EXEQUITY. Client Briefing Compensation and Discussion Analysis Checklist. CD&A Template

Transcription

1 Cmpensatin and Discussin Analysis Checklist The new prxy disclsure rules 1 require public cmpanies (that are nt small business issuers) t include a Cmpensatin Discussin and Analysis (CD&A) sectin in their prxy statements. Unlike the current Bard Cmpensatin Cmmittee Reprt, the CD&A will be a filed dcument, and be prepared by management, with significant input and guidance frm a cmpany s Cmpensatin Cmmittee. One f the mst striking changes is that the CD&A requires a cmpany t prvide analysis regarding its cmpensatin prgrams, plicies and actins. This will require cmpanies t analyze each element f cmpensatin prvided t executive fficers, bth n an individual element basis and in the aggregate. Further, this analysis will have t fcus n bth targeted pay pprtunities and actual pay delivered. Cmpanies must explain why and hw these cmpensatin amunts were determined, as well as the prcess fr setting such cmpensatin amunts. Als required is a descriptin f the factrs cnsidered in setting such amunts, such as surveys and ther benchmarks, internal pay equity, cmpetitive market frces fr executive talent, cmpany perfrmance, industry factrs, etc. In shrt, cmpanies will need t explain why they think what they paid as cmpensatin t their executives is justified, apprpriate and in the best interests f the cmpany and sharehlders. Accrding t Prfessr Jeffrey N. Grdn, n whse article the U.S. Securities and Exchange Cmmissin (SEC) relied in prpsing the CD&A, the CD&A shuld prvide a bttm line assessment f the different cmpensatin elements and then prvide a justificatin fr the cmpensatin in light f the demands f the jb, the particular industry, the actual perfrmance, and ther factrs deemed relevant in shrt, an explanatin f why the Cmpensatin Cmmittee thinks the cmpensatin is warranted. 2 CD&A Template Given the cmments frm the SEC, it is nt apprpriate t prvide a ne-size-fits-all template fr use in creating a CD&A. Instead, each CD&A must be individually tailred t the specific cmpensatin philsphy, prgrams, actins taken by each cmpany, as well as the material items f cmpensatin fr each cmpany. As a result, this dcument attempts t utline sme f the sectins that might be included in a CD&A. Care shuld be taken t ensure that all material aspects f a cmpany s cmpensatin philsphy, prgrams, perfrmance and unique situatin are cnsidered and included when preparing the CD&A. 1 Executive Cmpensatin and Related Persn Disclsure, SEC Release Ns ; ; IC-27444; File N. S , issued August 11, 2006 and published in the Federal Register, 17 CFR Parts 228, 229, 232, 239, 240, 245, 249 and 274, September 8, 2006 [71 FR 53158]. 2 Jeffrey N. Grdn, Executive Cmpensatin: If There s a Prblem, What s The Remedy? The Case fr Cmpensatin Discussin and Analysis, Jurnal f Crpratin Law, Summer Available at SSRN: EXEQUITY, LLP. All Rights Reserved. Nvember 2006 Page 1

2 Sample Outline fr the CD&A What fllws is a pssible utline f the different sectins that culd make-up the CD&A: Intrductin/Crprate Gvernance Sectin Cmpensatin Cmmittee Members and the Cmpensatin Cmmittee Charter crprate gvernance infrmatin abut the cmmittee Cmpensatin Cnsultant name f firm, duties and assignment Rle f Executives in Establishing Cmpensatin Cmpensatin Cmmittee Activity meetings, decisins, plan apprvals, etc. Objectives f Cmpensatin Prgrams Sectin Cmpensatin Philsphy Benchmarking f Cmpensatin (ttal cmpensatin r any element f cmpensatin) Cmpany Cmpensatin Plicies Cmpensatin Prgrams Design Sectin Narrative addresses the fllwing questins: What are the cmpensatin prgrams intended t accmplish, i.e., attract, mtivate, retain emplyees, etc.? Why des the cmpany prvide each element? Hw des the cmpany determine the amunt fr each element (and disclse any applicable