Executive compensation 2013 - Hay Group · Executive compensation 2013 Executive compensation 2013 | ... on who is speaking. ... Grant date fair value GRId: Governance risk indicators

Data, trends and strategiesExecutive compensation year in review series

Executive compensation

2013Executive com

pensation 2013 | Data, trends and strategies

© 2014 Hay Group, all rights reserved.

The article, The Wall Street Journal / Hay Group 2012 CEO compensation study, (pages 6-8) and the section, The Hay Group 300: 2012 data, (pages 82-113) are reprinted by permission of The Wall Street Journal ©2013 Dow Jones & Company, Inc.

Adjusting long-term incentive payouts when shareholders lose (pages 46-49) is reprinted from Directorship (www.directorship.com) © Copyright 2013 National Association of Corporate Directors. Reprinted by permission.

Executive compensation year in review series

Data, trends and strategies

Executive compensation

2013:

ivContents

Contents

Introduction 1

Key abbreviations 3

Compensation comparisons and communication strategies 4

The Wall Street Journal / Hay Group 2012 CEO compensation study 6

Executive perquisites 11

Realizable pay: communicating executive pay to shareholders 14

Incentives and strategies 19

The Hay Group 300: changes in compensation, 2011–2012 20

Long-term incentive plan prevalence 23

Executive stock ownership guidelines and holding requirements 26

CEO stock option terms and vesting schedules, 2009–2012 32

Restricted stock vesting schedules, 2009–2012 36

Short-term and long-term incentive plan performance metrics 40

Adjusting long-term incentive payouts when shareholders lose 46

vContents

Recruitment and retention 50

Signing bonuses and other signing awards 52

Restricted stock units become the preferred full-value award vehicle 59

Retention bonus plans in M&A 64

Special awards: balancing retention, pay and performance 68

Regulatory influence 72

2013 regulatory review: a waiting game 74

Dodd-Frank on assessment of advisor independence 78

The Hay Group 300: 2012 data 83

Inside The Wall Street Journal / Hay Group 2012 CEO compensation study 84

Basic materials 88

Consumer goods 90

Consumer services 92

Financials 98

Contents (cont’d)

viContents

Health care 102

Industrials 104

Oil and gas 108

Technology 110

Telecommunications / Utilities 112

About us 114

Contributors 116

Contents (cont’d)

1Introduction

As a response to the 2007–2010 financial crisis, among many other provisions, the Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted in July 2010. Of particular importance, this legislation required public companies to provide their shareholders with the right to non-binding say-on-pay votes on executive compensation. Once the rule making under Dodd-Frank is fully implemented, the required disclosures may provide, for example, some indication of how a CEO’s pay aligns with company performance. An early outcome of the legislation was the public availability of information that companies disclosed in seeking shareholder approval of say-on-pay votes regarding executive pay programs.

The Wall Street Journal has partnered with Hay Group for six consecutive years to conduct its annual CEO compensation study, which examines how large public company CEOs are compensated across all forms of pay. The Wall Street Journal / Hay Group CEO compensation study provides a snapshot of total compensation as disclosed in each company’s proxy statements. The focus is on CEO Total Direct Compensation (TDC), which consists of salary, bonus and /or annual incentives paid, and any long-term incentive awards granted.

With the release of our 2012 Wall Street Journal / Hay Group CEO compensation study, we had our first look at a full five years of information on CEO compensation. The data shows a marked change from 2007 to 2012. Companies now disclose carefully and thoughtfully,

The year 2008 was a simpler time for executive pay. While public companies generally had been required to include a “compensation discussion and analysis” section in their proxy statements since 2007, there were no say-on-pay votes required. Institutional shareholder advisory groups, while important, had not yet developed many of the methodologies that have since come to influence executive pay. Companies still relied heavily on stock options. Many boards used material discretion in determining annual incentive payments. Executive perks – and associated gross-ups – were commonplace without attracting shareholder attention. Since then, the world of executive pay in the US has changed. While the directions of this change have not been surprising, the pace and level have been.

Introduction

2Introduction

using their disclosures as a platform for direct communication with their shareholders. Shareholder advisory groups, now dominant players, substantially influence plans for executive pay. Companies have diminished their use of stock options in favor of performance-vested share plans, and annual incentive programs are more formulaic and objective than in the past. Executive perks are the exception rather than the rule, and shareholders pay careful attention to decide their say-on-pay votes.

How this has affected the marketplace depends on who is speaking. Some believe that Dodd-Frank has had a positive influence, in that, structurally, executive pay programs are more aligned with shareholders’ concerns. Others feel that companies have less flexibility in the design of their pay programs; they question how well incentives align with business strategy and how effectively the resulting incentive plans motivate the executives who participate in them.

Companies and their shareholders are in the midst of an evolution in executive pay program design. The more effectively a company communicates with its shareholders, the more opportunity it will have to share the nuances in its programs, especially in those elements that support the organization culturally or strategically. Ideally, this conversation should improve the health of the company, helping offset some of the rigidity that the advisory services have imposed on pay program design and decision-making by allowing the company’s risks and opportunities to drive the process.

This important information furnishes data on market changes from 2011–2012 with commentary on the emerging trends and their implications for the future of executive compensation. Hay Group’s practical conclusions about the implications of significant trends can inform a company’s discussions about the many aspects of this complex topic.

Hay Group is pleased to offer you our research and insights in this complementary book which will be particularly valuable to boards of directors trying to assess where their companies stand in relation to others and seeking guidance for navigating CEO compensation and disclosure in 2013 and beyond.

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3

AOC: All other compensation

CD&A: Compensation discussion and analysis

EPS: Earnings per share

ERISA: Employee Retirement Income Security Act

GDFV: Grant date fair value

GRId: Governance risk indicators

IRC: Internal revenue code

ISS: Institutional Shareholder Services

LTI: Long-term incentives

M&A: Mergers and acquisitions

NEO: Named executive officers

NYSE: New York Stock Exchange

SAR: Stock appreciation rights

SCT: Summary compensation table

SEC: Securities and Exchange Commission

TDC: Total direct compensation

TSR: Total shareholder return

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The below abbreviations are used throughout this volume. They are gathered here for easy reference.

Key abbreviations

4Compensation comparisons and communication strategies

According to our research this year, performance continues to be the name of the game, with more organizations including performance criteria in their long-term incentive awards. Not surprisingly, given the aversion of shareholders, proxy advisors and other interested parties, executive perquisites continue to become less prevalent. These are just a few of the trends highlighted in what has become an increasingly complex executive compensation landscape.

Although information about executive compensation is in the public domain, not surprisingly, there is no tidy uniformity. Th ere are many compensation types; and, in the absence of regulatory guidance, there is no consensus on a formula for reporting realizable pay.

Th e Wall Street Journal / Hay Group 2012 CEO compensation study published here focused on the primary elements of compensation for CEOs of the 300 largest US companies to fi le their fi nal defi nitive proxy statements between May 1, 2012 and April 30, 2013. Th e study consists of the aggregate data across all 300 companies, listing compensation changes for median companies including salary, long-term incentives (LTIs), and perquisites, as well as commenting on trends in various sectors. Our data shows changes in the LTI mix, in the LTI prevalence for incumbents, and in the prevalence and type of perquisites between 2011 and 2012.

Th e LTI compensation diff erential between top performing CEOs and low performing CEOs has eroded to a mere nine percent in 2012. In addition, companies have begun to restructure the LTI mix with performance awards gaining in prevalence to over half of LTI at the expense of stock options/stock appreciation rights (SARs) which shrank from over a third in 2011 to 27 percent in 2012.

In addition to our fi ndings in the study, this section includes our assessment of how companies are reporting executive realized compensation to shareholders. It details the problems inherent in companies’ attempts to calculate realizable pay in the absence of regulatory guidance. Th e say-on-pay provision of the Dodd-Frank Act has heightened concerns about the alignment of pay-for-performance with total shareholder return (TSR), making this a top consideration in 2013.

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The Wall Street Journal / Hay Group 2012 CEO compensation study

Compensation and communication

In the third year of mandatory say-on-pay, companies sought to appease shareholders by holding CEO total pay levels nearly flat, cutting perquisites and substantially increasing the emphasis on performance-vested LTI plans.

Total compensation increases modestly After 2011 in which total compensation grew in the low single digits, total compensation in 2012 once again showed very modest increases. Base salaries actually grew 1.3 percent to $1.15 million, while annual incentive payments were flat at $2.1 million, yielding no increase in overall median cash compensation at $3.2 million. For the third year in a row, LTI increased, growing 3.8 percent to $7 million, leaving total direct compensation with a modest 3.6 percent growth to just over $10 million (see graph: 2012 CEO compensation changes and values).

The performance story was mixed; the median company showed a modest 2.1 percent increase in net income from 2011, but had a very strong 14.4 percent TSR. This is the second year in a row where cash remained flat despite good shareholder returns.

The largest pay increases were seen in the utilities sector, where pay levels increased 8.6 percent despite a 3.3 percent drop in net income and a survey low of 1.6 percent one year TSR – all during what was considered a difficult weather year. On the other end of the spectrum, technology sector pay remained flat at zero percent, in conjunction with the survey’s third lowest net income change at -3.5 percent and second lowest return to stockholders of 5.5 percent.

The much watched financial sector had a very interesting year in pay and performance, truly a reversal of high paying trends of several years ago. Despite the fact that net income grew 7.3 percent and TSR was the highest in the survey at 23.6 percent, financial companies were very conservative for the second year in a row, holding pay nearly flat at 1.7 percent.

* Reprinted by permission of The Wall Street Journal ©2013 Dow Jones & Company, Inc.

*

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Realized LTI pay grows at a substantial rateIn spite of modest increases in awarded pay, for the second year in a row, CEOs actually realized significantly more in take-home equity-based pay. In 2011, realized pay increased 34 percent to $5.6 million, which in and of itself was a substantial number. However, in 2012, the bull market further enhanced take-home realized LTI values – resulting from stock option exercises and the vesting of restricted stock (RS), long-term cash and equity plans – another 39 percent to $7.8 million. As in 2011, this rise can be traced back to the low-market equity awards in the first quarter of 2009, when many equity grants were made at stock prices that turned out to be the bottom of the market. A significant portion of these awards vested in 2012, after they had gained substantial value in the prior three years.

LTIs gain over stock optionsFor the second time in our study’s history, long-term performance plans were the most heavily weighted piece of the entire pay puzzle, making up 31 percent of the average CEO’s total compensation, up from 26 percent the prior year within the sample. Performance awards overshadowed bonuses in 2012, which made up 23 percent of the pay package. Many companies viewed performance awards as a way to mollify their shareholders as they transitioned their pay programs towards a greater emphasis on these plans in direct response to shareholder concerns, either due to low say-on-pay outcomes or other feedback from shareholder outreach (see graph: Change in CEO long-term incentive mix, 2011–2012, on the next page).

2012 CEO compensation changes and valuesBase salary Annual inc. Total cash Total directLTI

$1,150,000 $2,057,163 $3,202,563 $6,999,906 $10,057,073

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

0% 0%

3.6%

1.3%

3.8%

Individual values are medians that should not be added


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Change in CEO long-term incentive mix, 2011–2012

Includes only constant incumbents

27%

34%

22%

22%

51%

44%

0% 20% 40% 60% 80% 100%

2012 LTI

2011 LTI

Percentage of LTI

Stock options/SARs

Restricted stock

Performance awards

For the first time, performance awards made up over half of the granted LTI at 51 percent of the value provided to CEOs in 2012, up from 44 percent in 2011. Stock options dropped precipitously from 37 percent in 2011 to 27 percent, while time-vested RS held constant at 22 percent of the LTI pie. These results reflect the ongoing transition over the past several years away from the more traditional time-vested equity incentive vehicles to those that are performance-vested, which are more aligned with each company’s long-term performance against predetermined objectives.

From a market prevalence perspective, performance awards grew substantially to 80 percent of the companies that grant LTI. Stock options were a distant second at 60 percent, followed by RS at 50 percent usage. In short, most compensation committees seem to have concluded that using some form of performance-vested plan is desirable (see graph: Change in CEO long-term incentive prevalence, all incumbents).

Companies continued to provide diversified LTI portfolios, as 81 percent of companies that granted LTI used more than one vehicle, with the most prevalent combination (30 percent) including all three long-term incentive vehicles: stock options, RS and performance awards. The next most popular combination consisted of stock options and performance awards, with 27 percent of companies adopting this approach. But, the combination of performance awards and RS showed the biggest gain in prevalence, growing to 17 percent.


8

Linkage between pay and annual performance weakens In 2012, the distance in pay between CEOs of top-performing companies and others narrowed. The top third of net income performers improved their profitability by a median level of 36 percent, and showed a 5.1 percent increase in cash compensation as a result. However, low performers’ profitability declined over 37 percent, but they saw a cash drop of only 4.1 percent. All told, top performers fared only nine percentage points better in cash pay increases than low performers, despite net income change differences of over 70 percent.

Over the longer-term, when comparing realized LTI pay to three-year shareholder return, top performers out-gained low performing CEOs by a substantial margin, but did not out-gain

middle performers by very much. The top third of TSR performers realized $10.7 million in 2012 for TSR performance of 25.9 percent, while the bottom third made only $2.9 million for -1 percent TSR; however, the middle third realized $8 million, despite TSR that was less than half (at 12 percent TSR) of the top performers.

This result is likely once again due in part to the aforementioned early 2009 equity grants and the subsequent bull market, where options were struck and equity was granted at what ultimately were multiple year market lows in share prices for most companies. In hindsight, it is likely that some boards overreacted to the market crash in the second half of 2008 by providing their executives with too much equity at depressed stock prices.

Change in CEO long-term incentive prevalence, all incumbents

139

222

166

121

177

0 50 100 150 200 250

Stock options/SARs

Restricted stock

Performance awards

Number of companies

2011

2012

167

Includes only constant incumbents


9

Perks declineAfter several years of very small year-over-year changes in perquisites, the pace of change increased significantly in 2012, as nearly every perquisite declined in prevalence. For the fourth year in a row, the perk most eliminated was tax gross-ups on perquisites, halving in prevalence from 26 to 13 percent. Personal use of the corporate aircraft remained the most prevalent perquisite in Hay Group’s study, and was the only perk to remain flat year-over-year at 65 percent (discussed further in the next article: Executive perquisites).

Companies had begun to cut back on perquisites in 2009 as new disclosure rules started to take shape; this trend is continuing. In 2012, companies took another look at perks in an effort to improve their performance on the governance scorecards of institutional shareholder advisory firms like Institutional Shareholder Services (ISS) and Glass Lewis, that track and report on the presence of certain perquisites. While most companies are not at risk of losing their say-on-pay votes on the basis of perquisites alone, in a situation where a company’s pay and performance has shown misalignment, the presence of perks may push a company’s reported score toward the negative at ISS and Glass Lewis.

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Executive perquisites For the fifth year in a row, Hay Group has reviewed proxy disclosures regarding the prevalence of executive perquisites. This year’s study includes the Hay Group 300 companies (the largest companies that filed a final definitive proxy statement between May 1, 2012 and April 30, 2013) and reveals which perquisites they used and which they discontinued.

The most common perk continues to be the personal use of the corporate aircraft (disclosed by 65 percent of the Hay Group 300), followed by financial (tax/estate) planning (offered by 50 percent of the sample), company cars (41 percent), security (39 percent), supplemental life (36 percent) and physical exams (35 percent). This is represented in the graph: Prevalence of perquisites.

Some of the other perquisites that continued to be offered by the 300 companies, while not included in the below graph, included:

�� personal excess liability insurance, 7 percent�� personal use of property, 7 percent�� supplemental medical, 7 percent�� parking, 6 percent�� perquisite allowance, 6 percent�� company products/discounts, 6 percent�� gifts, 5 percent�� legal counsel, 4 percent.

0%

10%

20%

30%

40%

50%

60%

Pers.aircraft

Fin.planning

Car Supp.life

Security Tax gross-up

Spousal travel

ClubsPhysicalexams

Matchinggifts

Supp. disability tickets

Ent.

Prevalence of perquisites


11

Personal aircraft use Personal aircraft use remained the most costly CEO perk at a median of $108,364 versus $100,211 in last year’s sample. As perks are disclosed in the proxy summary compensation table (SCT) in the all other compensation (AOC) column, this one perk comprised over half of the AOC’s median value of $190,568.

Value of CEO’s personal aircraft usage

All other compensation

Personal aircraft usage

75th percentile $413,318 $200,249

Median $190,568 $108,364

25th percentile $77,185 $54,717

Perquisites continue to declineWhile fewer companies indicated in their proxy that they were cutting specific perquisites, almost every major perquisite has declined in prevalence. For four years in a row, the most eliminated perk was once again tax gross-ups on perquisites. In fact, tax gross-ups on perquisites dropped from 26.2 percent of companies to 13 percent of companies in one year. Other perquisites that declined the most include cars and security (see graph: Multi-year perquisite prevalence, 2011–2012).

Multi-year perquisite prevalence, 2011–2012

0%

10%

20%

30%

40%

50%

60%

Pers.aircraft

Fin.planning

Car MatchingSupp.life

Security Tax gross-up

Spousal travel

Supp. Clubstickets

Physicalexams

20112012

giftsdisabilityEnt.


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Executive perks declineDuring the past five to six years, most companies have discontinued at least one perquisite. While a number of those companies have dropped all perks, the common practice remains to include at least one perquisite for executives. Twenty- five of the 300 companies did not list any perks that they offer in their 2013 proxy statement. That compares to only 12 companies doing so last year. The other 275 companies listed perks pertaining to the health and security of the executive.

These changes suggest that companies sought to make their pay programs more attractive to their shareholders, which means that, to some extent, say-on-pay has operated as intended. It is likely that we have reached a point where we will not see any major changes in prevalence next year. Hay Group will continue to monitor the use of perquisites and will report our findings in future Hay Group 300 data summaries.

Emerging trends and strategiesBoth the 2012 and 2013 proxy seasons have highlighted the growing practice of direct shareholder engagement as a means for companies to clarify elements of the executive pay program and proactively off set the commentary or recommendations of the shareholder advisory firms.

In order to achieve effective outreach – either to a shareholder or one of the shareholder advisory groups – companies need to utilize their public disclosures as a foundation for any discussions, because neither shareholders nor the advisory groups can consider information that isn’t made

public. As a result, many companies significantly upgraded their proxy disclosures by incorporating easier to read compensation discussion & analysis (CD&A) sections that provided more rationale than ever before. Some of the improvements in disclosures were notable, including providing clearer layouts, more graphics, better descriptions of what the programs actually do and more rationalizations of pay decisions through a ‘business need’ lens (rather than simply a ‘market practice’ lens).

Finally, as more companies embrace performance awards, we expect companies to make progress tackling some of the more complicated issues these plans raise – particularly around long term goal setting for absolute goals; identifying an appropriate peer group for a plan that pays based on relative total shareholder return (TSR); and introducing ‘governors’ on relative TSR plans to make sure that executives don’t win when shareholders lose.

For 2014, we expect an increase in companies using ‘realizable pay’ disclosures, which track the intrinsic or ‘in the money’ value of long-term incentives (LTI) rather than grant/expense value. Such views of compensation are by definition better representations of the relationship between pay and performance, as the underlying value of the LTI will tend to align with the company’s financial performance. To date, companies have been slow to adopt such disclosures in the absence of Securities and Exchange Commission (SEC) guidance on how to properly define and calculate ‘realizable pay.’

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Realizable pay: communicating executive pay to shareholders

The say-on-pay process has heightened the emphasis on ensuring that pay appropriately reflects performance, causing more and more companies to question what pay for what period is compared with performance. As companies, shareholders and proxy advisors reevaluate how to measure pay for the purposes of testing pay-for-performance alignment, the concept of ‘realizable pay’ has emerged as the term used to describe the total compensation value that an executive may realize given actual stock and company

performance as of a specified date. However, given the multitude of stakeholders involved, sometimes with conflicting interests, various definitions and methods of calculation can be found under the rubric of realizable pay. Until a standard definition rooted in regulatory authority is created, confusion and problems will continue.

Since implementation of mandated say-on-pay votes, attention surrounding ‘pay-for-performance’ alignment has focused on the performance side of the equation, specifically on how to measure performance, while the pay segment has been calculated inconsistently with little agreement on what to include in pay. Current methods used in evaluating the extent to which an executive’s compensation correlates with company performance have fundamental flaws that yield inconsistent conclusions. These methods often look at theoretical compensation value versus actual company performance and view them across two different timeframes, comparing some recent period of historical performance against equity grants that are intended to reward future performance.


