One for an example)

COMPANY DESCRIPTION
Bank One 
(New)
Eliminated subsidies for club memberships, automobiles and similar perquisites; Eliminated split-dollar insurance programs; Eliminated corporate matching 401(k) contributions for senior management and highly compensated employees; Reduced covered 401(k) earnings to the maximum qualified plan limit; Eliminated special executive severance policies.
Merck 
(In place)
Comparisons of total compensation (including the above-stated elements) are made within the healthcare industry by reference to U.S.-headquartered companies. In 2002, other leading healthcare companies included Abbott Laboratories, Bristol-Myers Squibb, Johnson & Johnson, Eli Lilly, Pfizer, Pharmacia, Schering-Plough and Wyeth.
Sears 
(In place)
Peer Companies: The Committee regularly monitors compensation practices of peer retail and service industry companies, other Fortune 100 companies, and other companies in the S&P 500 to determine the competitiveness of Sears executive compensation programs. The Committee believes that the Company’s most direct competitors for executive talent are not always industry peers. The companies that Sears benchmarks compensation practices against may include some or all of the companies included in the S&P 500 Retailing Index and/or the S&P 500 Department Stores Index that are used for the comparison performance graph on page 23.

Reprinted with permission from SibsonConsulting, Review of Spring 2003 ProxyStatements of Major Companies Executive Compensation: Short-Term Incentives,Long-Term Incentives, Ownership.

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