frmulas)? Hw des each element f cmpensatin and the cmpany s decisins regarding that element fit int the cmpany s verall cmpensatin bjectives and affect decisins regarding ther elements? Impact f Perfrmance n Cmpensatin Disclsure f perfrmance gals, r Nndisclsure f perfrmance gals discussin f hw difficult it wuld be t achieve the nn-disclsed targets/gals Actual perfrmance versus cmpensatin paid Perfrmance relative t that f any peer/cmparatr grup Elements f Cmpensatin Elements f In-Service Cmpensatin and Benefits Base Salary Annual Bnus / Shrt Term Incentive Lng-Term Incentives Persnal Benefits and Perquisites Other Elements EXEQUITY LLP. All Rights Reserved. Nvember 2006 Page 2

3 Elements f Pst-Terminatin Cmpensatin and Benefits The varius terminatin events that trigger pst-terminatin payments and benefits, including: Retirement Change-in-Cntrl Severance Fr Cause Other Terminatins (death, disability, vluntary, etc.) Des a written agreement apply? Impact n Current Cash Cmpensatin Impact n Deferred Cmpensatin Impact n Equity Cmpensatin Impact n Nn-equity incentive cmpensatin Impact n Persnal benefits and perquisites Required restrictive cvenants and agreements (nn-slicit, nn-disparagement, nn-cmpete, etc.) frm NEOs Stck Ownership/Retentin Guidelines Impact f Regulatry Requirements n Cmpensatin Cnclusin CD&A Checklist Fllwing is a checklist fr the CD&A that includes key questins fr each sectin that may be included in the CD&A. Intrductin/Crprate Gvernance Sectin This sectin prvides the lead-in t the CD&A. Cmpanies shuld start with the facts abut their Cmpensatin Cmmittee (thse required under the newly-cdified crprate gvernance requirements 3 ), the rle f any Cmpensatin Cnsultant, and the rle f executives in the cmpany s cmpensatin design, prcess and decisins. Cmpensatin Cmmittee Members and the Cmpensatin Cmmittee Charter This sectin identifies the members f the Cmpensatin Cmmittee during the year and their respnsibilities. Key Questins What is the cmpsitin f the Cmpensatin Cmmittee? If a Cmpensatin Cmmittee r similar cmmittee des nt exist, why nt? If n such cmmittee exists, which directrs participate in the cnsideratin f executive fficer and directr cmpensatin? 3 Item 407(e) f Regulatin S-K EXEQUITY LLP. All Rights Reserved. Nvember 2006 Page 3

4 Are members f the Cmpensatin Cmmittee independent? Under which definitin(s)? Wh determined this? What are the qualificatins fr directrs t serve n the Cmpensatin Cmmittee? Is any special knwledge abut cmpensatin matters required? What knwledge f cmpensatin matters des each directr psses? What are the Cmpensatin Cmmittee s primary respnsibilities? Des the Cmpensatin Cmmittee have a charter? Where can it be fund (give web address if available nline)? If nt available nline, has the charter been filed with the prxy as required (every three fiscal years r if materially revised since the beginning f the last fiscal year)? Hw can the charter be revised? When was the charter last reviewed? What was the result f this review? Des the Cmpensatin Cmmittee have the authrity t secure the services f advisers bth inside and utside the cmpany? Des it have budgetary authrity fr utside advisers it retains? Wh is in charge f the Cmpensatin Cmmittee s meeting agendas? Wh sets the Cmpensatin Cmmittee s meetings and calendar? What is the Cmpensatin Cmmittee s scpe f authrity? T what extent may the Cmpensatin Cmmittee delegate its authrity t ther persns? What authrity may be delegated? T whm? What authrity has been delegated by the Cmpensatin Cmmittee? T whm? Cmpensatin Cnsultant The prxy disclsure rules require cmpanies t identify any cmpensatin cnsultants that had a rle in determining r recmmending the amunt r frm f executive and directr cmpensatin and prvide related infrmatin. Key Questins Des the Cmpensatin Cmmittee engage an utside cmpensatin cnsultant t advise