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Pay evaluations and definitions of payThe summary compensation table (SCT) disclosed in a public company’s annual proxy statement provides a comparable basis for beginning the pay evaluation discussion; it is the pay side of the pay-for-performance equation with which companies, shareholders, and proxy advisors are familiar and generally comfortable using with their own menu of tweaks and exclusions. In this table, the most often examined and cited value is an executive’s total compensation value, which includes salary, bonus, other non-equity incentives, change in pension value and earnings on nonqualified deferred compensation, perquisites and, most significantly, the grant/expense value of long term incentives (LTIs). The true distinction between reported total direct compensation and realizable pay lies in these long-term equity awards.

The basic concern with using grant values is that they are theoretical in nature; they are essentially reasoned guesses of the expected value at the time of grant. Over time, such values may not correlate to actual amounts being realized by executives from the grants (which could be significantly more or less than the theoretical grant value). This method also looks at pay prospectively, extending beyond the period for which performance is measured. For example, a CEO’s performance shares can appear as $5 million in grant value, but if threshold performance is not achieved and they do not vest, these awards wind up producing nothing realizable. The concept of realizable pay was developed to correct this problem.

In very general terms, realizable pay figures would replace the grant date value of equity used in the SCT with the value of equity that executives may obtain based on actual stock performance as of a specified date.

Defining realizable payAn emerging proxy trend is disclosure of realizable pay as an alternative definition of pay in addition to the required disclosures. However, few standards exist for optimal realizable pay disclosure, and companies have chosen a variety of distinct approaches to its calculation.

The Wall Street Journal / Hay Group 2012 CEO compensation study analyzed the proxies of the 300 largest companies filed during the 12-month period ended April 30, 2013. Of these, 17 percent provided some form of realizable pay proxy disclosure, a slight increase from 15 percent during the prior year. Among them, we found over a half dozen noticeably different approaches during the 2013 proxy season alone. Differences revolve around issues including whether a three or five year performance period is used, calculating intrinsic value for companies that grant late in the year, and using a relative comparison or an absolute view, among others.

Proxy advisors also are taking their own approach to realizable pay and how it is used in pay-for-performance calculations. Institutional Shareholder Services (ISS) developed its own realizable pay definition in advance of 2013 proxy filings as part of its qualitative evaluation of pay-for-performance for large cap companies. Under the ISS definition, realizable pay largely consists of the sum of relevant cash and equity awards made during a specified performance period, based on equity award values for actual earned awards, or target values for ongoing awards, calculated using the stock price at the end of the performance period. Stock options or stock appreciation rights (SARs) will be revalued using the remaining term and updated assumptions, as of the end of the performance period, using a Black-Scholes option pricing model.


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In addition to ISS, Glass Lewis (through its partnership with Equilar) includes realizable pay data in its say-on-pay analyses to provide additional qualitative insight into pay-for-performance recommendations.

Ultimately, shareholders will have to conclude that realizable pay provides a meaningful definition of pay for it to have a significant impact on the pay-for-performance discussion. As influential pension fund CalSTRS postulated in the 2012 whitepaper Lessons Learned: The Inaugural Year of Say-on-Pay,1 there is an opportunity for the marketplace, issuers and shareholders to work together in the development of an appropriate pay model. CalSTRS goes on to say that without standardized models and calculations, companies’ individually defined calculations of realizable pay figures would only add complexity to the pay-for-performance evaluation process.

The lack of a standardized definition makes comparability of realizable pay against performance across companies and industries difficult and less meaningful. This lack of an authoritative definition is the largest impediment to a rapid implementation of realizable pay into companies’ compensation discussion and analysis (CD&As), as evidenced by slowed growth in adoption of realizable pay disclosure by companies between the 2013 and 2012 proxy seasons.

Proxy advisory groups define realizable pay As with many of the pressing issues surrounding executive compensation, the future of realizable pay likely rests in the hands of the SEC, and with no deadline for drafting rules on key aspects of Dodd-Frank, any consideration of (and timeline for) realizable pay is speculative at best. This inactivity may lead to further confusion as proxy advisory groups continue to move ahead with their own definitions, encouraging companies to respond to guidelines that are not based on regulatory guidance.

Even as realizable pay becomes more prevalent in the pay-for-performance discussion, companies should consider some possible issues in this type of disclosure. A potential deterrent for the inclusion of realizable pay in the CD&A disclosure is the emerging trend of lawsuits arising for ‘incomplete’ or ‘misleading’ disclosure of pay practices in CD&As. The SEC has advised caution regarding the use of alternative definitions of pay in proxy statements, at least where these figures could be considered misleading to investors. Also, once a company provides disclosures using realizable pay, it may be difficult to back away from this practice in years when it tells a story that a company prefers not to publicize.

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1 Available at: http://www.calstrs.com/sites/main/files/file-attachments/lessons_learned_say_on_pay.pdf.


16Incentives and strategies

With increased scrutiny of executive compensation in the US, executive incentives are shifting to reward performance in both short- and long-term incentives. Our research this year identifi ed the most common performance metrics as well as predicted trends around the growing popularity of relative performance measures. In addition, executive stock ownership guidelines continued their growth while stock holding requirements have become widespread.

With shareholder say-for-pay, all parts of compensation – including incentives – have come under closer scrutiny. As a result, the kinds of incentives and the conditions under which CEOs receive these awards have begun to change. In partnership with Th e Wall Street Journal and independently, Hay Group gathered and analyzed data from proxy statements to track the trends and changes in this important form of compensation. One important fi nding was that, among long term incentives (LTIs), performance awards increased the most to 88.6 percent in 2012.

Recent trends show that in 2012, 92.7 percent of the Hay Group 300 has executive stock ownership guidelines. Th e guidelines and holding requirements show that the CEO’s required ownership guideline is often fi ve to six times salary,

and other top management also have mandated stock, restricted stock (RS), and / or restricted stock unit (RSU) ownership guidelines. Companies have developed a number of strategies for using these guidelines to serve their goals by regulating the accumulation, vesting, and holding of these stocks.

Our research shows that companies are increasing their use of short- and long-term incentive plan performance metrics. It shows continued growth and evolution of many fi nancial and non-fi nancial performance measures.

Finally, we analyze and provide our insights into another important aspect of executive compensation, the desire to adjust LTI payouts in response to negative total shareholder return (TSR) in light of the say-on-pay provisions of Dodd-Frank.

17Incentives and strategies

The Hay Group 300: changes in compensation, 2011–2012

Hay Group collected data on compensation paid to CEOs of 300 companies with revenue in excess of $7.5 billion filing proxies between May 1, 2012–April 30, 2013 (the Hay Group 300). The tables below compare 2011 to 2012. It is important to note that TSR increased 14.4 percent from 2011 to 2012, yet the increase in percentage change for CEO compensation in most cases is in single digits with the exception of performance cash/equity which was 10.2 percent. Total direct compensation (TDC) rose modestly both years.

Hay Group 300 medians, 2011–2012*

2011 Hay Group 300 2012 Hay Group 300

Company earnings

Revenue ($ millions) $15,346.0 $16,314.0

Revenue % change 3.7 %

Net income ($ millions) $1,265.5 $1,138.0

Net income % change 2.1 %

TSR 3.1 % 14.4 %

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2011 Hay Group 300 2012 Hay Group 300

CEO compensation

Salary $1,146,539 $1,150,000

Salary % change 1.5 % 1.3 %

Bonus $2,310,550 $2,057,163

Bonus % change -0.4 % 0.0 %

Salary + bonus $3,585,560 $3,202,563

Salary + bonus % change 0.0 % 0.0 %

LTI $6,959,759 $6,999,906

LTI % change 5.1 % 3.8 %

TDC $10,240,913 $10,057,073

TDC % change 2.3 % 3.6%

Stock option grant – # of grants 166 167

Stock option grant – grant value $2,672,692 $2,796,000

Stock option grant % change 0.0 %

RS grants – # of grants 121 139

RS grants – grant value $2,437,501 $2,290,016

RS grants % change 0.2 %

Performance cash/equity – # of grants 177 222

Performance cash/equity – grant value $3,500,040 $3,828,057

Performance cash/equity % change 10.2 %

Stock option gains – # exercised 112 149

Stock option gains value $3,580,919 $5,826,965

Vested RS – # vested 196 238

Vested RS value $3,487,301 $4,410,065

LTI payouts – # paid out 33 43

LTI payouts value $2,100,000 $2,014,602

* Note: All figures are medians unless specified otherwise; medians should not be added together to form another number.

Incentives and strategies

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The Wall Street Journal / Hay Group 2012 CEO compensation study pay mix, 2008–2012This longitudinal study revealed some interesting trends. Salary dropped slightly (2.5 percent of TDC) from its high in 2008. Bonus climbed 6.5 percent from 2008 to 2010 before declining 3.7 percent by 2012. Stock options showed the largest loss, plummeting nearly 10 percent over the period while performance equity gained 10.7 percent since its low in 2009. Restricted stock (RS) and performance cash payouts have remained relatively flat.

The Wall Street Journal / Hay Group 2012 CEO compensation study pay mix, 2008–2012*

2008 2009 2010 2011 2012

Salary 18.7% 18.0% 15.5% 15.6% 16.2%

Bonus 20.4% 24.4% 26.9% 25.5% 23.2%

Stock options 26.3% 23.2% 19.7% 19.6% 16.4%

RS 12.6% 14.0% 14.0% 13.0% 13.2%

Performance equity 18.8% 16.7% 20.7% 22.6% 27.4%

Performance cash 3.2% 3.7% 3.2% 3.7% 3.6%

* Note: This table is calculated using averages.

g


20

Long-term incentive plan prevalenceHay Group reviewed the 2013 proxy statements of the Hay Group 300 companies to analyze long-term incentive plan (LTIP) prevalence. While we have previously reported such prevalence for the CEOs of the 300 companies, this data summary reports on such prevalence for all executives, including the CEO.

Almost all (290 companies or 96.7 percent) of the Hay Group 300 companies reported making long-term incentive plan awards in 2012 with only a slight change from 2011 when the figure was 296 companies or 98.7 percent.

Stock optionsTwo hundred three (70.0 percent) of the 290 companies reported long-term incentive plan awards in the form of stock options (a right to purchase company stock at a defined exercise price over a specified option term) in 2012, down slightly from 2011 when 221 (74.7 percent) of the 296 companies reported long-term incentive plan awards.

Sixteen of the option grants were performance-based, versus 12 last year. In recent years, performance-contingent options (which vest only if the performance goals are met) have become more common than performance-accelerated options (which vest over a scheduled period which may be accelerated if certain performance criteria are met).

Options may also carry a premium exercise price (a price greater than the market price). Premium options have been very uncommon among the Hay Group 300 with no companies granting such options to their CEO in 2012, and only three companies doing so in 2011.

Stock appreciation rights (SARs)Eighteen (6.2 percent) of the 290 companies reported making long-term incentive plan awards in the form of SARs in 2012, nearly level with 2011 when 20 (6.8 percent) of the 296 companies reported using SARs in their LTI mix.

A SAR is a right at individual election to receive the difference between exercise price and current market price. In the 1970s and 1980s, tandem SARs were very common which permitted the grantee to choose between exercising the option or the tandem SAR grant. While the majority of the SARs are now stock-settled (not exercisable for cash), it is likely that some are independent or freestanding (not granted in tandem with a stock option). Another form of SAR more common in the 1990s was the limited SAR, disclosed by only one company in 2012, which is only exercisable upon a change in control.


21

Restricted stock (RS) and restricted stock units (RSUs)One hundred eighty-eight (64.8 percent) of the 290 companies reported LTIP awards in the form of RS and / or RSUs in 2012 down from 2011 when 212 (71.6 percent) of the 296 companies reported these awards.

Fifty-five (19.0 percent) of the 290 companies granted awards in the form of RS in 2012, down from 2011 when 83 (28.0 percent) of the 296 companies made RS awards.

�� These are awards of actual shares earned over a defined restriction period during which the grantee is treated as owner of the shares, may vote the shares and collect or accrue any dividends that have been paid to shareholders.

One hundred thirty-five (46.6 percent) of the 290 companies granted awards in the form of RSUs in 2012, nearly level with 2011 when 135 (45.6 percent) of the 296 companies in 2011,

�� RSUs are share units earned over a defined restriction period during which the grantee is not treated as owner of the shares and may not vote the shares. Depending on the terms of the award, the individual may collect or accrue any dividends that have been paid to shareholders.

Note: RS and / or RSU awards that are performance-accelerated (in which restrictions lapse over a defined period of time but may accelerate if performance goals are met) are included here with the time vesting awards since restrictions will lapse whether the performance goals are met or not.

Performance awards (performance equity and / or cash)Two hundred fifty-seven (88.6 percent) of the 290 companies reported performance award grants in the form of performance shares, performance units and / or performance cash in 2012, up from 2011 when 245 (82.8 percent) of the 296 companies used these awards.

Two hundred thirty-three (80.3 percent) of the 290 companies granted awards in the form of performance shares, performance share units, performance RS and / or performance RSUs in 2012 versus 214 (72.3 percent) of the 296 companies in 2011.

�� A performance award grant in the form of equity, like a performance share or performance share unit, is an opportunity to earn shares or share units upon meeting certain performance goals/targets over a predetermined performance cycle/period.

Forty-eight (16.6 percent) of the 290 companies granted awards in the form of performance cash, performance units or some other dollar-denominated award type in 2012 versus 57 (19.3 percent) of the 296 companies in 2011 (see graph: Long-term incentive plan prevalence, 2010-2012).

�� A performance award grant in the form of cash, such as performance cash or performance units, is an opportunity to earn cash, cash units or a dollar-denominated amount upon meeting certain performance goals/targets over a predetermined performance cycle/period.


22

Note: RS and / or RSU awards that are performance-contingent (awards with restrictions which lapse over a defined period of time only if the performance goals are met) are included here with the performance vesting awards because the restrictions will lapse only if the performance goals are met.

Also note that performance awards increased from 82.8 percent to 88.6 percent in 2012 while all other long-term incentive vehicles dropped in prevalence.

LTIP outlookHay Group expects that the LTIP award types will continue to re-shuffle in the future. While we expect that performance awards will remain the most popular long-term incentive, we expect that RS will eventually take over the second place again as both stock options and RS continue to lose ground in the future.

g

Long‐term incentive plan prevalence, 2010–2012

0

20%

40%

60%

80%

100%

77.0%

82.8%

88.6%

74.0% 74.7%70.0% 71.3% 71.6%

64.8%

5.7% 6.8% 6.2%

2012

2011

2010

Performance awards

Stock options Restricted stock Stock appreciation

rights


23

Executive stock ownership guidelines and holding requirements

Stock ownership programsWhile the required ownership guideline for CEO’s is often five to six times salary, the succeeding levels of management often have guidelines that range from one to five times salary.

Management stock ownership guideline levels

Position/levelTypical stock ownership guideline levels

CEO 5-6 times salary

Chairman 5 times salary

COO 3-4 times salary

CFO 3 times salary

General counsel 3 times salary

Other named executive officers 2-3 times salary

Other officers 1-2 times salary

Other executives 1 times salary

Hay Group reviewed the 2013 proxy statements of the Hay Group 300 companies to identify companies that have executive stock ownership guidelines and holding requirements. At the same time, we gathered CEO stock ownership guideline levels for the entire 300-company sample.


24

Historical backgroundStock ownership guidelines have been growing in prevalence since the early 1990s. Prior to that time, it was very common for executives to be granted company stock under a stock option or other award, and to sell that stock immediately upon the exercise or vesting of the award. As a result, companies became interested in developing programs that encouraged longer term stock ownership.

The development of stock ownership guidelines helped to ensure that executives held a certain amount of company stock, and more importantly, maintained that ownership. While such programs started in the larger companies, programs at the smaller companies have also gained in prevalence.

The typical stock ownership guideline for executives requires that the individual own and hold stock equal to a specific multiple of salary by a defined period of time (called the ‘accumulation period’). The next most popular approach is that the individual must own a defined number of shares by the end of the accumulation period.

Another program – a stock holding requirement – started out as a way to require executives to retain stock acquired upon a stock option exercise for a defined period of time after exercise. To encourage the individuals to exercise their options and to hold the acquired shares, some companies offered them an ‘exercise and hold’ incentive such as partial payment of resulting taxes or a tax gross-up. Soon, the holding requirements were extended to other long-term incentives (LTI) such as restricted stock (RS) and performance shares.

By the end of the 1990s, the majority of larger companies had ownership guidelines for executives, and holding requirements were becoming more common. By 2013, almost all large companies have executive stock ownership guidelines, and almost one-half of companies have executive stock holding requirements.

Executive stock ownership guidelinesOf the Hay Group 300 companies, 92.7 percent now have executive stock ownership guidelines versus 87.7 percent of companies two years ago. These guidelines set a clear policy on stock ownership and retention and often send a strong message to executives that the company will simply not tolerate their inability to continue towards meeting their guideline level within a stated ‘accumulation period.’ Should the executive not show progress towards meeting their guideline, some companies employ different types of penalties that they can institute to punish the executive for not meeting the guideline; such approaches can range from reducing or halting certain RS or option grants until the guidelines are met to more dramatic approaches such as demotion or termination of employment.


25

CEO stock ownership guidelinesThe majority of CEO stock ownership guidelines are based on a multiple of salary that ranges from two times salary to as much as 15 times salary. In 2012, 34.7 percent of the guidelines were a multiple of six times salary, while 44 percent were five times salary. These figures are up from two years ago when only 84.3 percent of CEO ownership guidelines were based on a multiple of salary. Then the median (56.4 percent) was five times salary, and 22.2 percent were six times salary (see graph: CEO stock ownership guidelines in multiples of salary).

Of the CEO stock ownership guidelines, 12.5 percent* (versus 9.2 percent two years ago) were stated as a fixed number of shares that range from 12,000 shares to a high of 2,500,000 shares, with a median of 175,000 shares.

Of the CEO stock ownership guidelines, 7.7 percent* (versus 6.6 percent two years ago) were stated differently, for example:

�� shares valued as a defined market value�� the lesser of a multiple of salary or a fixed number of shares�� the lesser of a multiple of salary or shares valued at a defined market value�� the lesser of a fixed number of shares or shares valued at a defined market value�� a percentage of equity awarded or after-tax shares received.

While the majority of the large companies have CEO stock ownership guidelines, in the past two years, the statistics show a trend toward requiring the CEO to hold six times salary rather than five times salary in stock.

* Note: the totals exceed 100 percent since a number of companies employ more than one approach.

CEO stock ownership guidelines in multiples of salary

Other, 2%15 times, 0.8%

3 times, 2%4 times, 2.4%

8 times, 3.2%10 times, 5.2%

7 times, 5.7%

6 times, 34.7%

5 times, 44%


26

Accumulation periodStock ownership guidelines usually provide for an ‘accumulation period,’ a specified time period during which the executive is expected to accumulate the required shares. The most frequent accumulation period had been and is five years. The accumulation period for the current survey ranges from three years to seven years, with a median (86.3 percent) of five years. The typical language found in the company’s proxy statement might state that ‘officers are expected to meet their ownership requirements within five years of election, appointment or promotion.’

Pay incentives in stockTo help executives accumulate stock so that they can meet their guidelines within the stated period of time, companies have established programs to encourage stock ownership by paying annual bonuses in stock or in RS, which carries restrictions to prevent disposing of the stock prior to the end of the restriction period. Another alternative might be to provide the executive with the opportunity to elect to receive RS in lieu of their cash bonus, and if so, receive a premium RS grant as well.

The restrictions are often three to five years, but such grants fit nicely into a plan to promote stock ownership.

Paying other LTI in stock can work as well. There are companies that pay all of their LTI in stock, or pay 50 percent of their LTI or option gains in stock.

Stock retention and holding requirementsSome companies rushed to institute stock ownership guidelines without considering the consequences and appropriate remedies if the guidelines were not met. Next, they developed stock retention programs that required retention of stock for a defined period of time or until the guideline was met. Some approaches included paying 100 percent of LTI in stock until the guideline was met, or paying half of LTI in stock that cannot be sold until the executive retires or leaves the company.

To encourage option exercise and retention of the acquired shares, some companies require that such shares be retained in whole or in part for a defined period of time or until the ownership guideline is met. Thus, holding requirements often can be found as stand-alone agreements or attached to a stock ownership guideline. As part of the ownership guideline, the language in the proxy might read, ‘Following the exercise of options, officers subject to the ownership guidelines who have not met their guideline are expected to retain at least 50 percent of the net value of the shares of stock received.’