the Cmmittee? Is that cnsultant and the cnsultant s firm cnsidered independent? Factrs the Cmmittee might cnsider in evaluating this are: The ability t hire and fire the cnsultant; The amunt f wrk utside f executive cmpensatin services that are perfrmed by the cnsultant s firm fr the cmpany; The prtin f the cnsultant s wrk that is cmmissined by the Cmmittee as ppsed t management; Whether the Cmmittee is cpied n final wrk prduct prepared fr management; and Whether the Cmmittee receives cpies f all f the cnsultant s bills t the cmpany. Des the cmpany s management retain a cmpensatin cnsultant? Is it the same as the Cmpensatin Cmmittee s cnsultant? Wh acted as a cmpensatin cnsultant t the Cmpensatin Cmmittee since the beginning f the last fiscal year? If either the Cmpensatin Cmmittee r management retains the services f a cmpensatin cnsultant, what is the nature and scpe f the cmpensatin cnsultant s assignments? Wh determines the cmpensatin cnsultant s assignments? What rle des the cmpensatin cnsultant have in determining cmpensatin prgrams, e.g., the cmpensatin cnsultant prvides cmpetitive data and business and technical cnsideratins and des/des nt recmmend pay prgram and pay level changes? Rle f Executives in Establishing Cmpensatin This sectin shuld detail the rle f executives in the cmpany s prcess fr setting cmpensatin, especially the rle f the CEO in setting the cmpensatin f his/her direct reprts. Fr example, are certain executives required t attend the Cmpensatin Cmmittee s meetings, act as secretary fr the Cmmittee, prepare materials and agendas fr cmmittee meetings, etc EXEQUITY LLP. All Rights Reserved. Nvember 2006 Page 4

5 Key Questins Which executive(s) play a rle in the assessment, design and/r recmmendatin f cmpensatin prgrams, plans and awards fr executives and directrs? Wh are these executives? What d these executives actually d in relatin t the cmpany s cmpensatin prgrams, plicies, actins and/r decisins? D the executives attend meetings f the Cmpensatin Cmmittee? General meetings? Executive sessins? What tasks des the Cmpensatin Cmmittee delegate t executive(s)? Cmpensatin Cmmittee Activity This sectin shuld discuss the administrative details cncerning the Cmpensatin Cmmittee activities during the past fiscal year, and befre r after the last fiscal year if material t a cmplete understanding f the cmpensatin disclsures. Key Questins What actins did the Cmpensatin Cmmittee take since the beginning f the last fiscal year and prir t the time the next prxy will be filed? Did the Cmpensatin Cmmittee adpt any new cmpensatin plans r prgrams r amend any existing cmpensatin plans r prgrams? Did the Cmpensatin Cmmittee institute any new cmpensatin plicies r amend any existing cmpensatin plicies? Why did the Cmpensatin Cmmittee take these actins? Hw many times during the last year did the Cmpensatin Cmmittee meet? Did any executives attend these meetings? Wh and why? Hw many times did the Cmpensatin Cmmittee meet in executive sessin during the year? Did any executives attend these executive sessins? If s, wh? Did any adviser t the Cmpensatin Cmmittee attend these executive sessins? If s, indicate the adviser and relatinship t the Cmpensatin Cmmittee. Did the Cmpensatin Cmmittee review the amunts payable under each individual element f cmpensatin as well as in the aggregate fr each NEO? What cnclusins did it reach regarding the individual elements f, and ttal aggregate cmpensatin, paid t each NEO? Factrs the Cmpensatin Cmmittee might cnsider in analyzing the cmpensatin include: Ttal cmpensatin, all equity awards granted t each NEO since starting with the cmpany, ttal wealth accumulatin f each NEO, and future cmpensatin pprtunities, all as depicted within tally sheets prepared fr each NEO, Internal pay equity, The cmpany s stck wnership and/r stck retentin plicies, including any hld-untilretirement plicies, The cmpetitive envirnment fr recruiting NEOs., and what the relevant cmpetitrs pay, and The need t prvide each element f cmpensatin and the amunts targeted and delivered. Objectives f Cmpensatin Prgrams Sectin Cmpanies shuld lay ut the underlying bjectives f their cmpensatin prgrams and plicies in this sectin. In ding s, we believe cmpanies shuld first set ut their cmpensatin philsphy and explain hw it impacts the cmpany s cmpensatin decisins and designs. Next, the cmpany shuld explain if it benchmarks all r any element f cmpensatin fr executives. If the cmpany des, it shuld disclse the cmpanies that are in the peer/cmparatr grup used fr benchmarking purpses, why this grup was selected, whether and when it is reviewed, by whm, and when it was last reviewed and what actins were taken, if any, as a result. Finally, the cmpany shuld disclse its standard cmpensatin plicies that are material fr sharehlders t gain an understanding f the cmpany s cmpensatin prgrams, plicies and decisins EXEQUITY LLP. All Rights Reserved. Nvember 2006 Page 5

6 Cmpensatin Philsphy This sectin shuld be designed t detail the cmpany s general cmpensatin philsphy. Key Questins What is yur cmpany s cmpensatin philsphy? What are the gals f the cmpany s cmpensatin prgrams? What are the cmpany s brad bjectives fr its cmpensatin prgrams? Hw des the cmpany establish cmpensatin? Hw des the cmpany judge whether the cmpensatin prgrams have met their gal(s)? When is the cmpensatin philsphy reviewed? When was the cmpensatin philsphy last reviewed? What was the result f that review? Benchmarking If a cmpany benchmarks its ttal cmpensatin r any material element f cmpensatin, then it must identify the benchmark and, if applicable, its cmpnents including cmpnent cmpanies. Key Questins Des the cmpany benchmark all r any element f cmpensatin? If it des, why des it benchmark? What cmpanies des it benchmark cmpensatin against? Hw and why were these cmpanies selected fr benchmarking? Hw des the cmpany cmpare t the benchmark cmpanies n general business cmparative data (revenues, market capitalizatin, number f emplyees, etc.)? Hw des the cmpany cmpare t the benchmark cmpanies n business perfrmance metrics (ttal sharehlder return and apprpriate peratinal perfrmance metrics) fr the past 1-, 3-, and 5-year perids? What is the cmpetitive pay bjective (e.g., 50 th percentile) relative t the benchmark cmpanies and hw des actual pay cmpare t the pay bjectives? Cmpensatin Plicies Adding a sectin t the CD&A that details a cmpany s material, general cmpensatin plicies prbably will be necessary given the brad requirements set ut fr the CD&A. Alternatively, t save space in the prxy, cmpanies may wish t try and include their material, general cmpensatin plicies in their Cmpensatin Cmmittee s charter and incrprate them by reference int the CD&A. Key Questins What are the material cmpensatin plicies applicable t the cmpany s executives? Wh develped these cmpensatin plicies? Management r the Cmpensatin Cmmittee? Why has the cmpany established these cmpensatin plicies? Hw were these cmpensatin plicies established? Hw des the cmpany evaluate whether these cmpensatin plicies are effective? When are the cmpensatin plicies reviewed? By whm? What happened as a result f the last review? Examples f general plicies that might be detailed include: Ttal Cmpensatin Plicy Benchmarking f Cmpensatin Plicy In-Service Cmpensatin Plicy Base Salary Plicy Shrt-Term Incentive Cmpensatin/Annual Bnus Plicy Lng-Term Incentive Cmpensatin Plicy Benefits and Perquisites Plicy Deferred Cmpensatin Plicy EXEQUITY LLP. All Rights Reserved. Nvember 2006 Page 6