Almost half (48 percent in 2012 versus 34.9 percent two years ago) now disclose some form of executive stock holding requirement. The holding period for a pre-guideline holding requirement is typically (70.8 percent) until the guideline is met.

The companies that disclose a stand-alone holding requirement or a post-guideline holding requirement have the following holding periods:

�� One year, 60.8 percent�� Two years, 9.8 percent�� Three years, 5.9 percent�� Until retirement, 23.5 percent.


27

Which shares count toward the ownership guideline?Companies often include the following types of shares towards meeting their stock ownership guidelines:

�� shares held directly or beneficially owned by the executive�� benefit plan shares in such plans as the 401(k) plan and savings plan�� deferred compensation share holdings�� vested restricted stock (RS) and restricted stock units (RSUs).

Companies disclosed that they included the following share types in their definition of covered shares:

�� 57.5 percent included RS or RSUs 22.7 percent included vested RS/RSUs 24.1 percent included unvested RS/RSUs�� 14.0 percent included stock options 10.1 percent included vested stock options 3.0 percent included unvested stock options�� 17.6 percent included performance shares 9.4 percent vested performance shares 3.2 percent included unvested performance shares

�� 61.2 percent included shares held or beneficially owned�� 22.3 percent included savings plan shares�� 24.5 percent included deferred compensation plan shares�� 11.2 percent included benefit plan shares�� 10.8 percent included retirement plan shares.

Most companies do not include the following types of shares towards meeting their stock ownership guidelines:

�� unexercised stock options, vested stock options, unvested stock options�� unvested RS and RSUs�� unvested performance shares.

Since some companies do count the above share types in meeting the ownership guidelines, it is important to study each company’s proxy disclosure to determine which shares are counted.


28

Monitoring complianceExecutives who are subject to a stock ownership guideline must show progress toward meeting that guideline. Often, companies disclose that they monitor compliance on an annual basis. If the guideline is not met during the accumulation period or if annual progress is not met, then penalties can be triggered, as disclosed under ‘Executive Stock Ownership Guidelines.’

Nearly a quarter (24.1 percent) of the sample disclosed that they monitor compliance regularly or on an annual basis. Over half (58.2 percent) monitor compliance only on an annual basis.

Of these, 11.9 percent of the sample disclosed the type of penalty assessed if an individual fails to meet or show progress towards meeting the guideline. The companies that disclosed penalties indicated that the individual

�� must hold vested equity (45.5 percent*) �� must retain exercised options (51.5 percent*)�� must retain bonus plan shares (21.2 percent*)�� must retain other equity shares (12.1 percent*)�� will receive no stock grants until the guideline is met (18.2 percent*)�� will receive no stock option grants until the guideline is met (21.2 percent*)�� will receive no performance share grants until the guideline is met (18.2 percent*)�� will receive no bonus plan shares until the guideline is met (15.2 percent*).

* Note: the totals exceed 100 percent since a number of companies employ more than one approach.

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29

CEO stock option terms disclosedThe typical stock option term continues to be ten years, as disclosed by 78.6 percent of 2012 stock option grants (versus 76.4 percent in 2009) to CEOs of Hay Group 300 companies (see graph: CEO stock option terms, 2009–2012).

CEO stock option grant vestingThe typical CEO stock option grant becomes exercisable (or vests) after meeting two conditions:

�� following a waiting period in which no options may become exercisable, often one year

CEO stock option terms and vesting schedules, 2009–2012

Hay Group reviewed the 2013 proxy statements of the Hay Group 300 companies to analyze CEO stock option terms and vesting schedules. The 2013 sample includes the 300 largest companies that filed a final definitive proxy statement between May 1, 2012 and April 30, 2013.

CEO stock option terms, 2009–20122009 2012

6 years, 1.5%5 years, 2.4%

10 years, 78.6%

8 years, 2.4%

7 years, 15.1%

4 years, 1.2% 5 years, 3.0%

10 years, 76.4%

6 years, 3.0%

7 years, 15.2%

8 years, 1.2%


30

CEO stock option waiting periods, 2009–20122009 2012

Other, 3.0%4 years, 1.5%

3 years, 7.5% 1 year, 84%

Other, 5.1%

3 years, 10.8% 1 year, 79.1%

2 years, 5.0%

2 years, 4.0%

�� and following a subsequent period during which specified percentages of the grant become exercisable, often in three or four equal annual installments.

The most common waiting period is one year after grant as disclosed in 84.0 percent in 2012 (versus 79.1 percent in 2009) option grants (see graph: CEO stock option waiting periods, 2009–2012).

The most common subsequent vesting period is still three equal annual installments as disclosed by almost 50 percent (43.2 percent in 2012 and 47.5 percent in 2009) of CEO stock option grants, with four equal annual installments coming in second place remaining at 30.2 percent in both 2009 and 2012 (see graph: Subsequent vesting periods following waiting period, 2009–2012).

2009 2012

Other, 7.5%

3 equal annual

installments, 43.2%

4 equal annual installments, 30.2%

5 equal annual installments, 7%

2 equal annual installments,

3.5%

1 annual installment, 8.6%

Subsequent vesting periods following waiting period, 2009–2012

Other, 5%

2 equal annual installments,

2.9%

3 equal annual

installments, 47.5%





31

The most common stock option vesting period (waiting period plus subsequent vesting) is one year after grant in three equal annual installments used by almost half (43.0 percent in 2012 and 43.9 percent in 2009) of the companies, followed by one year after grant in four equal annual installments used by almost thirty percent (29.0 percent in 2012 and 29.5 percent in 2009) of the companies (see graph: Stock option vesting schedule, 2009–2012).

When a stock option grant becomes exercisable (or vests) one year after grant in three equal annual installments, that award is fully exercisable three years after grant (as one-third of the award becomes exercisable at the date of each one-year grant anniversary). In fact, over one-half of stock options are fully exercisable three years after grant (53.5 percent in 2012 and 55.6 percent in 2009) and one-third of such awards are fully exercisable four years after grant (34.0 percent in 2012 and 31.0 percent in 2009).

9.5%1.5%

1%6.5%

1.5%

7%

29%

43%

1%9.3%

2.9%

7.9%

2.2%

4.3%

29.5%

43.9%

2012Stock option vesting schedule, 2009–2012

2009

Other

4 years after grant

3 years after grant in 3 equal annual installments


3 years after grant


2 years after grant

1 year after grant in 5 equal annual installments





32

100 percent of options are exercisable after:

75th percentile 4 years

Median 3 years


While most companies grant stock options that carry ‘graded’ vesting conditions which are exercisable over their term in installments, a number of companies’ grant awards carry ‘cliff’ vesting conditions which vest solely after a waiting period.

Type of vesting Percent of Hay Group 300

2009 2012

Graded 89.9 % 90.0 %

Cliff 10.1 % 10.0 %

A number of companies also grant stock options that carry ‘performance-based’ vesting conditions. In these cases, awards may become exercisable (or vest) only after meeting certain performance goals (performance-contingent vesting) or after a specified time period for example, nine years, with vesting accelerated after meeting certain performance goals (performance-accelerated vesting).

Vesting conditions Percent of Hay Group 300

2009 2012

Performance-based 2.5 % 2.7 %

Performance-accelerated 0.0 % 0.0 %

Performance-contingent 2.5 % 2.7 %

Another 11 companies disclosed making performance-based stock option grants to other executives, thus a total of 16 companies or 7.9 percent of the companies that granted stock option grants to employees incorporated performance-based features.

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33

The typical RS vesting schedule Restrictions on CEO RS grants typically lapse (or vest) after meeting two conditions:

�� following a waiting period in which no restrictions lapse, often one year�� and often following a subsequent period during which specified percentages of the restrictions lapse, frequently in three or four equal annual installments.

The most common waiting period during which restrictions on RS lapse is one year after grant, as disclosed in 55.4 percent of 2012 (versus 42.6 percent in 2009) RS grants, followed by three years after grant in 28.5 percent of 2012 (versus 43.6 percent in 2009) RS grants (see graph: Restricted stock waiting periods, 2009–2012).

The most common subsequent restriction period is three equal annual installments as disclosed by over one-third (35.3 percent in 2012 and 37.8 percent in 2009) of RS grants but one annual installment is close behind at 33.2 percent in 2012, down a little from 33.8 percent in 2009 (see graph: Subsequent restriction periods following waiting period, 2009–2012).

The most common RS restriction period (waiting period plus subsequent restriction period) is one year after grant in three equal annual installments used by almost 30 percent (29.6 percent in 2012 versus 22.6 percent in 2009) of the Hay Group 300 companies, followed by three years after grant used by nearly a third (27.4 percent in 2012 versus 34.3 percent in 2009) of the Hay Group 300 (see graph: Restricted stock vesting schedules, 2009–2012, on page 36).

Restricted stock vesting schedules, 2009–2012

Hay Group reviewed the 2013 proxy statements of the Hay Group 300 companies to analyze CEO restricted stock (RS) vesting schedules. The 2013 sample includes the 300 largest companies that filed a final definitive proxy statement between May 1, 2012 and April 30, 2013.


34

Ince

ntiv

es a

nd s

trat

egie

s | R

estr

icte

d st

ock

vest

ing

sche

dule

sRestricted stock waiting periods, 2009–2012

Other, 4.3%5 years, 2.7%

4 years, 5.4%

3 years, 28.5%

2 years, 2.7%

1 year, 55.4%

0 years, 1%

2012

Other, 1%5 years, 4.3%

4 years, 5.3%

3 years, 43.6% 2 years, 3.2%

1 year, 42.6%

2009

Subsequent restriction periods following waiting period, 2009–201220122009

Other, 6.8%

3 equalannualinstallments, 35.3%

2 equalannual

installments, 4.7%



4 equal annualinst., 12.6%

5 equal annualinstallments, 8.1%

4 equalannualinst., 14.9%

3 equalannualinstallments, 37.8%

2 equal, annual

installments, 5.4%

1 annual installment,33.8%


35

14.0%

2.2%

5.0%

1.7%

27.4%

1.7%5.6%

12.8%

29.6%12.70%

3.90%

5.90%

3.90%

34.30%2.00%

4.90%

9.80%

22.60%

2012Restricted stock vesting schedules, 2009–2012

2009

Other

4 years after grant

5 years after grant

2 years after grant






3 years after grant

When restrictions on RS lapse one year after grant in three equal annual installments, the restrictions lapse fully three years after grant. In fact, almost two-thirds (63.8 percent in 2012 and 60.8 percent in 2009) of awards carry restrictions that lapse three years after grant, followed by four years after grant used by over one-fifth (21.8 percent in 2012 and 17.6 percent in 2009) of the Hay Group 300.

100 percent of restrictions on RS lapse after


Median 3 years



36

While most stock option grants carry ‘graded’ vesting schedules (90 percent graded versus ten percent cliff), almost two-thirds (65.4 percent in 2012 versus 49.0 percent in 2009) of CEO RS grants carry graded restrictions, and 34.0 percent in 2012 (compared to 46.1 percent in 2009) carry cliff restrictions which lapse solely after a waiting period (see graph: Restricted stock grants: type of restrictions, 2009–2012).

Many companies also make awards that carry performance-based restrictions. In these cases, restrictions may lapse only after meeting certain performance goals (performance-contingent) or after a specified time period (for example, nine years) with restrictions accelerating after meeting certain performance goals (performance-accelerated).

Vesting conditions Percent of Hay Group 300

2009 2012

Performance-based 7.2 % 11.7 %

Performance-accelerated 1.1 % 0.0 %

Performance-contingent 6.1 % 11.7 %

In 2012, another 15 companies (13 companies in 2009) disclosed making performance-based contingent RS grants to other executives, while one other company (none in 2009) disclosed making performance-accelerated RS grants to other executives; thus a total of 38 companies or 20.2 percent of the companies who granted RS grants to employees incorporated performance-based features.

g

Restricted stock grants: type of restrictions, 2009–201220122009

Other, 0.6%

Cli�, 34%Graded, 65.4%

Other, 4.9%

Cli�, 46.1%Graded, 49%


37

Short-term incentive plan performance metricsNinety-eight percent of the Hay Group 300 companies disclosed the performance measures used in 2012 for short-term incentive plans. The most common short-term incentive plan performance metric was some form of earnings metric (earnings; profits; net income; pre-tax net income; operating income; earnings before interest, taxes, depreciation and amortization or EBITDA; or earnings per share) disclosed by 91.5 percent of the 293 companies disclosing performance metrics.

Individually, the most common short-term incentive plan metrics are: earnings per share (41.3 percent); sales/revenues (41.3 percent); operating income (33.4 percent); cash flow (29.7 percent); achievement of strategic goals (22.5 percent); after-tax net income (18.4 percent); expense control/cost containment (17.4 percent); EBITDA (17.1 percent); safety (17.1 percent); customer satisfaction (15.4 percent); return on investment/ROIC (13.3 percent); leadership (12.3 percent); and pre-tax net income (10.9 percent).

Discretionary goals are disclosed at 10.9 percent of the sample and almost six out of ten companies (59.0 percent) in the sample disclosed that they factor individual performance into their review (see graph: Multi-year short-term incentive plan performance metrics).

Short-term and long-term incentive plan performance metrics

Hay Group reviewed the proxy statements of the Hay Group 300 companies to determine which performance measures companies are using in their short-term and long-term incentive plans, according to the proxy’s compensation discussion and analysis.


38

Other short-term incentive plan performance measures mentioned ten or more times include:

�� operational goals, 9.9 percent�� diversity, 9.6 percent�� gross margin, 9.6 percent�� environmental performance, 9.2 percent�� employee/management development, 7.8 percent�� earnings (not further defined), 7.5 percent�� new product/business development, 6.8 percent�� compliance, 5.8 percent�� innovation/creativity, 5.1 percent�� production volume, 5.1 percent�� total shareholder return, 4.8 percent�� market share, 4.4 percent

�� succession planning, 4.4 percent�� people goals/staffing, 4.4 percent�� health performance, 4.4 percent�� return on assets, 4.1 percent�� quality, 3.8 percent�� efficiency, 3.8 percent.

Multi-year short-term incentive plan performance metrics

0%

20%

40%

60%

2012

2011

Pre-tax net in

come

Leadership

Return

on investm

ent/ROIC

Customer s

atisfactio

n

Safety

EBITDA

Expense co

ntrol/c

ost co

ntainment

After-t

ax net inco

me

Meeting st

rategic goals

Operating in

come

Sales/revenues

Earnings p

er share

Cash �ow


39

Almost three-quarters (72.4 percent) of the sample used four or more short-term incentive plan performance metrics in 2012; a little over one-twentieth (5.1 percent) of the sample used only one performance metric (see graph: Number of STIP performance metrics in use in 2012).

Short-term incentive plan performance metricsThe goals that increased the most are leadership from 6.4 percent to 12.3 percent, sales from 36.6 percent to 41.3 percent, and after-tax net income from 13.9 percent to 18.4 percent. The goals that decreased the most include employee satisfaction from 4.1 percent to 2.0 percent, return on investment/ROIC from 15.3 percent to 13.3 percent, and market share from 6.1 percent to 4.4 percent.

Number of STIP performance metrics in use in 2012

Five, 16%

Six or more, 39.2%

Four, 17.1%

Three, 11.9%

Two, 10.6%

One, 5.1%


40

Long-term incentive plan performance metricsOf the Hay Group 300 companies, 87.7 percent disclosed the performance measures used in 2012 for long-term incentive plans. The most common long-term incentive plan performance metric was some form of earnings metric (either earnings, profits, net income, pre-tax net income, operating income, EBITDA or earnings per share) disclosed by 59.3 percent of the 263 companies disclosing performance metrics.

Individually, the most common long-term incentive plan performance metrics were: total shareholder return (47.1 percent); earnings per share (31.9 percent); return on investment/ROIC (25.5 percent); sales/revenues (19.4 percent); cash flow (13.7 percent); operating income (12.5 percent); and return on equity (11.4 percent). See graph: Multi-year long-term incentive plan performance metrics.

Multi-year long-term incentive plan performance metrics

0%

20%

40%

60%

2012

2011

Return

on equity

Operating in

come

Sales/revenues

Return

on investm

ent/ROIC

Earnings p

er share

Total sh

areholder retu

rn

Cash �ow


41

Other long-term incentive plan performance measures mentioned ten or more times include:

�� EBITDA, 9.1 percent�� stock price, 8.7 percent�� after-tax net income, 6.1 percent�� pre-tax net income, 5.3 percent�� gross margin, 3.8 percent.

Only 14.1 percent of the sample used four or more long-term incentive plan performance metrics in 2012; almost 30 percent (29.7 percent) used only one performance metric (see graph: Number of LTIP performance metrics in use in 2012).

Long-term incentive plan performance metricsThe goals that changed the most include total shareholder return (TSR), up from 40.5 percent to 47.1 percent; ROI, up from 22.4 percent to 25.5 percent; and operating income, down from 13.9 percent to 12.5 percent.

Number of LTIP performance metrics in use in 2012

Four or more, 14.1%

Three, 20.5%

Two, 35.7%

One, 29.7%


42

The future for short-term and long-term incentive plan performance metricsThe multi-year prevalence data for short-term incentives shows continued growth in many financial and non-financial performance measures such as leadership, sales, after-tax net income, meeting strategic goals, EBITDA, safety, operating income and cash flow. Some of the financial and non-financial performance measures declined in prevalence as well, including employee satisfaction from 4.1 percent to 2.0 percent, return on investment/ROIC from 15.3 percent to 13.3 percent, and market share from 6.1 percent to 4.4 percent.

The long-term incentive performance metrics saw the largest growth in TSR and ROI, while the largest decline was in operating income.

As predicted previously:

�� We anticipate that more companies will add non-financial performance metrics to their short-term incentive plans while continuing to add to their menu of financial performance metrics.

�� We do not expect to see long-term incentive plan performance metrics change much in the near future, as relative TSR measures continue to grow annually.

g


43

Adjusting long-term incentive payouts when shareholders lose

At what levels of executive performance are high payouts truly deserved? This is a question that all compensation committees have had to answer. The question can be acute for many companies as they struggle to handle situations where performance relative to peers in the industry has been strong, while absolute performance has been weak. Issues surround popular forms of long-term incentive (LTI), performance-vested plans that utilize relative total shareholder return (TSR) plans. These plans continue to rise in prevalence and, in their classic form, provide rewards for a company’s TSR performance compared to peers.

In the past few years, however, companies have stumbled upon some of the drawbacks of such plans. That is, absolute outcomes for executives may not always align with absolute outcomes for shareholders if and when a company outperforms its peers, but still loses money for its investors. Addressing this issue may be the next growing trend.

Relative performance measuresA number of farsighted companies began addressing the negative TSR scenario head-on in the mid-2000s by transitioning their LTI programs away from stock options and toward performance-vested plans; they started placing more emphasis on the use of long-term performance measures. After several years of difficulty navigating these new vehicles, companies made another design leap, moving to relative performance measurements.

The main reason for this approach was that many directors believed that absolute performance metrics – either absolute stock prices or other rolling long-term performance goals – provide too much opportunity for executives to lobby their compensation committees to revise the goals when unforeseen events occur. Executives have argued that unanticipated challenges – such as a new environmental regulation, currency fluctuation, macroeconomic slowdown – prevented them from achieving benchmarks that they would likely have met under more favorable circumstances.

*Reprinted from Directorship (www.directorship.com) © Copyright 2013 National Association of Corporate Directors.

*


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Secondly, after the stock price boom of the late 1990s and mid-2000s, enough directors had experienced periods when stock prices had risen with the rest of the market, resulting in uncertainty regarding how well executives really had performed given their environment. The reverse argument arose in the economic turmoil and stock market troubles of the early- and late-2000s, when some executive teams performed well, despite stock price declines.

Finally, companies continued to struggle with setting absolute goals on a three-year basis; as they faced periods of economic uncertainty, their business outlooks made it especially difficult to accurately set one-year goals, let alone three-year benchmarks.

Eager to address those concerns, many compensation committees looked for ways to take some of the emphasis off of absolute performance. They hit upon a clever solution by deciding to compensate executives based on relative performance versus their industry or peer-group, looking at measures like earnings per share (EPS) growth and the more popular TSR.

Flaws in relative TSR models For some time, this new focus on relative performance standards appeared to be working. Relative TSR plans were soon broadly adopted by more and more public companies as part of their performance-based long-term incentive plans.

But companies soon learned that relative TSR compensation models also had their flaws. When entire markets slumped – as happened in late 2008 – and dragged down whole industries in their wake, it soon became clear that executives could outperform their entire peer group and thus win the highest possible long-term

performance payout – often as high as 200 percent of a given target stock award – while still failing to achieve adequate (or even positive) absolute TSR.

Many free market theorists – and even some portfolio managers – would suggest that, despite the discomfort, this was the right outcome. Given the circumstances, if the executive team lost less value than its peers, then that executive team performed well enough and should be rewarded accordingly. However, directors realized that the story would not be as easy to sell to shareholders who may have watched the value of their investment decline substantially as executives received maximum payouts.

Many compensation committees became torn: Did it make sense to give executives outsized rewards even as shareholders were facing real losses? This possibility seemed even more unsettling as say-on-pay rules took effect in 2010. How were such payouts perceived by shareholders and other interested parties? Although say-on-pay votes are not binding, compensation committees still prefer to keep their shareholders happy while avoiding the embarrassment and negative publicity inherent in any say-on-pay conflict.

TSR visionaries emergeIn their 2007 proxy filings, energy company Ameren International, restaurant company Brinker International and pharmaceutical firm Pfizer Inc. all tackled the issue by adopting performance plan caps in negative TSR situations. A handful of other companies followed suit. In its 2008 proxy filing, fire safety and security company Tyco indicated that it too would cap long-term performance awards in negative TSR scenarios.



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Since then, the trend toward capping long-term performance awards in case of negative TSR outcomes has made slow but steady progress. In February 2013, at the request of The Wall Street Journal, Hay Group identified 15 large and mid-size public companies, including AT&T, Northrop Grumman Corp., Diebold Inc., CenturyLink and Eli Lilly, that capped or moderated their stock incentive-plan awards in situations where their executives outperformed peer companies but still were unable to deliver positive TSR. Since then, further Hay Group research has identified other major public companies such as MetLife and Endo Health Solutions with similar capped stock incentive long-term performance plans.

One cap does not fit allThere are few market standards for this emerging practice. The companies that have adopted some moderation or limitation of relative TSR payouts have taken slightly different approaches to the issue. For example:

�� Brinker International reduces its earned payment by 20 percent if TSR is negative.

�� Tyco caps its long-term performance payout at 125 percent of the target amount if actual TSR is negative.

�� CenturyLink takes the treatment a step further, capping the award at 100 percent of the target amount if actual TSR is negative. Based on our research, this is the most common approach.

As companies seek to navigate the issue, one size will not fit all. In this process, companies need to answer two key questions – one regarding the standards that require some payout moderation and another about the degree of moderation itself.

1. What is the appropriate standard for moderating payouts? �� None: ‘If management has outperformed, then shareholders have done better than they could have done otherwise.’

�� TSR must be positive: ‘Management shouldn’t ‘win’ when shareholders lose.’

�� TSR must beat the risk-free rate: ‘Management shouldn’t ‘win’ if they haven’t provided shareholders with a return exceeding the risk-free rate.’

�� TSR must achieve a minimum X percent return: ‘Management shouldn’t ‘win’ if they haven’t provided shareholders with a reasonable minimum return.’

2. What is the appropriate treatment of the award if absolute TSR outcomes are poor? �� No reduction: Suggests that relative performance should outweigh absolute shareholder outcomes.

�� Reduce payment by X percent: Rewards management for outperformance, but holds them more accountable for shareholders’ absolute outcomes.

�� Cap award at target: Balanced approach that rewards management for outperformance, but acknowledges shareholders’ absolute outcomes.

�� Eliminate award: Suggests that in a down market, absolute shareholder outcomes should outweigh relative performance.



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Emerging trends We anticipate that more companies will begin to act on this emerging trend and, as they do, market practice may soon tell us what the new normal will look like. However, while shareholders may develop their own expectations on this topic, companies need to be cautious in adopting approaches that make sense for their businesses, their shareholder populations, their executive populations and their performance challenges.

Some relevant factors to consider include:

�� The nature of competition within the sector: Relative TSR alone is likely to be a more telling indicator of outperformance when there are more competitors.

�� The makeup of the shareholder population: Specialty or niche investors that track the sector may have greater appreciation for the outperformance and therefore may have less sensitivity to their absolute returns.

�� The nature of executive talent: In sectors where the landscape for executive talent is competitive, and / or the company has a uniquely talented executive team, a cap may disadvantage shareholders if it threatens the retention of the management team.

�� The relative emphasis on TSR in the program: The more weighted the program is to TSR, the more impact a moderated payout will have on executives.

Whatever the approach, compensation committees should add this issue to their growing list of design elements to discuss, review and debate – all in the interests of preparing for a negative TSR over a longer-term performance period. In that instance, compensation committees that have not adequately thought the issue through may be forced to improvise, a task which very few directors – and shareholders – find comfortable. In this governance environment, most directors want to do their hard thinking on the front-end – rather than the back-end – of the performance period.

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47Recruitment and retention

It is no surprise that fi nancial incentives are a major factor in both recruiting and retaining a CEO. Organizations are focusing on designing executive compensation programs that are competitive with other companies in the industry, but the programs become more complex when taking into account the focus on performance and rewarding the CEO when key goals are met. Our research looks at the trends in luring new CEOs to join an organization, as well as the incentives required to retain top talent while keeping shareholders happy.

For recruitment, companies have long attracted top talent by off ering incentives both to attract a CEO and also to lessen or negate the losses that an executive would incur by leaving a current position to accept a new one such as forfeited bonuses and other cash incentives, lost end-of-year pay increases, and forfeited equity awards. For the most part, signing awards vary from industry to industry.

On the other side of the coin, retention is also an important consideration. In a recent Hay Group survey, the most cited reason why key talent quits is ‘opportunity to earn more elsewhere.’ Accordingly, retention eff orts focus on performance rewards in an attempt to keep compensation commensurate with competitors and reward the CEO for meeting goals. Our research suggests that RSUs have become the preferred full value award vehicles because of their fl exibility relative to restricted stock (RS). Th ey can be structured to preserve income tax advantages over RS.

If retention matters in day-to-day operations, it is often essential in mergers and acquisitions (M&A) where key talent may feel vulnerable. Questions about job security, future company direction, and other factors make a well thought-out retention strategy especially critical. Th e retention bonus plan is often part of the deal and the cost included in the M&A fi nancial model.

Th is section provides information and analysis on various plan options and strategies that are complicated by the emphasis on pay for performance. However, Th e Wall Street Journal / Hay Group 2012 CEO compensation study shows retention awards are still being used. Companies are identifying and addressing issues in the context of their business and compensation strategy while following governance best practices.

48Recruitment and retention

Definition of signing bonus This study includes bonuses awarded:

�� to induce the CEO to accept a position at a new employer

�� to compensate the executive for the loss of benefits (such as bonuses, stock options, restricted stock, etc.) that were forfeited after accepting the position at the new employer

�� to pay the executive, as a special one-time non-performance award made upon commencement of employment. In the absence of specific text that identifies the award as a signing bonus, such employment awards were designated as a signing award.

Note: Bonuses awarded as a result of performance are excluded from this article.

Signing bonus termsIt is sometimes difficult for readers of proxy statements and business publications to identify signing bonuses because there are a number of other terms that are used to designate such awards. Some frequently used terms include:

�� signing bonus�� sign-on bonus�� front-end bonus�� upfront bonus�� employment bonus�� hiring bonus�� recruiting bonus�� ‘golden hello.’

Signing bonuses and other signing awards

Hay Group reviewed the 2011 to 2013 proxy statements of the Hay Group 300 companies to determine the prevalence of CEO signing bonuses and other signing awards; type of award and value were also determined from the database we created from this research.

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CEO signing awardsAwarding signing bonuses to a key employee, in particular to a CEO, is not a new practice. Since the 1970s, some of the largest companies, including Revlon, Chrysler, Apple, CBS, Navistar Intl., and UAL, lured CEOs with million dollar signing bonuses and occasionally with a signing grant of stock options and / or restricted stock (RS).

Signing bonuses are typically special cash incentives provided to key employees who have a special expertise to entice them to leave their current job to join another company; often the new company may be in a situation where it is struggling, such as being formed from a merger/acquisition, in Chapter XI reorganization, or in a turnaround situation. The new CEO thus is hired to run the company during a period of uncertainty.

In such restructuring situations, when the CEO leaves a current job, he or she may forfeit bonuses, a year-end salary increase, and potentially large long-term incentive awards. To convince the new CEO to join, the company often will factor the value of those lost benefits into its offer in the form of signing awards. The company might also provide the new CEO with a relocation package.

Even in situations where there is no corporate restructuring, many companies still provide the new CEO with other types of signing awards, such as stock options and other long-term incentive awards. Technology companies, in particular, tend to provide stock options as part or all of the signing award package. In the past, key employees who joined start-up firms took risky stock options for the chance at an outsized payday. However if the new company fails, the CEO can be left with nothing unless a portion had been provided in a cash award. Therefore,

in the current economic climate, signing awards are often cash-based bonuses or a combination of cash-based and equity-based awards.

In order to prevent the employee from pocketing the signing bonus and immediately signing with another employer, the signing bonus may be paid over a defined period of time rather than a lump-sum, one-time payment. In case the CEO leaves during that time period, the company can be protected if it includes a claw-back provision in the grant document to require whole or partial repayment if the CEO leaves prior to a certain date.

Signing awards to Hay Group 300 key employeesDuring the past two years, 80 companies (26.7 percent of the Hay Group 300 companies) made some form of signing award to their key employees. There were 16 signing bonuses awarded in the past three years to 14 CEOs of 14 companies.

The signing bonus grants ranged from a low of $150,000 to a high of $2,750,000, with a median of $566,800. As a percent of salary, the range was 15 percent to 458.3 percent, with a median of over 50 percent, 57.2 percent.

CEO signing bonuses

Value Percent of salary

High $2,750,000 458.3 %

75th percentile $1,350,000 130.4 %

Median $566,800 57.2 %

25th percentile $250,000 27.0 %

Low $150,000 15.0 %

Mean $911,336 99.0 %

Recruitment and retention

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CEO signing stock option grantsLooking at our CEO pay database, eight signing stock option grants were made in the past two years to seven CEOs of seven companies. The CEO signing stock option grants ranged from a low of $1,266,667 to a high of $34,190,487, with a median of $6,417,497. As a multiple of salary, the range was 1.3 to 28.8 times salary, with a median of 6.3 times salary.

CEO signing stock option grants

High $34,190,487

75th percentile $8,678,717

Median $6,417,497


Low $1,266,667

Mean $9,925,128

CEO signing stock option grants as a multiple of salary

High 28.8

75th percentile 10.5

Median 6.3

25th percentile 2.2

Low 1.3

Mean 9.2

CEO signing RS grantsNine signing RS grants were made in the past two years to nine CEOs of nine companies. The CEO RS grants ranged from a low of $360,996 to a high of $52,656,928 with a median of $6,000,028. As a multiple of salary, the range was 0.5 to 35.1 times salary, with a median of 6.0 times salary.

CEO signing RS grants

High $52,656,928


Median $6,000,028


Low $360,996

Mean $10,789,731

CEO signing RS grants as a multiple of salary

High 35.1

75th percentile 7.9

Median 6.0

25th percentile 3.6

Low 0.5

Mean 8.4


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CEO signing performance awardsOur CEO pay database found six signing performance awards in the past two years to six CEOs of six companies. The CEO performance award grants ranged from a low of $1,266,667 to a high of $8,442,978 with a median of $3,534,299. As a multiple of salary, the range was 1.3 to 5.6 times salary, with a median of 3.0 times salary.

CEO signing performance awards

High $8,442,978


Median $3,534,299


Low $1,266,667

Mean 4,274,794

CEO signing performance awards as a multiple of salary

High 35.1

75th percentile 7.9

Median 6.0

25th percentile 3.6

Low 0.5

Mean 8.4

CEO total signing awardsDuring the past two years, 18 different CEOs received some form of signing award, comprised of one or more awards of an upfront cash bonus, stock option grant, RS grant, and / or a performance equity or cash grant. The total value of all forms of CEO signing awards ranged from a low of $194,445 to a high of $52,656,928, with a medium of $6,150,028. As a multiple of salary, the range was 0.2 to 36.7 times salary, with a median of 5.4 times salary.

CEO total signing awards

High $52,656,928


Median $6,150,028

25th percentile $844,596

Low $194,445

Mean $9,032,842

CEO total signing awards as a multiple of salary

High 36.7

75th percentile 10.7

Median 5.4

25th percentile 1.4

Low 0.2

Mean 8.8


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Companies grant more than one type of signing award to a CEOIn the past two years, ten companies granted multiple signing awards while eight companies granted only one type of signing award; seven companies granted two types of signing awards (see graph: Number of CEO signing award grants in one year).

Types of CEO signing award grants In the past two years, cash signing awards were the most common type of signing award, followed closely by RS (see graph: Type of CEO signing award grants in one year).

Industries granting the most CEO signing awardsCompanies in the consumer services industry made one-third of the signing awards in the past two years followed by consumer goods companies which made one-sixth of the signing awards (see graph: CEO signing awards by industry).

Number of CEO signing award grants in one yearFour, 5.6%

Three, 11.1%

Two , 38.9%

One, 44.4%


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CEO signing award grants by industry

0%

0%

16.7%

33.3%

11.1%

11.1%

5.6%

5.6%

11.1%

5.6%

0%

20% 40% 60%

Utilities

Telecommunications

Technology

Oil and gas

Industrials

Health care

Financials

Consumer services

Consumer goods

Basic materials

Type of CEO signing award grants in one year

Performance awards, 18.7%

Stock options, 21.9% Restricted stock, 28.1%

Cash, 31.3%


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Looking aheadCash signing awards have been around since the early 1970s and they were followed soon thereafter by equity grants in the form of stock options, RS and performance awards in cash and / or equity; cash grants are still the most popular form of signing award.

The combined value of CEO signing awards in any one year of the past two years ranged from $194,445 to $52,656,928, with a median of $6,150,028. As a multiple of salary, the range was 0.2 to 36.7 times salary, with a median of 5.4 times salary.

We do not expect much to change in the way of signing grants as companies look for ways to lure CEOs and other key talent. Companies often hire new CEOs at some point during the year when they would forfeit bonuses and other long-term incentives that they could earn from their former employers if they stayed until some future date. In such cases, the new company may need to compensate the executive for forfeited compensation, including the loss of such awards.

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Restricted stock units become the preferred full-value award vehicle

In concert with the increased use of full-value awards over the last decade (starting with the adoption of accounting changes under FAS 123R, now ASC Topic 718), restricted stock units (RSUs) have replaced restricted stock (RS) as employers’ favored type of full-value equity award. The rationale for this trend can be found in one word – flexibility. From both design and administration perspectives, RSUs offer flexibility which can be very advantageous, with few drawbacks, relative to RS.

As context for the information below, basic definitions of RSUs and RS are:

�� RSU: Award of units (a bookkeeping account) representing a contractual right (but no current ownership rights) to receive payment (generally in shares but may be made in cash) at some point after vesting. No shares are issued (assuming equity settlement) until the time of actual payout/delivery. RSUs cannot be transferred until they are converted into actual shares.

�� RS: Award of actual shares with current ownership rights and subject to vesting (based on time and / or performance). Actual shares are issued at the grant date (with a restrictive legend on any certificate) but typically held by the company or in escrow until vesting. RS cannot be transferred until vested.


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Our focus is on the substantive and material differences between RSUs and RS. However, the following considerations are virtually identical for the two vehicles:

�� Accounting: For RSUs settled in shares, compensation expense equal to grant date fair value (GDFV) of shares at grant (for example, equity accounting), multiplied by the number of shares expected to vest, is recognized over the vesting/performance period. If shares do not vest due to either a service and / or performance condition (but not a market condition), any previously recorded expense for such shares may be reversed. Under equity accounting, dividend and dividend equivalents on RSUs/RS are taken into account for purposes of determining GDFV and when paid, are charged to retained earnings. If RSUs are settled in cash, liability (or ‘mark-to-market’) accounting would apply for each reporting period until final settlement. If RSUs are subject to liability accounting, dividend equivalents are accounted for as an additional compensation expense.

�� Institutional Shareholder Services (ISS): ISS does not have a preference and makes no distinction on the use of RSUs versus RS – both are treated identically according to ISS’s policies and procedures (with the possible exception of the definition of shares outstanding which is relevant for their shareholder value transfer methodology and has implications for additional share request proposals).

�� Internal Revenue Code (IRC) section 162(m): The corporate income tax deduction for compensation paid to a public company’s named executive officers (NEOs), other than the CFO, is generally subject to the limitations of IRC section 162(m) unless a performance-based exception applies. However, as described under ‘Taxation’ below, the delivery of RSUs can be structured (in compliance with section 409A) to avoid section 162(m) limitations if made after retirement or when an NEO is no longer a covered employee.

�� Proxy statement reporting: These awards are shown in the ‘Summary Compensation Table’ with the GDFV on the grant date and reported in a column in the table. Additional disclosure is made through footnotes and supplemental tables which include the value of shares as of the close of the previous fiscal year, dividend treatment and vesting schedule.

�� Share counting: Although the share counting provisions for RSUs and RS are generally similar for most employer stock plans, there may be subtle differences (depending on specific facts and circumstances) on the computation of shares outstanding which affects earnings per share (EPS) calculations under the basic and diluted approaches (including the treasury stock method). This may also have ISS implications as noted above.


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TaxationPerhaps the most important difference between RSUs and RS lies in the area of income taxation as RSUs provide the much needed flexibility desired by many companies (especially for their senior executives). Non-exempt RSUs can be subject to IRC section 409A whereas RS is governed by section 83, with the difference crucial to the timing and form of income tax. Under section 83, RS is taxable when there is no longer a substantial risk of forfeiture (for example, vested) and is not eligible for income tax deferral. However, under section 409A, non-exempt RSUs are considered non-qualified deferred compensation and, if the applicable rules are satisfied, income tax can be deferred (but not FICA tax) without the requirement of a substantial risk of forfeiture. Further, RSUs may provide income tax (but not FICA) advantages for retirement-eligible employees if an employer’s stock plan provides for accelerated or automatic vesting upon retirement.

As noted above and unlike RS, RSUs provide the ability, if structured appropriately under IRC section 409A, to preserve income tax deductions for NEOs subject to section 162(m). A potential tax advantage of RS over RSUs is the ability to make a section 83(b) election as RSUs are not eligible for this election. That said, there are potential drawbacks (for example, if the share price declines post-election) for employees who make section 83(b) elections; overall, the prevalence of its usage has waned in recent years (see chart on page 62: Summary of tax implications for RS and RSUs).

Dividend and voting rightsSince RS are actual shares awarded at grant, recipients are generally treated similarly to actual shareholders. As such, most companies typically provide both dividend and voting rights immediately; however, these are not required. Conversely, since the award of an RSU is essentially a contractual promise to pay at some time in the future with no shares actually issued upon grant, they do not have dividend or voting rights, although many companies provide ‘dividend equivalents’ to mirror the availability of dividends on RS.

If a company decides to pay dividends on unvested RS, it must decide on whether payment should be in cash or in additional shares of RS. If paid in cash, a company must also decide on timing (for example, when to pay the dividends) and generally choose between (1) when paid to all other shareholders or (2) when the underlying RS is vested. Although the majority of companies that pay cash dividends currently do so when paid to all other shareholders, this trend may change due to the influence of proxy advisory firms that prefer payment when the underlying award is vested (especially true in the case of performance-vested RS). If an equity incentive plan provides for a company to reinvest dividends into additional shares of RS, these are typically paid when the underlying award is vested. However, unlike RS, most companies which provide dividend equivalents on RSUs do so in the form of additional RSUs which are paid out when the underlying RSUs are paid out.

Depending on the structure and ownership of the company, voting rights may or may not be an important consideration in the decision on whether to use RSUs or RS. Upon the vesting of RSUs (assuming share settlement) and RS, dividend and voting rights are the same as all other shareholders.


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Summary of tax implications for RS and RSU

Issue Restricted stock (RS) Restricted stock units (RSUs)

Individual taxation (US)

�� Income and FICA/Medicare tax due at the time of vesting

�� No deferral of taxation from the date of vesting

�� If retirement provision that allows for automatic vesting, both income and FICA/Medicare tax becomes due on the date there is no longer a substantial risk of forfeiture

�� Employee can make IRC §83(b) election (ability to pay tax at value at time of grant instead of at vesting, with difference taxed at capital gains rate)

�� Dividends received while the RS is unvested is treated as compensation income and thus taxed as ordinary income.