7 Equity Grant Plicy Allcatin f Cmpensatin Between Different Elements Plicy Mix f Cmpensatin and Relatinship between fixed and at-risk cmpensatin Plicy Cash versus Equity Plicy Perfrmance-Based Cmpensatin Plicy (individual, crprate, business unit/line f business perfrmance) Pst-Terminatin Cmpensatin Plicy Cmpensatin Cmmittee Use and Disclsure f Cnclusins Regarding Tally Sheets Plicy Tax Grss-Up Plicy Equity Dilutin Plicy Annual Run-Rate and Ttal Overhang Stck Optin/Stck Appreciatin Right Repricing Plicy Dividends n Equity Awards Plicy Stck Ownership Plicy Stck Retentin Plicy, e.g.,hld-until-retirement Plicy Wealth Accumulatin Plicy Internal Pay Equity Plicy Emplyment Agreement Plicy Severance and Change-in-Cntrl Plicy Tax Deductibility Plicy Accunting fr Cmpensatin Plicy Sharehlder Apprval Plicy Cmpensatin Disclsure Plicy Impact f Financial Restatements n Cmpensatin Plicy Executives Serving n Other Bards f Directrs Plicy Cmpensatin Prgrams Design Sectin This sectin must discuss what the cmpensatin prgrams are designed t reward. Fr example, attracting, retaining and mtivating emplyees, r reward achievements that will bring the cmpany success, such as achievement f the cmpany s strategic gals, r perhaps the cmpensatin prgrams are designed t reward an increase in the cmpany s stck price which benefits sharehlders. The cmmittee may als wish t address what it thinks f the design and level f cmpensatin paid, i.e., are the amunts apprpriate, are they furthering the cmpany s cmpensatin philsphy r strategic business gals? Impact f Perfrmance n Cmpensatin This sectin shuld discuss the impact f the actual perfrmance under the cmpany s material perfrmance measures n cmpensatin t be paid, t be awarded, r hw it might factr int future grants. Key Questins What perfrmance metrics are used? Why? What perfrmance targets are used? Why? If the perfrmance targets are nt disclsed, hw difficult will it be fr the executive r hw likely will it be fr the cmpany t achieve the undisclsed target levels r perfrmance gals? What is the relatinship between perfrmance and cmpensatin? If perfrmance increases r decreases by a certain percent, what impact is there n cmpensatin? Is the impact n cmpensatin t the same degree as the perfrmance? Hw was the relatinship between perfrmance and cmpensatin determined? Are the utilized perfrmance metrics apprpriate fr the cmpany s industry? EXEQUITY LLP. All Rights Reserved. Nvember 2006 Page 7

8 Elements f Cmpensatin Sectin This sectin must detail all the elements f cmpensatin fr the NEOs, describe why the cmpany chses t use each element, hw the cmpany determines the amunt fr each element, and hw decisins regarding each element fit int the cmpany s verall cmpensatin bjectives and affect decisins regarding ther elements. Elements f In-Service Cmpensatin This subsectin shuld address all the elements f cmpensatin payable t executives during their emplyment by the cmpany, including: Base Salary f the NEOs; Annual Bnus / Shrt-Term Incentive; Lng-Term Incentives equity awards and nn-equity incentive awards Persnal benefits and perquisites Emplyee Stck Purchase Plans / Emplyee Stck Ownership Plans, Other material elements f cmpensatin nt therwise specified abve, and Whether emplyment agreements are utilized, and, if s, the material details f such agreements (in plain English). Key Questins What is the cmpsitin f current cmpensatin packages fr executives while emplyed by the cmpany? Hw and why was this design selected? Hw des each element relate t the ther elements, the ttal cmpensatin package, the cmpany s perfrmance, and the cmpany s cmpensatin plicies and prgrams? Why des the cmpany chse t use each such element f cmpensatin? Are these elements and the mix f elements apprpriate fr the cmpany given its perfrmance, industry, current challenges and envirnment? What is the prcess fr review f the varius elements f cmpensatin? Hw des perfrmance ultimately impact the cmpensatin that will be paid? What perfrmance metrics and weightings are utilized, if any? Hw d individual, business unit, and crprate perfrmance and weightings impact cmpensatin? Can the Cmpensatin Cmmittee exercise any psitive r negative discretin in relatin t cmpensatin? If s, describe. What awards are used fr annual incentives? Why? Any verlap with lng-term incentives perfrmance gals? What awards are used fr lng-term incentives? Why? Hw are award sizes determined? What types f awards are available under the cmpany s cmpensatin plans? Were the plans apprved by sharehlders? If nt, why nt? If s, when? What is the timing f grants f incentive awards relative t the release f material, nn-public infrmatin? Hw des the cmpany establish the exercise/base price f stck ptins/sars? Hw des this cmpare t the clsing market price n the date f grant? When are actins taken t apprve incentive grants relative t their grant date? What persnal benefits and perquisites are ffered t executives? Why and hw were these selected? When are they reviewed? Des the cmpany utilize emplyment agreements? If s, which executives have them? Why were emplyment agreements used? Des the cmpany utilize any terminatin f emplyment (e.g., severance) r change-in-cntrl agreements with executives? If s, which executives have them? Why were such agreements used? EXEQUITY LLP. All Rights Reserved. Nvember 2006 Page 8

9 Elements f Pst-Terminatin Cmpensatin This subsectin shuld address all the material elements f pst-terminatin payments and benefits fr each pssible triggering (terminatin) event, including retirement, change-in-cntrl, severance, fr cause, r ther (death, disability, vluntary, etc.) event. Fr each event, the CD&A needs t discuss: Whether the event and the payments and benefits payable are cvered by a written r verbal agreement The impact f the event n current cash cmpensatin The impact f the event n deferred cmpensatin The impact f the event n utstanding equity cmpensatin The impact f the event n benefits and perquisites Whether the executives receiving payments and/r benefits upn the triggering event wuld be subject t any restricted cvenants and agreements, which such cvenants, and their duratin. Cvenants and agreements frm executives Key Questins What retirement benefits are prvided t executives? Why were these benefits selected? Are executives prvided with supplemental retirement benefits (SERPs)? If s, why and what d they prvide, especially in relatin t what is ffered t the brad-based emplyee ppulatin? If ffered, are supplemental benefits funded? If s, hw and why was the particular funding mechanism selected? Des the cmpany prvide change-in-cntrl r severance prtectin t executives r directrs? If s, why? Des the cmpany use written agreements t prvide change-in-cntrl r severance prtectin r benefits t executives r directrs? If the cmpany prvides change-in-cntrl r severance benefits/prtectin t executives r directrs, when are these benefits reviewed? By whm? What was the result f the last review? Are executives r directrs subject t restrictive cvenants (nn-slicit, nn-cmpete, nndisparagement, etc.)? If s, why? Hw d these restrictive cvenants relate t any cmpensatin r benefits payable r t be payable upn certain triggering events? Stck Ownership/Retentin Guidelines Sectin This sectin wuld detail any cmpany plicies r guidelines related t required executive wnership f cmpany stck and/r stck retentin guidelines applicable t equity awards t executives. Key Questins Des the cmpany have stck wnership guidelines? Why r why nt? If s, t whm d the stck wnership guidelines apply? What are the required stck wnership guideline amunts fr the NEOs? What cunts tward the stck wnership guidelines, e.g., restricted stck, RSUs, vested SARs (all underlying shares r just thse that represent the appreciatin), vested stck ptins (all underlying shares r just thse in excess f the exercise price), perfrmance shares, etc.? When are the stck wnership guidelines reviewed? When was the last time the guidelines were reviewed? What happened as a result f the review? When is the stck wnership f executives reviewed? When was the executives stck wnership reviewed? Were the executives in cmpliance with the guidelines? EXEQUITY LLP. All Rights Reserved. Nvember 2006 Page 9