�� Income tax is due at the time of delivery (often the vesting date, but may be later if deferred in accordance with IRC §409A)

�� Considered deferred compensation subject to IRC §409A

�� FICA/Medicare tax due at time of vesting

�� RSUs not considered property and therefore not subject to IRC §83 (i.e., no §83(b) election can be made)

�� Since taxable at time of delivery, retirement eligibility does not have same impact on income taxation as on RS (although FICA/Medicare may become due at vesting)

�� Dividend equivalents received while the RSU is unvested is taxed as ordinary income.

Corporate taxation (US)

�� Deduction equal to ordinary income recognized by employee

�� If §83(b) election is made, deduction is limited to ordinary income recognized at the time of election (i.e., subsequent share price appreciation is not deductible as it is capital gains for the employee)

�� Dividends paid while RS is unvested are considered deductible wages and subject to withholding.

�� Deduction equal to ordinary income recognized by employee

�� If employee defers delivery, then tax deduction deferred

�� Dividend equivalents paid while RSU is unvested are considered deductible wages and subject to withholding.


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Additional considerations With multinational corporations increasingly seeking to apply a globally consistent long-term incentive approach and philosophy, RSUs offer income tax, regulatory and securities law advantages in many jurisdictions (notably in Europe). From an income tax perspective, the taxable event for RSUs is vesting on a fairly universal basis; however, for RS, the tax event in some countries occurs at grant. From a securities law and other regulatory perspectives, RSUs are often easier to deal with than RS in non-US jurisdictions, providing another reason for using RSUs rather than RS.

While typically not a concern when designing a long-term incentive program, employers should be cognizant of the Employee Retirement Income Security Act (ERISA). Where possible, employers generally choose to avoid compensation which is subject to ERISA as it creates additional regulatory compliance and can be administratively burdensome. RS is not subject to ERISA but in select instances, RSUs may be. In cases where RSUs are granted to a broad-based employee population, care should be given to avoid systematic payments of RSUs only after termination of employment or upon retirement as this may subject RSUs to ERISA. However, if RSUs are only granted to select group of highly-compensated employees like senior management, the forgoing sentence would not apply due to the ‘top-hat’ exception to the vesting and funding provisions of ERISA.

In addition to the above considerations, employers should be mindful of the choice of RSUs or RS as related to any applicable clawback and anti-hedging/pledging policies, securities reporting (as on beneficial ownership, Form 4) and stock ownership guideline definitions.

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Rationale for retention incentivesHistorically, the attention in M&A transactions has focused primarily on issues related to financing and structuring the deal. However, as companies increasingly use M&A to buy intellectual capital and critical skills, the focus is shifting to include elements such as deal synergies and successful implementation. Consequently, the ability to retain key talent has become a meaningful consideration in any M&A transaction.

M&A presents inherent retention risks resulting from uncertainties with regard to job security and future company direction, as well as perceived increases in job size and workload associated with the deal. Successfully retaining key employees, for a certain period of time or through a particular event, in the face of these negative perceptions requires a well-constructed retention strategy.

Retention considerationsRetention strategies may contain financial and non-financial elements, and should be tailored to the needs and culture of the individual organizations which are part of the deal. While a retention bonus plan is often part of the overall retention design, companies should consider some basic questions when deciding whether to offer such a plan:

�� To what extent will the deal integration/implementation be negatively impacted by the departure of key employees? As M&A strategies are increasingly focused on acquiring intellectual capital and skills (as opposed to land or fixed assets), stakeholders are evaluating the success or failure of a transaction with regard to the effective retention of key talent.

Retention bonus plans in M&A

In an increasingly crowded and competitive marketplace for investment dollars and customers, mergers and acquisitions (M&A) are an important business strategy designed to increase shareholder returns and build long-term company value. The significance of M&A as a strategic driver is particularly apparent in those industries where organic growth of revenue and market share is (or has become) difficult to achieve.


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�� Can we identify key employees and job functions for successful deal integration and / or operating the new business going forward? While there is a consensus regarding the importance of recognizing and retaining key employees, the complex nature of many transactions makes this a challenging process. Absent the ability and organizational will to undertake this task, the success of any retention efforts will likely be limited.

�� What is the impact of existing compensation plans and severance/change-in-control policies on employee retention? In evaluating the need for a retention bonus plan and then determining appropriate plan design, it is crucial to understand how key employees will be compensated as a result of the deal from outstanding equity awards and / or terms of employment/severance agreements. This is particularly important if the transaction constitutes a ‘change-in-control’ (as that term is defined in equity award agreements and employment agreements). For key employees without meaningful retention hooks related to equity or severance, the need for a retention bonus plan is heightened.

Where the success of a deal could be negatively impacted by unwanted turnover, efforts should be made to identify critical employees who are especially at risk of leaving. If existing arrangements do not provide sufficient incentive to remain with the organization, a retention bonus plan can be a compelling element of the overall retention strategy. To be effective, the retention bonus plan should be aligned with the unique nature of the deal and account for its size and complexity. In designing these plans, companies do not have the benefit of design templates or extensive market benchmark data; rather they must evaluate the individual characteristics of each M&A transaction and the varying retention needs for each deal.

Retention plan designWhile the design of this retention bonus plan must fit the unique nature of the transaction, several design components are commonly considered:

�� Retention bonus plan philosophy: Prior to designing the plan, a crucial question to address is whether the retention bonus arrangement should be a pay-to-stay or a pay-for-performance program (or some combination of the two). The answer will be driven by whether the primary purpose is to retain key employees or to drive achievement of key integration and ongoing operations objectives. If the objective is largely retention, the use of performance conditions (and resultant uncertainty regarding payouts) may undermine the value placed on the retention awards by participants. If the goal is to drive achievement of key milestones, the use of performance conditions would be appropriate in retention bonus awards to participants leading this work.

�� Program cost: Companies generally use one of two approaches to arrive at a cost for the retention bonus plan: (1) fix a percent of the overall deal value to set the retention bonus pool to be divided among the participants, or (2) identify the participants in the retention bonus plan and set target retention bonus amounts for each, the sum of which is the total plan cost. The cost of the retention bonus plan is typically considered part of the deal and the cost is included in the M&A financial model.


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Retention bonus plan design components

Design component Integration-critical employees Operations-critical employees

Retention period Depending on the employee, companies seek to retain these individuals throughout some or all of the integration process. Generally, this period is 6-18 months post-closing.

Companies want to retain these employees long-term. Retention period typically is 1-2 years as companies use the retention bonus plan to bridge these employees to the new organization’s long-term incentive plan.

Award type Cash is the most commonly used vehicle to deliver retention bonus payments.

Companies often use a combination of cash and equity to deliver retention bonus payments. Equity awards are favored for executives and strategically-critical employees. Equity allows companies to reward the effort necessary to integrate and operate the business as well as the effectiveness of that effort (as reflected in stock price movement).

Award targets Awards may be determined as a percent of a participant’s base salary, a fixed dollar amount, or a series of amounts that grows incrementally at the achievement of critical integration or on-going operations milestones. Awards may vary significantly based on level in the organization, the degree of criticality to integration or on-going operations, and the perceived retention risk for an employee. While awards must be justifiable to deal stakeholders, they also need to be large enough to convince participants to remain with the organization for the desired retention period. Generally, awards made to operations-critical employees are larger than those to integration-critical employees.

Payment timing Timing of the retention bonus payouts is an important consideration for both the company and employee. A company would prefer to delay payments until integration is complete and the new business is running smoothly; however, that time horizon may not be realistic (or retentive) from an employee’s perspective.

Commonly paid in a lump sum (or 2 installments) at the conclusion of the post-close integration period. If paid in installments, the design is typically back-loaded so that a larger portion of the award is paid at the end of the retention period.

Generally, cash and equity awards are paid out/vested if a participant remains with the organization for a fixed period of time. Vesting and payment generally occur in 2-3 installments during the retention period. Companies that want to link retention bonus payouts with performance often condition vesting on the achievement of 2-3 milestones during and / or following integration.


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�� Eligibility for participation: A common mistake made in the design of a retention bonus plan is to apply it broadly (or evenly) across the organization. This results in retention awards being paid to individuals who did not need additional incentives to remain with the organization and the dilution of resources available to retain critical employees who are viewed as more likely to leave. Eligibility for the retention bonus plan generally should be limited to critical employees (typically executives, senior management and job/individuals critical to integration) as opposed to broad employee groups.

In determining eligibility to participate, employees are often grouped into two categories: (1) employees who are critical to integration efforts (‘integration-critical employees’) and (2) employees who are critical to the ongoing operations of the new business (‘operations-critical employees’). Retention bonus plan designs generally differ for these groups (see chart: Retention bonus plan design components).

Given the scrutiny applied to M&A transactions in light of their strategic importance and total cost, work to identify and retain the human capital necessary to integration and operation of the new organization is especially important and should be undertaken during the due diligence or transaction negotiation stage of the deal.

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Time-vested RS or RSUs have long been considered a competitive tool that promotes retention in executive compensation packages. A carefully considered vesting period and pattern enables companies to deliver market based value in increments or after a long period of time, with any realization conditioned on continued service. In contrast to stock options, RS and RSUs cannot ‘go underwater’ and have lower potential dilution, making them an attractive component of a compensation package when retention is especially important.

Scrutiny of special retention awardsThe increased focus on pay-for-performance in recent years has complicated the balance of risk and retention in executive compensation programs. This issue is especially sensitive for companies with a perceived misalignment between pay and performance. Large time-vested RS grants have come under particular scrutiny from shareholders and proxy advisory firms. Although the magnitude of the awards

are evaluated quantitatively in conjunction with all other forms of pay, shareholders and proxy advisory firms now are paying attention to design and are considering performance conditions, change-in-control and termination provisions.

In this time of enhanced disclosure and say-on-pay, shareholders demand a greater focus on long-term performance-based compensation. At the CEO level the response of companies is shown by findings from The Wall Street Journal / Hay Group 2012 CEO compensation study: performance-based awards comprised an average of 31 percent of total direct compensation in 2012, up from 26 percent in 2010. Much of the uptick came at the expense of stock options.

Special retention awards are still present, showing that today’s organizations are proactively identifying issues, addressing them within the context of business and compensation strategy while striving to adhere to governance best practices. By nature, these awards are often highly tailored to address specific and varying objectives. When deliberating on the design of a potential special retention award, companies should consider at least the issues that follow.

Special awards: balancing retention, pay and performance

Retention has always been a fundamental pillar of executive compensation philosophy. Although most organizations and their boards would agree on why retention is an important aspect of executive compensation programs, they often diverge on the how – what is the best way to incorporate the element of retention into total rewards?


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Form of paymentWe often consider cash when the retention period is a year or less and RS when the retention period is more than one year. The magnitude of short-term retention payments is often smaller, making cash a financially viable and administratively easier option for many companies. With longer time horizons, the use of equity-based awards adds the opportunity for market-based gains in value during the restricted period. The improved alignment with shareholders through equity can also make larger payments more palatable since the ultimate value of the award is dependent on stock performance. In addition, equity-based awards can preserve company cash by funding payment of the grant through an open-market sale.

Competitiveness of compensationAccording to a recent Hay Group survey, the ‘opportunity to earn more elsewhere’ is the most cited reason why key talent quits, followed by the lack of promotional opportunities and dissatisfaction with job responsibilities. The perception of unfair pay levels relative to performance, both internally and externally, shows that pay is a major contributor to retention risk and should be considered when determining the value of a retention award. Opportunities under outstanding grants, as well as realizable and realized compensation, all should be factored into determining whether a special award is necessary, and how much is reasonable and appropriate.

In cases where competitive gaps are found for executives specifically identified as retention risks, an award can be constructed to allow for the future recoupment of below market pay. The

form of the under market compensation may influence whether and how much of an award is subject to performance. For example, below market base salaries may suggest a fixed payment conditioned on employment through a particular date, while under market incentive opportunities may warrant a supplemental bonus opportunity that preserves the performance risk of the foregone pay.

It is important to note that retention awards have been viewed unfavorably by proxy advisory firms in cases where outstanding grants are underwater and / or annual bonuses have not been earned. Retention awards that appear to replace unearned pay may indicate a lack of commitment towards pay-for-performance.

Performance orientationA review of special performance-based retention awards found a range of retention periods and performance criteria. Some companies choose to focus more on short-term objectives that are critical to company success in the near future (such as: successful management transition, cash flow problems, big fourth quarter needed). Other awards provide for slightly longer performance periods than normal (such as one to two years more) with elevated performance requirements on the same metrics as regular annual equity awards. These awards typically increase the executive’s leverage, opportunity and required performance for the foreseeable future. In some cases, retention awards are crafted to provide opportunities around unforeseen or clarified business circumstances, rewarding executives for any associated incremental performance that may be gained.


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An exampleConsider a specialty retailer whose sales are largely dependent on products with long life-cycles. The industry and the company are in the late-stages of the current product cycle, and until recently, little was known about the release of future products. In tandem with a tough economic environment and weak consumer discretionary spending, the outlook for the industry has declined.

During the latest fiscal year, much was learned about the next year’s release of next generation products and the potential impact on the business. In response, and in addition to long-term incentive awards granted on an annual basis, a special performance-based retention award was crafted. In explaining its rationale for making the award, the company stressed the critical role played by the selected executives and the specific challenges they face, including the continued transition of management responsibilities, the expansion of online retailing, the consolidation of international operations, preparation for the release of new products, and the general economic climate. The awards are to be earned based on an aggressive goal requiring double-digit percent growth in operating income over a three-year performance period.

Lengthy performance periodsLonger performance periods (such as five to ten years) may be warranted where significant uncertainty exists (for example, about the economy, industry outlook, organizational goals) about whether the targeted performance levels can actually be achieved and within how many years. These awards stretch management and the compensation committee’s ability to forecast longer-term goals, which has become particularly difficult in today’s economic environment. Flexibility may be required in longer-term awards, such as accelerated vesting if a goal or milestone is achieved sooner than expected.

Role of retention awards in overall pay structuresIn practice, retention awards in the form of time-vested RS are more commonly granted in a portfolio approach, delivered in smaller amounts annually rather than in larger up-front grants, and alongside stock options and performance shares. Many companies feel that the annual delivery of long-term incentive opportunities and overlapping vesting and performance cycles are an effective way to retain and motivate management. In addition, companies are essentially able to establish a floor within these grants using RS, or RSUs, guaranteeing that the executive will realize at least some value at vesting. As performance shares continue to assume a larger role in executive compensation packages, it is important that companies also consider the periodic nature of special retention awards and their impact on the relationship between pay and performance.

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Regulatory actions aff ecting executive compensation were fairly limited in 2013, starting with the unsurprising SEC approval of amendments to the stock exchanges’ corporate governance listings standards. These included an enhanced focus on the independence of compensation committees and their advisors. As fall loomed, the Securities and Exchange Commission (SEC) issued proposed rules regarding the ‘median employee’ to CEO pay ratio disclosures, restarting a contentious debate.

Developments in legislation and regulations were mixed in 2013. Some followed predictable outlines. One example of this was the SEC’s approval of amendments to corporate governance listing standards for the New York Stock Exchange (NYSE) and NASDAQ Stock Market which followed the fi nal rules adopted by the SEC in 2012. Of particular importance has been the listing of factors that are to be considered in assessing the independence of a compensation advisor by a compensation committee.

Other developments seemed to outline the possibly disturbing shape of things to come. For one, the proposed regulations under Internal Revenue Code 162(m)(6) were not helpful in alleviating some traps resulting from the $500,000 limit on deductible compensation attributable to services performed for a ‘covered health insurance provider,’ including its application to all members of a health

insurance provider’s controlled group. Th is may signal a trend in legislation designed to increase federal revenue on the back of perceived excessive compensation, particularly if it becomes a template for capping the deductibility of all employees’ pay.

Another measure, which is of particular concern for multinationals, came in the SEC proposed rules for CEO pay disclosure requirements in Section 953(b) of the 2010 Dodd-Frank legislation. In the clarifi cation of its ‘median employee’ reference, the rule proposes that this should be determined from all employees including subsidiaries and affi liates regardless of location. Th is has the potential to result in determinations and calculations that may be burdensome for many, if not most, companies depending on workforce, location of operations, and other factors.

Regulatory infl uence

68Regulatory influence

2013 regulatory review: a waiting game

As 2013 began, the executive compensation community had high hopes for the resolution of important issues that have affected the planning and design process. A promising start was the American Taxpayer Relief Act of 2012 that was signed into law on January 2, 2013, and included compromise provisions that limited the impact of otherwise scheduled individual income tax rate increases. However, 2013 generally saw gridlock in Congress that forestalled any notable statutory initiatives relating to executive pay.

From a regulatory perspective, progress overall in 2013 was slow. Public companies still are awaiting guidance from the Securities and Exchange Commission (SEC) on key provisions of the 2010 Dodd-Frank legislation, particularly regarding disclosures on clawback policies, the relationship between executive pay and company financial performance, and hedging policies. The main SEC initiative was the September release of proposed rules on the controversial CEO pay ratio disclosure required under Dodd-Frank section 953(b). While government regulators were largely quiet, proxy advisory firms like Institutional Shareholder Services (ISS) continued to be active.

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Independence of compensation committee members and advisorsOn the regulatory front, the year started promisingly enough, with the January 11 approval by the SEC of amendments to the corporate governance listing standards of the New York Stock Exchange (NYSE) and the NASDAQ Stock Market. The main focus was on the independence of compensation committees and their advisors and largely tracked the final rules adopted by the SEC in 2012.

�� Members of compensation committees are subject to enhanced standards on independence that must be met by whichever is earlier: the corporation’s first annual meeting of shareholders after January 1, 2014, or October 31, 2014.

�� For advisors of compensation committees, the standards took effect on July 1, 2013 and provided that a compensation committee may select or receive advice from a compensation consultant, legal counsel (other than in-house counsel), or other advisor only after undertaking an assessment of the advisor’s independence (largely based on an examination of six factors). While a compensation committee may use an advisor that is not independent, it first must conduct the assessment.

ISS QuickScoreIn late January, ISS announced that its then current Governance Risk Indicators (GRId) was being replaced by its new ISS Governance QuickScore™ to identify governance risk within a company. ISS makes available a data review and verification site that is open during announced windows to allow companies to review the data that ISS has obtained and to advise ISS of any needed corrections. The scoring under ISS Governance QuickScore™ uses ‘a numeric, decile-based score that indicates a company’s rank relative to region.’ An assessment includes four independent dimensions of board, compensation, shareholder rights, and audit, plus an overall Governance QuickScore™ and assessment.

Disclosure-related shareholder litigation Various types of lawsuits related to executive compensation have come into vogue in recent years, with attention in 2013 focused on a carryover from 2012: the disclosure-related shareholder suit. In their typical form, these lawsuits are filed a few weeks before a public company’s annual meeting and claim that the proxy disclosures are inadequate for one or more executive compensation matters up for shareholders’ votes such as, say-on-pay vote, new equity plan, or increased share authorization. The unstated but clear objective is to secure a quick settlement by seeking to enjoin or postpone the annual meeting. While these threats (which typically begin with a press release that the law firm is investigating the company’s disclosures) subsided in 2013, they remain ongoing and are likely to continue into 2014 as inventive plaintiffs’ counsels seek forums that may be most accommodating to their claims.

Regulatory influence

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Proposed regulations under section 162(m)(6) and potential implications On April 2, the Treasury Department proposed regulations under section 162(m)(6) of the Internal Revenue Code. Included as part of the Affordable Care Act in 2010, section 162(m)(6) imposes a $500,000 limit on the deduction allowable for compensation basically attributable to services performed by an individual for a ‘covered health insurance provider’ in taxable year after December 31, 2012. The statutory language extends section 162(m)(6) not only to a health insurance provider, but also to all members of its controlled group. The proposed regulations include extensive rules for the attribution of various forms of compensation.

The importance of section 162(m)(6) to employers who are not currently subject to its limitations lies in what it may portend for future legislation. As the federal government seeks additional revenues and perceived excessive compensation is increasingly targeted, we are concerned that section 162(m)(6) could become a template for capping the deductibility of pay of all employees. Our unease rose in August when two Democratic senators introduced a bill captioned the ‘Stop Subsidizing Multimillion Dollar Corporate Bonuses Act’ that proposed eliminating the income tax deduction of any publicly-traded company for compensation in excess of $1 million paid to any current or former employee; the current exceptions for qualified performance-based payments and commissions would have been eliminated. While the bill languished in the Senate, section 162(m)(6) will continue to provoke anxiety.