10 Hw lng d executives have t cmply with the stck wnership guidelines? What is the cnsequence if an executive fails t timely cmply with the stck wnership guidelines? Stck Optins and Other Equity Grants Des the cmpany have a stck retentin plicy? Why r why nt? If s, t whm des the stck retentin plicy apply? Hw des the stck retentin plicy wrk? Is there any maximum stck wnership amunt after which the retentin plicy des nt apply? Hw lng must shares be retained, e.g., fixed number f years, until retirement/terminatin, etc.? Des the cmpany have a plicy requiring the retentin f shares until retirement fr executive fficers? Why r why nt? When was the last time the shares held by executives were reviewed? Had they retained all the shares they were suppsed t have retained? If nt, which executives were nt in cmpliance? What is the cnsequence fr failing t retain the necessary shares under the share retentin plicy? Des the cmpany have a plicy that addresses hedging f cmpany stck wnership by executives? If s, what is the plicy? Impact f Regulatry Requirements Sectin This sectin shuld detail the impact f accunting rules, securities rules, and tax rules, including the tax cde requirements regarding the cmpany s ability t deduct cmpensatin paid in excess f $1 millin paid t a NEO, n the cmpany s cmpensatin plicies, prgrams and actins. Key Questins In making cmpensatin design and award decisins, what rle des the cmpany s ability t deduct cmpensatin in accrdance with Internal Revenue Cde Sectin 162(m) play? Hw much cmpensatin paid during the last year was nt Internal Revenue Cde Sectin 162(m) qualified? Apprximately what value was lst t the cmpany as a result f the inability t deduct this amunt fr tax purpses? Why des the cmpany qualify/nt qualify particular elements f cmpensatin under Internal Revenue Cde Sectin 162(m)? What rle des Internal Revenue Cde Sectin 409A play in cmpensatin design and award decisins? What impact des the expensing f equity awards (including stck ptins) under FAS 123R have n the cmpany s cmpensatin decisins? What impact d the accunting rules applicable t nn-equity incentive cmpensatin plans (cash plans) have n the cmpany s decisins and design related t such cmpensatin? What impact des the determinatin f the NEOs under the new prxy disclsure rules have n the cmpany s cmpensatin decisins and designs, e.g., payment f bnuses, setting f salaries, etc.? What impact d the new prxy disclsure rules have n the cmpany s cmpensatin decisins and designs? D any ther regulatry requirements impact the cmpany s cmpensatin prgrams, designs r decisins (e.g., gvernment cntractrs are unable t be reimbursed fr stck ptins/sars used t cmpensatin emplyees)? If s, hw? EXEQUITY LLP. All Rights Reserved. Nvember 2006 Page 10

11 Cnclusin Sectin This sectin shuld detail the cnclusins reached by the cmpany abut the apprpriateness and justificatin fr the individual elements f cmpensatin as well as the ttal cmpensatin delivered t each f the NEOs. Key Questins What cnclusins has the cmpany reached with respect t each element f cmpensatin and the ttal cmpensatin delivered t each NEO? Are these amunts reasnable? Apprpriate? In the best interests f the cmpany and sharehlders? Why? Why des the cmpany believe each element f cmpensatin is needed? In explaining this, sme factrs t cnsider include: Hw d accumulated amunts impact decisins r the need fr these cmpensatin elements, e.g. hw des accumulated wealth f an NEO factr int the cmpany s analysis f each element f cmpensatin