Proposed SEC rules on CEO pay ratio disclosureOn September 18, the SEC proposed rules on the CEO pay ratio disclosure requirement in section 953(b) of the 2010 Dodd-Frank legislation. Section 953(b) directs the SEC to require the disclosure of: (a) the median of the annual total compensation of all employees of the company except the CEO; (b) the annual total compensation of the CEO; and (c) the ratio of the amount in (a) to the amount in (b). Faced with applying narrow statutory language with little legislative history, the SEC sought flexibility. Nevertheless, after examining the potential costs of compliance, employers generally are concerned that the SEC has substantially underestimated the burdens of its proposal.

Based on the specific statutory reference to ‘median,’ the key proposals pertain to the ‘median employee.’ Of particular concern (especially to multinational employers), the median employee is determined from all employees (including those of subsidiaries and affiliates), regardless of where located. Although the SEC believes it has ameliorated this burden by allowing the median employee to be determined through statistical sampling or using other reasonable methods, companies are unsure what they may have to demonstrate to regarding the proper use of these methodologies. Depending on the company and its workforce, its business, its size, the geographic locations of its operations and many other factors, the determinations and calculations may differ substantially in their burdens.

Recognizing that many of its rule making choices will face criticism from one party or another, the SEC identified 69 (generally multi-part) requests for comment. With the comment period now closed, we await final rules from the SEC, with the expectation that these will be released in mid-2014 after review of the comments and some refinements.


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ISS 2014 policy changesIn November, ISS released its 2014 policy changes that are effective for annual shareholder meetings after January 31, 2014. US public companies generally should welcome a change relating to a quantitative pay-for-performance screen that ISS uses to identify companies where a potential ‘misalignment in pay-for-performance’ may call for qualitative analysis. ISS simplified its ‘Relative Degree of Alignment’ screen for 2014, so that will be measured over a 3-year period and be calculated as the difference between the company’s total shareholder return (TSR) rank and the CEO’s rank within a peer group over that period. The new approach replaces a more complicated calculation that involved measurements over 1-year and 3-year periods (that were weighted 40 percent / 60 percent).

Another policy change clarified how a board’s responsiveness to a majority vote on a shareholder proposal affects the recommendation of ISS on director elections. Basically, ISS’s recommendations will continue to be on a case-by-case basis, with ISS evaluating a company’s response to majority-supported proposals in making its determination. ISS will consider the rationale disclosed in the proxy statement as a factor. A board should clearly articulate its rationale where it does not fully adopt any shareholder proposal that receives a majority vote.

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Dodd-Frank on assessment of advisor independence

This January, the Securities and Exchange Commission (SEC) approved listing standards for the New York Stock Exchange (NYSE) and The NASDAQ Stock Market (NASDAQ) regarding the required assessment by compensation companies of the independence of any compensation consultant, legal counsel or other advisor (each a ‘compensation advisor’), regardless of whether retained by the committee or by management. These actions followed the SEC’s adoption of a final rule in June of 2012 that required the exchanges to adopt listing standards that require the compensation committee of a listed company to consider at least six identified factors (and any others adopted by the particular exchange) in determining the independence of compensation advisors. The SEC rule making was mandated by Section 952 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

Effective as of July 1, 2013, the compensation committee of an exchange-listed company may select a compensation advisor (other than in-house legal counsel) only after taking into consideration the factors contained in the above-referenced SEC rules and any other factors adopted by the exchange in its listing standards. However, a compensation committee is not prohibited from selecting a compensation advisor that is not independent, although few committees are likely to be willing to explain the retention of a non-independent compensation advisor.

Required factors regarding independenceBoth the NYSE and NASDAQ simply adopted the six factors contained in the SEC rules without adding any other factors. However, the NYSE standards may be viewed as broader because they call for compensation committees at NYSE-listed companies to consider all factors relevant to the independence of a compensation advisor. Accordingly, at a company listed on the NYSE, the compensation committee apparently needs to examine more than just the six specific factors, although in practice this may prove to be a distinction without a meaningful difference.


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Below are the six independence factors, Hay Group’s views regarding the reasoning behind each factor, and some open issues.

1. The provision of other services to the issuerby the person that employs the compensation consultant, legal counsel or other advisor.

�� Rationale: Is the firm providing advice to the compensation committee providing other services to the organization that may influence the independence of its advice?

�� Open issues: While no time period was set out by the SEC or NYSE/NASDAQ for examining this factor, a one year period appears to be the minimum that should be considered. We have found that some compensation committees (often through inside legal counsel) have requested information relating to multiple years.

2. The amount of fees received from the issuerby the person that employs the compensation consultant, legal counsel or other advisor, as a percentage of the total revenue of the person that employs the compensation consultant, legal counsel or other advisor.

�� Rationale: Is the amount of revenue generated by the compensation committee engagement significant enough to the person that employs that advisor that it may influence the independence of its advice?

�� Open issues: The rule neither identifies the period to be used nor whether the period of time should be that of the issuer or the firm employing the advisor. A one-year time period (issuer or advisor fiscal year) appears reasonable for this purpose, unless a longer period is necessary to properly understand the scope of the relationship.

3. The policies and procedures of the personthat employs the compensation consultant, legal counsel or other advisor that are designed to prevent conflicts of interest.

�� Rationale: Does the advisor’s organization have policies and procedures in place to limit conflicts of interest?

�� Open issues: Should the compensation committee request copies of these documents and need it review the thoroughness of the policies and procedures?

4. Any business or personal relationship ofthe compensation consultant, legal counsel or other advisor with a member of the compensation committee.

�� Rationale: Does the advisor have a business or personal relationship with a member of the compensation committee that may influence the independence of his or her advice?

�� Open issues: No guidance has been furnished by the SEC or the exchanges regarding what constitutes a ‘business or personal relationship.’ While common sense suggests that it cannot cover the relationship of working with the compensation committee, there are many other questions. For example, if an advisor knows a compensation committee member through a current or previous engagement with another company, is that a business relationship?


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5. Any stock of the issuer owned by thecompensation consultant, legal counsel or other advisor.

�� Rationale: Does the advisor own any stock of the issuer that may influence the independence of his or her advice to the compensation committee?

�� Open issues: No guidance has been furnished by the SEC or the exchanges regarding what constitutes ownership. Is ownership limited to the advisor and those who share his or her household, or does it extend to immediate family who do not share the same household? Does ownership include non-direct holdings that are managed through a third party (such as a mutual fund, qualified retirement plan or trust)?

6. Any business or personal relationshipsbetween the executive officers of the issuer and the compensation advisor or the person employing the advisor.

�� Rationale: Does the advisor have a business or personal relationship with an executive officer of the issuer that may influence the independence of his or her advice?

�� Open issues: Once again, no guidance has been furnished by the SEC or the exchanges regarding what constitutes a ‘business or personal relationship.’ While common sense suggests it cannot cover the relationship of working with the executive in conjunction with the compensation committee (for example, the CEO’s presence in compensation committee meetings when discussing the compensation of his or her direct reports), little is certain.

As indicated by the open issues, each factor leaves various unanswered questions which compensation committees (often with the assistance of inside legal counsel or separately retained legal advisors) may need to resolve to properly assess the independence of their compensation advisors.

In advance of the last proxy season, many companies (on behalf of their boards’ compensation committees) used questionnaires and other inquiries to obtain information from their compensation advisors for purposes of conducting independence evaluations. We have seen a variety of approaches, ranging from (i) only asking about the specific factors listed in the SEC/exchange standards to (ii) adding one or more questions to fully explore any perceived independence issues. One area where companies have taken different views on the scope of the factors involves whether to apply the relevant factors only to the lead advisor or, alternatively, to all individuals at a firm who interact in some way with the compensation committee.

Wrap upWhile some open issues remain under the final exchange listing standards, the specific independence factors provide a basic framework for compensation committees to use to assess the independence of their compensation advisors. Reviewing these factors prior to engagement of a compensation advisor, and on at least an annual basis thereafter, should keep a compensation committee aware of any potential issues that potentially could impact the advice and any recommendations that the committee receives from its compensation advisors. Compensation committees need to add this process to their annual calendar of activities and update their charters accordingly.

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75The Hay Group 300: 2012 data

The Wall Street Journal / Hay Group 2012 CEO compensation study focused on the primary elements of compensation for CEOs of the 300 largest US companies to fi le their fi nal defi nitive proxy statements between May 1, 2012 and April 30, 2013. This section describes the survey methodology and terms and presents the survey data tables. The tables aggregate compensation data across all 300 companies and are arranged by business sector.

* Reprinted by permission of The Wall Street Journal ©2013 Dow Jones & Company, Inc..

76The Hay Group 300: 2012 data

Survey methodologyAs in previous reports, this study provides readers with a snapshot of total compensation as disclosed in each company’s proxy statement. This includes each CEO’s total direct compensation (TDC), which consists of salary, bonus or other annual incentives paid, and any long-term incentive awards (long-term stock or cash) granted. In addition, the study also provides information about each CEO’s change in pension value and change in above market nonqualified deferred compensation earnings. A separate category, all other compensation, includes information on such items as perquisites, tax gross-ups and company payments to a defined-contribution plan. Taken together, these elements provide a picture of each CEO’s total pay for 2012.

Our approach to summarizing total compensation and, more specifically, long-term incentive compensation, may differ from the approach taken in the summary compensation

table of the proxy itself. In most cases, this study focuses on the value of what was granted in 2012. However, if we identified clear disclosure that long-term incentive grants were made to reflect prior year performance, Hay Group researched the proxy to identify grants made to reflect the appropriate performance year and align all grants with the year for which they were earned.

Please note that this year’s population of 300 companies is different than last year’s population. As a result, the summary statistics for 2011 differ from what was reported last year.

For companies that did not disclose the value of individual equity grants for either FY 2011 or 2012, and in cases of uncertainty where the disclosures were unclear, the equity values were determined by Hay Group.

All company performance data (net income, TSR) is provided by S&P Capital IQ.

Inside The Wall Street Journal / Hay Group 2012 CEO compensation studyFor the sixth year, The Wall Street Journal has partnered with Hay Group, a global management consulting firm, on its annual survey of CEO compensation. This year’s study includes the 300 largest US companies who filed their final definitive proxy statement between May 1, 2012 and April 30, 2013. Throughout this study, we refer to the most recent fiscal year as 2012 and the prior fiscal year as 2011.

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DefinitionsCompany is the commonly used name for the company.

Executive is the CEO’s name as listed in the company’s proxy statement.

2012 salary is the base pay earned in FY 2012, regardless of the form or timing of delivery.

2012 annual incentives is any payment of annual bonus or incentives earned in FY 2012, regardless of the form or timing of delivery. This number includes both payments classified as a bonus, which is typically considered discretionary, and those classified as annual performance-based incentive pay, which typically results from achievement of annual performance goals.

Percent change from 2011: salary plus annual incentives is the year-over-year change in salary plus annual incentives from FY 2011 to FY 2012. This information is calculated only for those CEOs for which there is valid data in both 2011 and 2012, and excludes new CEOs.

Long-term incentives: stock option grants is the company disclosed value of stock option and stock appreciation right (SAR) grants made during FY 2012. Any options that were repriced or granted as reload options are excluded entirely. Performance contingent awards that have no upside or downside leverage, and that are not market-based awards, are treated with an additional 20 percent discount. Performance-contingent awards that are market based are not treated with any additional discount.

Long-term incentives: restricted stock grants is the value of time-vested restricted stock and / or restricted stock unit grants on the grant date made during FY 2012. Any grants where

the timing of vesting can be accelerated based on performance are included here. Any stock granted as a match or a premium on other compensation is also included here. This column does not include any restricted stock that is granted in lieu of salary or annual incentives/bonus; these values are included under the original form of compensation.

Long-term incentives: performance-based grants—equity is the value of stock-based long-term performance-based incentive compensation granted in FY 2012. Grants are valued based on their disclosed target value on the date of grant. Performance-contingent awards that have no upside or downside leverage, and that are not market-based awards, are treated with an additional 20 percent discount. Performance-contingent awards that are market-based are not treated with any additional discount.

Long-term incentives: performance-based grants—cash is the value of cash-based long-term performance-based incentive compensation granted in FY 2012. Grants are valued based on their disclosed target value denominated either in cash or cash-based performance units on the date of grant. Performance-contingent awards that have no upside or downside leverage are treated with an additional 20 percent discount.

Total direct compensation is the sum of salary, annual incentives, and long-term incentives. Long-term incentives include the addition of five vehicles: stock option grants, restricted stock grants, performance-based grants—equity, performance-based grants—cash, and restricted cash grants (which are not disclosed elsewhere).

Percent change from 2011: TDC is the year-over-year change in total direct compensation from FY 2011 to FY 2012. This information is calculated only for those CEOs for which there is valid data in both 2011 and 2012, and excludes new CEOs.

The Hay Group 300: 2012 data

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Change in NQ deferred comp + pension value (Change in nonqualified deferred compensation earnings plus change in pension value) is the aggregate change in the present value of accumulated defined-benefit and actuarial pension plans plus the above-market or preferential earnings on compensation that is deferred on a basis that is not tax-qualified.

All other compensation is the value of other compensation for FY 2012 that was not reported in any of the other columns of the summary compensation table. Compensation in this column could include the value of: perquisites and personal benefits; tax gross-ups; discount stock purchases; company contributions to a defined-contribution plan; or company payment of insurance premiums.

Total compensation is the sum of total direct compensation, change in nonqualified deferred compensation earnings plus change in pension value, and all other compensation.

Total realized LTI is the sum of gains from stock option exercises, restricted stock value at vesting, and long-term incentive cash and equity payouts in FY 2012. This represents value realized from awards that have been granted over time.

Percent change from 2011: company net income is the year-over-year change in the company’s net income from FY 2011 to FY 2012.

2012 company TSR is a one-year total return for the company’s stock during FY 2012, including stock-price appreciation plus reinvestment of any dividends declared in FY 2012.

2010–2012 company TSR is a three-year total return for the company’s stock during FY 2010–2012, including stock-price appreciation plus reinvestment of any dividends declared from FY 2010 to FY 2012.

3-year realized total direct compensation is the sum of salary, annual incentives, gains from stock option exercises, restricted stock value at vesting, and long-term incentive cash and equity payouts over the course of FY 2010–2012. For stock options, restricted stock and long-term incentive cash and equity, this represents the value realized from awards that have been granted over time.

Notes:Any compensation for CEOs with less than a full year of service is calculated based on the values disclosed. Signing, special-recognition and retention awards are included for each company that offered them. Percent changes of 1,000 percent or greater are not meaningful and are designated as N.M. Percent changes for CEOs who are new in either FY 2011, FY 2012, or data that is otherwise unavailable or incalculable, are designated as N.A. Industry medians exclude new CEOs for 2012.

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The Hay Group 300: 2012 data

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Footnotes:

1 Percent changes for CEOs who are new in either FY 2011 or FY 2012 are not applicable and are designated as N.A.

2 Total direct compensation is the sum of Salary, Annual incentives and Long-term incentives.

3 Percent changes that are not meaningful are designated as N.M.

4 Percent changes that are not applicable are designated as N.A.

5 All company performance data is provided by S&P Capital IQ.

6 3 Year realized total direct compensation for companies where less than 3 years of such pay data is available is considered not applicable and designated as N. A.

7 New CEO in FY 2012.

8 Median compensation figures are not meaningful when there are insufficient data points and are designated as N.M.

The Hay Group 300: 2012 data | Basic materials

Company Executive

2012 salary

($000s)

2012 annual

incentives ($000s)

% Change from 2011:

salary + annual

incentives1

Long-term incentives ($000s)

Stock option grants

Restricted stock

grants

Performance-based grants

Equity Cash

Basic materials

Air Products John E. McGlade $1,200.0 $898.0 -44.0% $3,370.0 $1,500.0 $2,100.0 $0.0

Alcoa Klaus Kleinfeld 1,440.0 2,484.0 33.5 1,520.0 0.0 6,080.0 0.0

Ashland James J. O’Brien 1,178.7 1,306.7 15.0 2,170.7 0.0 3,061.8 0.0

Commercial Metals Joseph Alvarado 748.8 750.0 N.A. 416.7 577.3 1,215.7 0.0

Dow Chemical Andrew Liveris 1,808.3 1,368.6 -1.9 4,840.1 3,025.3 5,420.9 0.0

Du Pont Ellen J. Kullman 1,389.8 1,915.0 -14.0 2,833.3 2,833.3 3,325.5 0.0

Eastman Chemical James P. Rogers 1,066.5 1,200.0 -13.6 0.0 0.0 3,465.8 0.0

Ecolab Douglas M. Baker, Jr. 1,050.0 1,950.0 3.4 2,711.8 0.0 2,956.3 0.0

Huntsman Jon M. Huntsman 1,200.0 6,494.0 31.5 0.0 2,000.0 0.0 0.0

International Paper John V Faraci 1,391.0 1,784.5 -18.0 0.0 0.0 8,852.2 0.0

Monsanto Hugh Grant 1,432.9 5,000.0 43.6 4,121.6 0.0 1,875.1 0.0

Mosaic James T. Prokopanko 1,033.3 1,470.0 -22.6 1,466.7 3,466.6 1,466.7 0.0

Newmont Mining Richard T. O’Brien 1,150.0 1,242.6 33.2 0.0 1,916.7 4,554.0 0.0

Nucor Daniel R. DiMicco 925.0 728.5 -30.6 3,854.8 2,212.0 786.3 0.0

Peabody Energy Gregory H. Boyce 1,208.2 1,712.7 -22.6 2,903.5 0.0 3,222.5 0.0

PPG Industries Charles E. Bunch 1,280.0 4,000.0 21.5 2,533.6 0.0 5,066.7 0.0

Praxair Stephen F. Angel 1,190.0 2,365.2 -24.6 4,130.7 0.0 4,126.5 0.0

Reliance Steel & Aluminum David H. Hannah 925.0 1,500.0 20.8 0.0 0.0 2,296.8 0.0

Rock-Tenn Jame A. Rubright 1,220.3 1,806.7 1.9 1,029.9 0.0 4,611.6 0.0

Sealed Air William V. Hickey 195.8 0.0 -71.0 0.0 0.0 5,400.0 0.0

US Steel John P. Surma 1,260.0 1,181.0 13.0 1,770.0 1,782.2 2,347.6 0.0

Western Digital John F. Coyne 1,000.0 2,212.5 21.3 3,102.5 2,437.3 3,866.9 2,400.0

Basic materials medians 8 1,195.0 1,606.3 1.9 2,772.6 2,106.0 3,325.5 N.M.

Basic materials

80

Footnotes:









The Hay Group 300: 2012 data | Basic materials

Total direct comp.

($000s) 2

% Change

from 2011: TDC 1

Change in NQ

deferred comp.

+ pension value

($000s)

All other comp. ($000s)

Total comp. ($000s)

Total realized

LTI ($000s)

% Change from 2011: company

net income 3,5

2012 company

TSR 4,5

2010–2012

company TSR 4,5

3-year realized

total direct comp.

($000s) 6

Basic materials

$9,068.0 -0.2% $2,730.8 $165.0 $11,963.8 $3,244.1 -4.6% 11.5% 4.9% $21,618.8

11,524.0 -7.4 2,599.3 203.6 14,326.9 1,537.5 -68.7 1.7 -17.8 14,287.1

7,717.8 12.1 775.7 68.6 8,562.1 22,439.5 -93.7 64.2 19.7 30,910.8

3,708.6 N.A. 0.0 76.0 3,784.6 332.8 N.M. + 12.3 -6.0 N.A.

16,463.2 7.6 6,160.4 366.1 22,989.7 15,749.8 -56.9 16.8 8.6 45,579.0

12,297.1 3.9 2,932.3 433.4 15,662.7 12,262.3 -19.7 1.8 14.2 30,621.5

5,732.3 -48.0 929.1 150.1 6,811.6 31,213.6 -32.4 77.6 34.3 45,986.1

8,668.2 16.3 3,037.4 161.2 11,866.8 26,912.4 52.1 25.9 18.8 41,594.4

9,694.0 23.5 1,434.1 274.3 11,402.4 841.8 47.0 63.5 15.6 19,001.1

12,027.7 -6.6 4,030.7 368.9 16,427.3 9,352.0 -39.9 39.0 17.4 33,686.7

12,429.6 12.6 1,247.9 548.1 14,225.6 18,840.2 27.3 28.3 2.9 41,420.6

8,903.3 24.8 0.0 512.3 9,415.6 889.5 -23.2 -32.4 -3.3 18,537.7

8,863.3 4.6 1,545.0 117.5 10,525.9 4,968.5 394.3 -20.4 1.2 18,992.6

8,506.6 4.6 0.0 0.9 8,507.4 2,048.2 -35.2 13.1 1.0 10,368.3

9,046.8 -9.3 0.0 444.6 9,491.4 1,184.6 -161.2 -18.6 -15.5 43,150.2

12,880.3 25.6 4,415.7 595.5 17,891.5 26,097.2 -14.1 65.7 35.8 63,868.7

11,812.4 -3.9 5,807.0 161.8 17,781.2 24,525.6 1.2 4.5 13.1 65,787.9

4,721.8 -23.8 1,408.5 51.9 6,182.2 1,777.5 17.4 29.5 14.1 8,697.1

8,668.5 21.8 3,117.6 639.4 12,425.4 8,840.4 76.5 50.2 16.8 N.A.

5,595.8 16.0 0.0 20.2 5,616.0 4,408.9 N.M. - 5.0 -4.7 N.A.

8,340.9 11.6 2,535.9 216.4 11,093.2 609.6 N.M. - -9.0 -23.9 11,654.4

15,019.1 137.5 0.0 41.8 15,060.9 18,178.0 122.0 -16.2 4.8 49,430.0

8,975.0 7.6 2,665.1 184.3 11,634.6 6,904.4 -14.1 12.7 6.8 30,910.8

81

Footnotes:









The Hay Group 300: 2012 data | Consumer goods

Company Executive

2012 salary

($000s)

2012 annual

incentives ($000s)

% Change from 2011:

salary + annual

incentives1


Stock option grants

Restricted stock

grants


Equity Cash

Consumer goods

Altria Martin J. Barrington 7 $1,025.2 $2,500.0 N.A. $0.0 $6,635.2 $0.0 $0.0

Archer-Daniels-Midland Patricia A. Woertz 1,300.0 840.9 N.A. 2,751.8 4,010.3 0.0 0.0

Avon Sheri McCoy 7 831.8 2,501.0 N.A. 0.0 4,338.0 5,040.0 2,160.0

Campbell Soup Denise M. Morrison 7 950.0 1,197.0 N.A. 0.0 0.0 4,763.2 0.0

Coca-Cola Co. Muhtar Kent 1,550.0 6,000.0 2.7% 6,855.0 0.0 6,240.0 0.0

Coca-Cola Enterprises John F. Brock 1,200.0 1,607.8 -13.1 2,799.8 0.0 4,363.4 0.0

Colgate-Palmolive Ian M. Cook 1,204.1 5,082.4 70.5 5,384.0 2,405.7 0.0 0.0

ConAgra Foods Gary Rodkin 1,000.0 1,560.0 77.8 1,630.0 0.0 2,615.0 0.0

Dean Foods Gregg A. Tanner 7 661.7 2,120.0 N.A. 372.5 2,291.5 0.0 0.0

Estee Lauder Fabrizio Freda 1,750.0 4,522.0 18.3 3,125.0 1,928.2 1,562.5 0.0

Ford Motor Alan Mulally 2,000.0 3,950.0 -20.2 7,500.0 0.0 6,825.0 0.0

General Mills Kendall J Powell 1,108.3 2,081.8 -1.9 2,105.8 2,660.7 0.0 0.0

General Motors Daniel F. Akerson 9,046.4 0.0 29.5 0.0 0.0 0.0 0.0

Genuine Parts Thomas C. Gallagher 1,028.3 2,395.1 -17.1 334.4 0.0 1,012.5 0.0

Goodyear Richard J. Kramer 1,033.3 2,331.0 8.5 2,250.0 0.0 786.5 4,500.0

Heinz (H. J.) William R. Johnson 1,299.6 3,400.0 -14.5 2,500.0 1,560.0 1,560.0 3,500.0

Hormel Foods Jeffrey M. Ettinger 1,000.2 1,654.4 -19.8 3,759.0 0.0 0.0 1,250.0

Johnson Controls Stephen A. Roell 1,470.0 1,518.0 -49.9 4,165.6 2,226.1 0.0 2,205.0

Kellogg John Bryant 1,076.9 1,089.0 3.5 1,790.0 0.0 1,621.4 0.0

Kimberly-Clark Thomas J. Falk 1,300.0 2,844.3 40.0 620.7 0.0 5,625.0 0.0

Kraft Foods W. Anthony Vernon 7 920.4 947.6 N.A. 790.9 1,800.2 2,157.3 0.0

Lear Matthew J. Simoncini 1,182.5 1,276.0 N.A. 0.0 1,957.5 4,372.5 0.0

Mondelez International Irene Rosenfeld 1,550.0 2,116.0 -36.5 2,489.7 5,305.6 10,153.9 0.0

NIKE Mark G. Parker 1,550.0 2,206.0 -12.1 3,648.2 23,500.1 0.0 3,000.0

PepsiCo Indra K. Nooyi 1,600.0 3,300.0 20.0 0.0 0.0 7,527.7 5,000.0

Philip Morris Louis C. Camilleri 1,750.0 7,500.0 -12.5 0.0 15,015.8 0.0 0.0

Procter & Gamble Robert A. McDonald 1,600.0 2,432.0 -4.7 4,404.7 0.0 6,160.7 0.0

Consumer goods

82

Footnotes:









The Hay Group 300: 2012 data | Consumer goods

Total direct comp.

($000s) 2

% Change

from 2011: TDC 1

Change in NQ

deferred comp.

+ pension value

($000s)


Total comp. ($000s)

Total realized

LTI ($000s)


net income 3,5

2012 company

TSR 4,5

2010–2012

company TSR 4,5

3-year realized

total direct comp.

($000s) 6

Consumer goods

$10,160.5 N.A. $1,762.0 $199.4 $12,121.9 $2,593.0 23.3% 11.7% 24.0% N.A.

8,903.1 N.A. 121.6 54.3 9,078.9 1,907.1 -39.9 0.1 5.5 N.A.

15,720.8 N.A. 44.0 180.1 15,945.0 0.0 -108.3 -14.0 -20.0 N.A.

6,910.2 N.A. 1,371.0 171.1 8,452.4 873.7 -3.9 3.7 5.6 N.A.

20,644.9 1.2% 8,851.4 963.8 30,460.2 4,178.5 5.1 6.4 11.5 $36,581.5

9,971.0 -2.5 0.0 278.8 10,249.8 36,692.5 -9.6 25.8 30.8 76,573.7

14,076.1 12.0 1,348.3 272.8 15,697.2 21,370.4 1.7 15.9 11.2 60,151.3

6,805.0 29.6 3,384.6 76.6 10,266.1 0.0 -42.8 2.6 14.8 12,874.1

5,445.8 N.A. 0.0 59.1 5,504.8 2,076.8 N.M.+ 47.4 -2.9 N.A.

12,887.7 -31.3 561.5 150.0 13,599.2 16,988.1 22.3 3.8 50.6 38,299.6

20,275.0 -29.8 0.0 680.8 20,955.8 61,812.6 -72.0 22.6 9.7 155,545.7

7,956.7 -0.8 3,960.9 217.7 12,135.2 4,229.9 -12.8 -0.7 17.9 21,340.3

9,046.4 0.8 0.0 70.1 9,116.5 0.0 -32.7 42.2 294.1 N.A.

4,770.3 -13.5 5,750.0 134.0 10,654.3 4,598.1 14.7 7.3 22.9 17,810.6

10,900.8 15.5 3,673.2 57.8 14,631.9 7,756.7 -38.2 -2.5 -0.7 N.A.

13,819.6 6.9 1,794.9 1,264.1 16,878.7 14,627.4 -6.7 7.9 20.2 59,435.9

7,663.6 -9.9 3,438.2 59.4 11,161.3 1,601.0 5.5 2.3 19.8 14,775.3

11,584.8 -26.1 8,976.0 417.2 20,977.9 5,345.5 -13.4 6.5 4.4 36,455.3

5,577.3 -5.4 929.0 112.0 6,618.3 693.5 11.0 14.2 4.9 N.A.

10,390.0 12.0 3,104.7 220.2 13,714.9 26,458.4 10.0 19.0 14.3 47,757.4

6,616.3 N.A. 0.0 216.6 6,833.0 3,616.8 -7.5 N.A. N.A. N.A.

8,788.4 N.A. 40.1 208.1 9,036.6 3,157.1 137.2 19.3 12.4 N.A.

21,615.2 39.8 6,776.4 419.7 28,811.3 17,598.6 -14.1 9.1 17.2 59,342.9

33,904.2 167.2 0.0 308.5 34,212.7 15,240.8 4.2 30.4 25.8 43,818.2

17,427.7 28.5 1,631.9 149.4 19,209.0 14,101.5 -4.1 6.4 7.2 51,008.2

24,265.8 23.2 5,578.1 460.2 30,304.1 53,640.7 2.4 10.6 25.3 150,472.1

14,597.4 -8.8 0.0 312.6 14,910.0 1,517.7 -8.8 -0.3 9.6 16,898.1

83

Footnotes:









The Hay Group 300: 2012 data | Consumer services

Company Executive

2012 salary

($000s)

2012 annual

incentives ($000s)

% Change from 2011:

salary + annual

incentives1


Stock option grants

Restricted stock

grants


Equity Cash

Consumer goods (cont’d)

Reynolds American Daniel M. Delen $1,000.0 $1,201.5 N.A. $0.0 $0.0 $6,247.5 $0.0

Smithfield Foods C. Larry Pope 1,100.0 5,692.5 -52.7% 936.0 0.0 5,142.5 0.0

Stanley Black & Decker John F. Lundgren 1,270.8 2,325.0 -24.4 1,301.3 1,765.3 3,559.9 0.0

TRW Automotive Holdings John C. Plant 1,974.2 5,346.0 4.0 3,825.6 4,797.7 0.0 0.0

Tyson Foods Donnie Smith 900.0 2,499.6 -12.1 2,796.0 0.0 0.0 0.0

VF Eric C. Wiseman 1,200.0 2,933.3 16.0 2,893.0 0.0 3,000.1 0.0

Whirlpool Jeff M. Fettig 1,375.0 3,100.0 137.8 4,125.0 0.0 4,125.0 0.0

Consumer goods medians 1,270.8 2,395.1 -3.3 2,799.8 2,405.7 4,367.9 3,250.0

Consumer services

Amazon.com Jeffrey P. Bezos $81.8 $0.0 0.0% $0.0 $0.0 $0.0 $0.0

AmerisourceBergen Steven H. Collis 1,093.5 1,348.2 N.A. 1,800.0 900.0 1,800.0 0.0

AutoNation Mike Jackson 1,150.0 2,055.1 20.7 3,163.6 0.0 0.0 0.0

AutoZone William C. Rhodes III 1,000.0 1,316.0 -22.8 2,142.3 0.0 0.0 0.0

Bed Bath & Beyond Steven H. Temares 2,894.2 0.0 26.5 5,000.0 5,225.0 0.0 0.0

Best Buy Brian J. Dunn 1,121.2 1,140.0 25.0 2,265.6 3,632.7 0.0 0.0

Cardinal Health George S. Barrett 1,277.1 1,809.7 -2.5 2,861.0 2,666.7 2,472.0 0.0

CarMax Thomas J. Folliard 1,037.3 898.6 -22.6 2,905.7 955.9 0.0 0.0

CBS Leslie Moonves 3,513.5 30,000.0 0.0 16,330.0 4,500.0 4,500.0 0.0

Charter Communications Thomas M. Rutledge 7 1,756.3 3,301.7 N.A. 0.0 0.0 0.0 0.0

Comcast Brian L. Roberts 2,800.8 9,032.5 43.2 4,833.9 0.0 4,753.1 0.0

Costco Wholesale W. Craig Jelinek 7 662.5 168.2 N.A. 0.0 3,870.3 0.0 0.0

CVS Caremark Larry J. Merlo 1,287.5 4,992.0 N.A. 3,750.0 3,750.0 2,750.0 2,750.0

Darden Restaurants Clarence Otis, Jr. 1,126.7 1,438.2 -18.4 3,192.1 0.0 1,950.9 0.0

Delta Air Lines Richard H. Anderson 652.1 2,749.9 104.6 2,000.1 3,500.1 0.0 3,500.0

DIRECTV Michael White 1,555.8 4,000.0 2.5 12,000.1 0.0 0.0 0.0

Dish Network Joseph P. Clayton 900.0 0.0 N.A. 0.0 0.0 0.0 0.0

Consumer services

84

Footnotes:










Total direct comp.

($000s) 2

% Change

from 2011: TDC 1

Change in NQ

deferred comp.

+ pension value

($000s)


Total comp. ($000s)

Total realized

LTI ($000s)


net income 3,5

2012 company

TSR 4,5

2010–2012

company TSR 4,5

3-year realized

total direct comp.

($000s) 6

Consumer goods (cont’d)

$8,449.0 N.A. $0.0 $203.3 $8,652.3 $5,801.4 -9.5% 5.6% 23.0% N.A.

12,871.0 -30.6% 3,314.4 332.4 16,517.8 6,896.0 -30.7 -11.0 34.4 $33,383.8

10,222.2 -11.3 2,324.5 511.2 13,057.9 11,466.9 31.0 12.2 15.5 41,245.6

15,943.5 10.4 9,652.9 607.1 26,203.5 11,767.5 -12.9 64.4 30.9 88,884.6

6,195.6 -2.4 1,275.9 373.3 7,844.7 514.6 -22.3 -6.9 9.3 N.A.

10,026.3 18.8 4,070.6 81.1 14,178.0 20,556.6 22.3 21.4 30.4 58,768.2

12,725.0 35.1 3,037.6 200.9 15,963.5 13,546.6 2.8 120.1 10.8 30,955.7

10,900.8 1.0 3,314.4 220.2 14,178.0 11,466.9 -6.7 7.9 14.8 42,531.9

Consumer services

$81.8 0.0% $0.0 $1,600.0 $1,681.8 $0.0 -106.2% 44.9% 23.1% $245.5

6,941.6 N.A. 0.0 115.0 7,056.6 6,649.6 1.7 5.3 21.5 N.A.

6,368.7 2.2 0.0 179.8 6,548.4 10,475.7 12.4 7.7 27.5 37,596.4

4,458.3 -60.0 0.0 194.2 4,652.5 7,180.1 9.6 17.8 34.9 33,046.0

13,119.3 16.2 790.4 17.6 13,927.2 13,092.6 25.0 24.1 41.0 51,580.3

8,159.4 62.7 0.0 55.5 8,215.0 263.8 -196.4 -21.6 -3.3 N.A.

11,086.5 10.0 0.0 123.2 11,209.7 3,613.3 11.5 -5.6 26.0 N.A.

5,797.5 9.1 357.7 319.4 6,474.6 2,678.4 9.6 -13.2 48.2 12,727.4

58,843.4 -15.1 1,903.4 1,410.2 62,157.1 56,544.7 20.6 42.0 41.2 213,692.7

5,058.0 N.A. 0.0 220.5 5,278.5 0.0 N.M. + 33.9 29.0 N.A.

21,420.2 7.9 4,036.6 3,667.2 29,124.0 32,496.5 49.1 60.6 33.1 75,546.8

4,701.0 N.A. 21.2 88.5 4,810.8 6,762.2 16.9 26.1 25.8 N.A.

19,279.5 N.A. 2,210.3 209.2 21,699.0 6,830.5 12.0 20.3 16.0 N.A.

7,707.9 -3.5 0.0 376.4 8,084.3 7,226.5 -0.2 5.8 16.2 20,380.1

12,402.1 43.2 0.0 173.5 12,575.6 8,859.6 18.1 46.7 1.4 38,712.5

17,555.9 224.0 163.4 324.0 18,043.3 44,770.8 13.0 17.3 14.6 61,192.4

900.0 N.A. 0.0 7.0 907.0 1,657.0 -58.0 31.3 24.9 N.A.

85

Footnotes:










Company Executive

2012 salary

($000s)

2012 annual

incentives ($000s)

% Change from 2011:

salary + annual

incentives1


Stock option grants

Restricted stock

grants


Equity Cash

Consumer services (cont’d)

Disney (Walt) Robert A. Iger $2,500.0 $16,520.0 8.7% $7,750.0 $0.0 $9,532.5 $0.0

Dollar General Richard W. Dreiling 1,235.6 1,592.0 -7.2 3,091.5 0.0 16,554.4 0.0

Ebay John J. Donahoe 970.4 2,759.4 2.6 2,000.0 3,000.0 20,730.0 0.0

Family Dollar Howard R. Levine 1,051.3 942.0 -1.0 1,465.0 0.0 1,721.7 0.0

Gamestop J. Paul Raines 1,027.7 1,739.4 N.A. 0.0 521.3 521.3 0.0

Gap Glenn K. Murphy 1,500.0 4,500.0 87.1 0.0 0.0 18,267.3 0.0

Hertz Mark P. Frissora 1,308.8 4,211.1 17.2 0.0 0.0 6,452.4 0.0

Home Depot Francis S. Blake 1,086.5 2,499.4 3.9 2,625.0 2,625.0 1,750.0 0.0

JCPenney Ronald B. Johnson 1,500.0 0.0 N.A. 0.0 0.0 0.0 0.0

Kohl’s Kevin Mansell 1,329.3 531.7 -46.0 2,800.0 0.0 2,240.0 0.0

Kroger David B. Dillon 1,273.9 2,080.0 62.5 1,716.7 2,631.1 499.4 1,260.0

L Brands Leslie H. Wexner 1,924.0 4,970.9 1.1 2,681.8 0.0 8,605.8 0.0

Las Vegas Sands Sheldon G. Adelson 1,000.0 2,934.0 -46.1 1,825.0 1,825.0 0.0 0.0

Liberty Interactive Gregory B. Maffei 778.6 2,641.9 18.5 0.0 0.0 0.0 0.0

Lowe’s Robert A. Niblock 1,185.0 1,665.0 7.6 3,740.7 2,752.9 2,591.0 0.0

Macy’s Terry J. Lundgren 1,591.7 1,907.2 -47.4 3,100.0 0.0 4,630.8 0.0

Marriott International Arne M. Sorenson 7 1,152.0 1,947.6 N.A. 2,750.0 2,634.2 0.0 0.0

McDonald’s Donald Thompson 7 979.2 1,400.0 N.A. 3,206.7 0.0 660.1 0.0

McKesson John H. Hammergren 1,680.0 4,727.5 1.5 6,133.2 0.0 8,601.5 2,700.0

MGM Resorts James J. Murren 2,000.0 3,241.5 -30.0 0.0 844.1 2,532.2 0.0

News Corp. K. Rupert Murdoch 8,100.0 10,425.0 -10.1 0.0 0.0 3,508.7 0.0

Nordstrom Blake W. Nordstrom 709.7 892.1 -29.0 1,050.0 0.0 340.1 0.0

Omnicom Group John D. Wren 1,000.0 11,088.0 -7.9 0.0 0.0 0.0 0.0

Pantry Dennis G. Hatchell 7 412.5 483.6 N.A. 98.4 435.9 361.0 0.0

Penske Roger S. Penske 1,200.0 3,500.0 8.0 0.0 0.0 0.0 0.0

Publix Super Markets William E. Crenshaw 849.8 109.6 -2.4 0.0 0.0 0.0 0.0

86

Footnotes:










Total direct comp.

($000s) 2

% Change

from 2011: TDC 1

Change in NQ

deferred comp.

+ pension value

($000s)


Total comp. ($000s)

Total realized

LTI ($000s)


net income 3,5

2012 company

TSR 4,5

2010–2012

company TSR 4,5

3-year realized

total direct comp.

($000s) 6


$36,302.5 19.4% $3,124.6 $800.7 $40,227.8 $33,995.9 18.2% 76.1% 25.5% $144,397.8

22,473.6 637.5 1,592.0 686.6 24,752.2 18,178.3 24.3 8.5 25.3 41,439.2

29,459.8 97.8 0.0 160.4 29,620.2 22,856.1 -19.2 68.1 29.4 52,805.7

5,180.1 11.5 0.0 47.2 5,227.2 9,121.5 8.7 20.8 30.0 25,498.5

5,869.6 N.A. 0.0 5.7 5,875.4 1,406.8 -16.7 10.9 -1.9 N.A.