fr that NEO, especially the need fr cntinuing annual equity awards and any pstterminatin prvisins, including retirement, SERPs, severance, change-in-cntrl, and grss-ups? The cmpetitive market fr executive talent that might try and lure away NEOs, especially if cmpetitive market data r benchmarks are used in setting r evaluating cmpensatin. Hw each element f cmpensatin, bth targeted and delivered amunts, impacts the cmpany s mtivatin r retentin f each NEO. Hw the ttal f all elements f cmpensatin, bth targeted and delivered amunts, impacts the cmpany s mtivatin r retentin f each NEO. Hw des the cmpany justify the amunt f each element f cmpensatin delivered t the NEOs? Hw des the cmpany justify the amunt f ttal cmpensatin delivered t the NEOs? EXEQUITY LLP. All Rights Reserved. Nvember 2006 Page 11

12 Our Value Prpsitin EXEQUITY prvides ur clients with the highest quality, independent executive cmpensatin and HR merger and acquisitin services: Our prfessinals led the Executive Cmpensatin Center f Technical Expertise and the Glbal Mergers and Acquisitins practice at ne f the largest HR cnsulting firms. Our prfessinals have ver 50 years f cllective legal and HR cnsulting experience and have led ver 300 transactins fr sme f the largest and mst acquisitive rganizatins. Our Executive Cmpensatin Services EXEQUITY prvides independent executive cmpensatin assistance t Cmpensatin Cmmittees and management. Our executive cmpensatin services include: Strategic pay prgram design and implementatin. Assessment f cmpetitive levels f pay. Help with technical implicatins f executive pay, such as: prxy disclsure, tax issues, accunting implicatins, and securities laws. Develpment f retentin incentive prgrams t help retain critical executive talent. Design f apprpriate severance cverage (change-in-cntrl and general severance). Help with understanding likely sharehlder reactins t executive pay (including ISS mdeling f prpsed plans). PrxEASE Parachute Mdeler The new prxy disclsure rules mandate cmprehensive disclsure f the payments that wuld have t be made t each Named Executive Officer upn a terminatin f emplyment. Preparing these disclsures will require applicatin f sme f the mst cmplex calculatins cntained in the Tax Cde, the glden parachute rules. The PrxEASE Parachute Mdeler is the nly internet-based mdeler that autmates the glden parachute calculatin prcess. Thrugh the use f an interactive questinnaire, the mdel will assist yu in gathering the data necessary t prepare parachute calculatins and will run the calculatins easily, efficiently, and accurately. In additin, EXEQUITY s experts are available t help yu satisfy the prxy disclsure requirements. Please cntact ne f ur principals t learn mre abut the PrxEASE Parachute Mdeler, including hw t subscribe r becme an authrized reseller. If yu have any questins abut this, please cntact Mike Srensen r Ed Hauder in ur Illinis ffice r any f the fllwing principals: Mike Srensen (847) Mike.Srensen@exqty.cm Perry Papantnis (908) Perry.Papantnis@exqty.cm Rss Zimmerman (847) Rss.Zimmerman@exqty.cm Ed Hauder (847) Edward.Hauder@exqty.cm Illinis Office 1880 West Winchester Rad, Suite 204 Libertyville, IL New Jersey Office 3 Werner Way, Suite 300 Lebann, NJ Yu are receiving this as a friend r client f EXEQUITY LLP. This prvides general infrmatin and nt legal advice r pinins n specific facts. If yu did nt receive this directly frm us and yu wuld like t be sure yu will receive future s and ur firm s ther publicatins, please click n the fllwing link t add yurself t ur subscriptin list: If yu want t unsubscribe frm ur list, please click n Manage Subscriptin at the bttm f the sent t yu. Pursuant t Rules 7.2 and 7.4 f the Illinis Rules f Prfessinal Cnduct, this publicatin may cnstitute advertising material EXEQUITY LLP. All Rights Reserved. Nvember 2006 Page 12