24,267.3 155.4 0.0 360.5 24,627.8 1,764.0 36.3 75.0 22.0 14,825.0

11,972.3 -5.1 1,952.2 592.8 14,517.3 14,469.9 38.0 38.8 10.9 41,578.9

10,585.8 1.3 0.0 291.9 10,877.7 10,140.4 16.8 54.0 37.4 41,013.1

1,500.0 N.A. 0.0 388.6 1,888.6 0.0 N.M. - -50.8 -4.7 N.A.

6,901.0 -18.7 0.0 355.8 7,256.8 9,255.5 -15.5 3.4 -1.2 21,384.5

9,461.1 43.4 3,088.7 115.6 12,665.4 3,288.3 -46.1 13.1 3.6 15,481.7

18,182.5 -0.3 372.9 677.6 19,233.0 50,765.5 -11.4 27.2 53.3 74,867.3

7,584.0 -30.8 0.0 3,101.0 10,684.9 31,234.7 -2.3 16.8 49.5 49,252.3

3,420.5 18.5 0.0 193.4 3,613.9 6,948.6 -48.5 36.3 26.8 N.A.

11,934.6 3.9 0.0 201.9 12,136.4 29,110.3 6.5 45.2 23.3 47,311.3

11,229.7 -22.0 2,534.8 76.1 13,840.5 38,980.7 6.3 19.8 37.3 93,961.3

8,483.8 N.A. 59.9 92.7 8,636.4 7,979.3 188.4 29.5 14.2 N.A.

6,246.0 N.A. 0.0 324.8 6,570.8 10,071.5 -0.7 -9.3 15.7 N.A.

23,842.3 -16.5 10,075.6 362.5 34,280.3 16,311.4 16.7 12.1 37.1 184,571.1

8,617.8 -4.2 0.0 1,023.7 9,641.5 184.1 -156.8 11.6 8.5 20,048.9

22,033.7 -12.1 7,604.0 384.6 30,022.3 4,110.2 -57.0 27.3 36.1 62,021.0

2,991.9 -18.0 879.5 47.4 3,918.7 4,254.8 7.6 14.1 19.4 21,451.2

12,088.0 -7.9 0.0 157.2 12,245.2 26,183.7 4.8 14.8 10.9 96,838.5

1,791.5 N.A. 0.0 185.3 1,976.7 0.0 -126.0 20.0 -2.5 N.A.

4,700.0 8.0 0.0 209.3 4,909.3 2,222.1 4.9 59.1 26.9 17,514.3

959.3 -2.4 0.0 86.5 1,045.8 0.0 4.0 5.8 -45.0 2,914.9

87

Footnotes:










Company Executive

2012 salary

($000s)

2012 annual

incentives ($000s)

% Change from 2011:

salary + annual

incentives1


Stock option grants

Restricted stock

grants


Equity Cash


Rite Aid John T. Standley $1,019.2 $3,258.0 N.A. $3,087.4 $2,066.7 $0.0 $700.0

Ross Stores Michael Balmuth 1,238.0 2,145.8 -1.3% 0.0 4,000.1 3,000.0 0.0

Safeway Steven A. Burd 1,500.0 1,265.0 -25.3 1,313.5 0.0 5,660.0 0.0

Sears Louis J. D’Ambrosio 1,019.2 0.0 N.A. 0.0 0.0 0.0 0.0

Sonic Automotive O. Bruton Smith 1,127.5 1,409.6 -11.3 0.0 0.0 1,228.4 0.0

Southwest Airlines Gary C. Kelly 675.0 961.0 4.0 0.0 2,250.0 0.0 0.0

Spectrum Group Int’l Gregory Roberts 525.0 950.0 -50.0 0.0 0.0 0.0 0.0

Staples Ronald L. Sargent 1,203.4 0.0 -36.6 2,467.5 2,467.5 0.0 3,290.0

Starbucks Howard Schultz 1,482.7 2,308.5 -13.1 6,897.8 0.0 15,600.0 0.0

Supervalu Craig R. Herkert 850.0 728.8 85.7 0.0 0.0 6,250.0 0.0

Sysco William J. DeLaney 1,150.0 847.5 18.5 3,165.4 1,719.4 0.0 1,725.0

Target Gregg W. Steinhafel 1,500.0 2,880.0 -11.6 5,248.6 2,937.5 2,347.7 0.0

Time Warner Jeffrey L. Bewkes 2,000.0 13,600.0 0.6 2,960.6 3,500.0 3,441.8 0.0

Time Warner Cable Glenn A. Britt 1,250.0 6,617.2 -7.0 5,164.4 3,667.1 0.0 0.0

TJX Companies Carol Meyrowitz 1,426.9 4,280.8 56.1 654.6 0.0 10,872.0 1,400.0

Travelcenters of America Thomas M. O’Brien 300.0 1,540.0 8.2 0.0 910.4 0.0 0.0

United Continental Jeffery Smisek 975.0 1,036.9 -31.2 0.0 3,133.3 3,916.7 3,133.3

Viacom Philippe P. Dauman 3,500.0 11,500.0 -36.2 6,000.0 0.0 12,126.7 0.0

Walgreen Gregory D. Wasson 1,295.8 1,150.1 -36.9 2,662.2 2,686.6 3,570.1 0.0

Wal-Mart Michael T. Duke 1,315.7 4,373.2 37.3 0.0 3,650.0 9,999.5 0.0

Whole Foods John P. Mackey 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Whole Foods Walter Robb 453.1 282.4 2.0 467.0 0.0 0.0 0.0

Yum Brands David C. Novak 1,450.0 4,584.3 0.3 5,626.0 0.0 773.0 0.0

Consumer services medians 1,200.0 1,907.2 0.0 0.0 2,686.6 3,539.4 2,700.0

88

Footnotes:










Total direct comp.

($000s) 2

% Change

from 2011: TDC 1

Change in NQ

deferred comp.

+ pension value

($000s)


Total comp. ($000s)

Total realized

LTI ($000s)


net income 3,5

2012 company

TSR 4,5

2010–2012

company TSR 4,5

3-year realized

total direct comp.

($000s) 6


$10,131.4 N.A. $38.2 $280.5 $10,450.0 $1,499.1 N.M. + 17.6% 76.5% N.A.

10,383.9 -12.9% 0.0 593.1 10,977.0 35,840.7 19.7% 18.6 39.0 $90,227.3

9,738.5 -1.0 1,431.7 173.3 11,343.5 260.0 15.4 -10.8 -2.6 14,543.1

1,019.2 N.A. 0.0 278.7 1,298.0 2,380.9 N.M. + 23.3 -17.0 N.A.

3,765.4 8.4 0.0 98.3 3,863.7 741.8 16.8 41.9 26.9 9,555.8

3,886.0 13.8 15.5 129.8 4,031.4 815.0 136.5 20.1 -3.4 6,335.8

1,475.0 -51.7 0.0 38.4 1,513.4 0.0 7.6 -35.2 -14.3 5,999.1

9,428.4 -6.9 0.0 336.2 9,764.6 8,458.5 -121.4 -4.6 -14.7 27,523.9

26,289.0 65.9 0.0 220.7 26,509.8 113,550.7 11.1 37.9 36.7 188,073.8

7,828.8 173.5 0.0 75.0 7,903.7 796.4 N.M. + -20.9 -22.1 5,333.8

8,607.3 39.4 1,941.3 1.1 10,549.7 692.4 -2.6 -1.7 13.5 7,127.6

14,913.8 10.4 665.5 5,068.1 20,647.5 14,024.0 2.4 21.5 7.7 55,257.1

25,502.3 -0.3 219.6 167.9 25,889.8 7,446.0 4.6 35.9 21.2 59,216.0

16,698.7 5.1 141.3 512.8 17,352.7 19,156.0 29.4 57.0 36.7 64,113.4

18,634.3 227.8 2,716.3 48.6 21,399.2 14,953.1 27.4 34.0 35.1 53,791.5

2,750.4 5.5 0.0 0.0 2,750.4 565.8 36.6 10.6 2.1 6,488.0

12,195.3 -25.4 1,715.5 302.4 14,213.1 6,837.5 -186.1 23.9 21.9 N.A.

33,126.7 -22.6 54.7 269.4 33,450.8 54,262.1 -7.3 41.4 26.2 119,687.0

11,364.8 -3.4 18.9 657.3 12,041.1 4,154.6 -21.6 4.5 4.1 13,360.3

19,338.4 12.4 710.7 644.5 20,693.5 21,426.8 8.3 16.7 12.1 69,066.8

0.0 0.0 0.0 69.0 69.0 504.9 35.9 50.1 47.9 1,261.0

1,202.5 42.8 0.0 64.4 1,266.9 812.8 35.9 50.1 47.9 N.A.

12,433.3 -1.3 1,345.7 389.4 14,168.4 44,293.6 21.1 14.5 26.3 126,353.0

10,131.4 3.0 1,388.7 215.0 10,977.0 7,446.0 8.3 20.0 23.2 41,013.1

89

Footnotes:









The Hay Group 300: 2012 data | Financials

Company Executive

2012 salary

($000s)

2012 annual

incentives ($000s)

% Change from 2011:

salary + annual

incentives1


Stock option grants

Restricted stock

grants


Equity Cash

Financials

Aflac Daniel P. Amos $1,441.1 $5,072.7 29.3% $0.0 $0.0 $4,458.4 $0.0

Allstate Thomas J. Wilson 1,100.0 6,164.7 116.7 3,850.0 0.0 3,850.0 0.0

American Express Kenneth I. Chenault 2,000.0 6,625.0 -18.8 2,080.0 0.0 6,170.1 5,125.0

American International Grp

Robert H. Benmosche 10,500.0 0.0 0.6 0.0 0.0 0.0 0.0

Ameriprise Financial James M. Cracchiolo 950.0 7,923.3 -5.4 3,074.5 1,509.2 2,100.0 0.0

Assurant Robert B. Pollock 975.0 2,059.2 2.6 0.0 1,584.4 1,583.2 0.0

Bank of America Brian T. Moynihan 950.0 2,210.0 232.6 0.0 3,315.0 5,525.0 0.0

Bank of New York Mellon Gerald L. Hassell 1,000.0 4,061.3 N.A. 2,389.3 5,200.6 0.0 0.0

BB&T Kelly S. King 979.8 2,817.5 38.2 1,097.4 1,406.5 0.0 1,839.7

Berkshire Hathaway Warren E. Buffett 100.0 0.0 0.0 0.0 0.0 0.0 0.0

BlackRock Laurence D. Fink 500.0 16,250.0 6.0 0.0 0.0 4,750.0 0.0

Capital One Financial Richard D. Fairbank 0.0 2,187.5 100.0 4,375.0 2,187.5 8,750.0 0.0

Chubb John D. Finnegan 1,325.0 2,748.1 -8.0 0.0 1,899.9 5,267.8 0.0

Citigroup Michael L. Corbat 7 1,049.2 4,180.3 N.A. 0.0 3,135.2 3,135.2 0.0

CNA Financial Thomas F. Motamed 1,000.0 3,250.0 0.0 0.0 0.0 4,978.9 250.0

Discover Financial David W. Nelms 1,000.0 3,125.0 -2.4 0.0 1,650.0 4,125.0 0.0

Genworth Financial Martin P. Klein 7 724.3 1,000.0 N.A. 1,016.9 513.0 0.0 0.0

Goldman Sachs Lloyd C. Blankfein 2,000.0 19,000.0 75.0 0.0 0.0 0.0 3,000.0

Hartford Financial Services Liam E. McGee 1,100.0 2,350.0 213.6 3,750.0 0.0 3,750.0 0.0

Financials

90

Footnotes:










Total direct comp.

($000s) 2

% Change

from 2011: TDC 1

Change in NQ

deferred comp.

+ pension value

($000s)


Total comp. ($000s)

Total realized

LTI ($000s)


net income 3,5

2012 company

TSR 4,5

2010–2012

company TSR 4,5

3-year realized

total direct comp.

($000s) 6

Financials

$10,972.2 -21.5% $2,593.4 $252.8 $13,818.4 $20,981.8 48.0% 26.4% 7.5% $63,365.7

14,964.7 50.4 1,982.6 111.2 17,058.6 3,219.8 193.0 50.2 13.2 17,473.1

22,000.1 -8.3 478.9 987.9 23,466.9 26,109.0 -9.2 23.6 14.1 N.A.

10,500.0 0.6 33.4 40.5 10,573.9 8,629.3 -83.3 52.2 12.8 36,562.0

15,556.9 -4.7 1,709.7 303.4 17,570.0 37,151.6 -7.8 29.5 19.6 75,521.5

6,201.8 5.7 2,449.5 372.8 9,024.0 5,495.6 -10.3 -13.6 7.7 21,326.5

12,000.0 74.7 930.2 520.5 13,450.7 1,664.1 189.6 109.8 -7.9 8,466.4

12,651.1 N.A. 978.6 140.6 13,770.3 2,069.4 -2.8 32.1 -1.0 N.A.

8,140.9 36.5 3,153.6 238.9 11,533.4 4,051.6 53.5 18.6 7.2 14,242.5

100.0 0.0 0.0 323.9 423.9 0.0 44.6 17.6 10.7 300.0

21,500.0 9.9 0.0 187.4 21,687.4 66,464.3 5.2 19.8 -1.0 166,118.2

17,500.0 -8.9 3.6 89.3 17,592.9 6,759.7 11.8 37.5 15.2 8,947.2

11,240.8 -9.2 2,329.7 317.3 13,887.8 21,755.3 -7.9 11.3 18.2 59,233.1

11,500.0 N.A. 4.2 1,766.5 13,270.7 6,723.3 -31.9 50.6 6.2 N.A.

9,478.9 20.9 0.0 918.8 10,397.7 4,184.4 2.6 7.0 6.6 22,050.6

9,900.0 7.6 41.6 17.5 9,959.1 9,552.2 5.3 76.8 40.3 38,217.3

3,254.3 N.A. 0.0 165.2 3,419.5 47.0 559.2 14.7 -12.9 N.A.

24,000.0 26.3 3.9 323.5 24,327.5 5,978.6 68.3 43.4 -7.8 63,597.5

10,950.0 44.1 148.3 59.0 11,157.3 0.0 -105.7 41.0 0.4 8,872.4

91

Footnotes:










Company Executive

2012 salary

($000s)

2012 annual

incentives ($000s)

% Change from 2011:

salary + annual

incentives1


Stock option grants

Restricted stock

grants


Equity Cash

Financials (cont’d)

JPMorgan Chase James Dimon $1,500.0 $0.0 -74.6% $0.0 $10,000.0 $0.0 $0.0

Lincoln National Dennis R. Glass 1,075.0 3,104.6 5.1 2,069.5 1,714.8 2,533.2 0.0

Loews James S. Tisch 975.0 3,125.0 3.8 960.8 0.0 0.0 0.0

Marsh & McLennan Brian Duperreault 1,000.0 5,000.0 6.2 4,375.0 2,062.5 3,562.5 0.0

MetLife Steven A. Kandarian 1,066.7 4,200.0 N.A. 3,760.3 0.0 3,897.0 0.0

Morgan Stanley James P. Gorman 800.0 0.0 0.0 2,625.0 0.0 3,750.0 0.0

PNC Financial James E. Rohr 1,200.0 2,000.0 0.7 0.0 0.0 4,428.0 0.0

Principal Financial Larry D. Zimpleman 900.0 1,282.5 0.2 2,491.7 0.0 2,250.0 0.0

Progressive Glenn M. Renwick 750.0 1,260.0 1.1 0.0 0.0 7,500.0 0.0

Prudential Financial John R. Strangfeld 1,400.0 3,941.0 -17.1 3,400.0 0.0 3,400.0 3,389.0

Reinsurance Group A. Greig Woodring 995.6 1,470.0 -6.5 1,060.9 0.0 1,150.0 0.0

State Street Joseph L. Hooley 1,000.0 1,100.0 -41.8 0.0 4,950.0 4,950.0 0.0

SunTrust William H. Rogers, Jr. 900.0 1,898.1 N.A. 1,067.4 0.0 3,979.6 0.0

Travelers Jay S. Fishman 1,000.0 6,500.0 36.4 3,600.0 0.0 5,400.0 0.0

US Bancorp Richard K. Davis 1,100.0 3,044.4 -0.7 3,000.0 0.0 3,000.0 0.0

Unum Thomas R. Watjen 1,100.0 1,489.1 -16.5 0.0 2,731.2 2,731.3 0.0

Visa Joseph W. Saunders 950.0 4,214.2 27.0 1,371.6 1,371.5 965.7 0.0

Wells Fargo John G. Stumpf 2,800.0 4,000.0 15.3 0.0 0.0 12,500.0 0.0

Financials medians 1,000.0 3,044.4 0.9 2,625.0 1,981.2 3,938.3 3,000.0

92

Footnotes:










Total direct comp.

($000s) 2

% Change

from 2011: TDC 1

Change in NQ

deferred comp.

+ pension value

($000s)


Total comp. ($000s)

Total realized

LTI ($000s)


net income 3,5

2012 company

TSR 4,5

2010–2012

company TSR 4,5

3-year realized

total direct comp.

($000s) 6

Financials (cont’d)

$11,500.0 -49.8% $47.0 $170.0 $11,717.0 $7,789.1 12.2% 36.1% 3.7% $65,115.3

10,497.0 2.7 173.4 671.8 11,342.2 1,997.8 494.1 35.3 2.1 17,112.9

5,060.8 0.1 3,995.3 787.4 9,843.5 2,690.1 -46.5 8.9 4.6 15,675.2

16,000.1 15.1 325.0 683.3 17,008.4 11,553.6 18.4 12.0 19.6 46,808.1

12,924.0 N.A. 432.0 313.0 13,669.0 3,382.4 -79.4 8.0 -0.2 N.A.

9,750.0 -7.1 292.5 20.6 10,063.0 5,044.0 -98.3 27.9 -12.7 18,582.2

7,628.0 -5.9 2,684.5 135.5 10,448.0 8,084.5 -1.4 3.7 5.2 30,254.0

6,924.2 15.9 3,605.2 80.3 10,609.7 2,536.4 23.5 19.3 8.6 11,694.1

9,510.0 0.2 0.0 140.5 9,650.5 14,940.8 -11.1 15.5 10.7 41,989.5

15,530.0 -7.1 15,573.7 105.3 31,209.0 12,709.6 -86.8 9.7 5.1 38,706.4

4,676.5 8.5 1,751.4 86.7 6,514.6 2,152.2 15.7 4.0 5.2 14,370.6

12,000.0 -14.3 2,639.1 298.2 14,937.3 5,974.8 7.3 19.1 4.0 N.A.

7,845.1 N.A. 936.4 99.5 8,880.9 2,354.6 202.6 61.5 12.4 N.A.

16,500.0 26.9 623.5 105.6 17,229.1 22,271.4 73.4 24.7 16.1 76,367.0

10,144.4 4.9 8,051.9 17.6 18,213.8 5,149.2 15.9 20.9 14.3 23,165.5

8,051.6 -20.3 4,133.0 89.2 12,273.8 3,743.3 214.7 1.0 4.0 25,158.4

8,873.0 -18.5 712.9 114.2 9,700.1 68,166.2 -41.3 57.9 25.7 87,291.6

19,300.0 7.8 3,558.1 15.0 22,873.1 1,579.6 19.1 27.4 10.1 22,833.2

10,950.0 1.7 978.6 140.6 12,273.8 5,974.8 7.3 23.6 7.2 24,161.9

93

Footnotes:









The Hay Group 300: 2012 data | Health care

Company Executive

2012 salary

($000s)

2012 annual

incentives ($000s)

% Change from 2011:

salary + annual

incentives1


Stock option grants

Restricted stock

grants


Equity Cash

Health care

Abbott Labs Miles D. White $1,900.0 $4,700.0 8.2% $2,057.0 $0.0 $9,429.2 $0.0

Aetna Mark T. Bertolini 977.2 2,232.0 -46.5 0.0 0.0 8,125.4 0.0

Amgen Robert A. Bradway 7 1,262.3 3,316.0 N.A. 0.0 1,500.0 7,071.7 0.0

BaxterRobert L. Parkinson, Jr. 1,453.1 4,279.3 33.0 3,922.6 0.0 6,348.0 0.0

Becton Dickinson Vincent A. Forlenza 900.0 1,080.0 N.A. 2,292.4 1,147.2 2,294.4 0.0

Bristol-Myers Squibb Lamberto Andreotti 1,623.1 3,844.9 -4.6 0.0 0.0 9,722.0 0.0

Centene Michael F. Neidorff 1,200.0 0.0 -74.1 0.0 3,429.0 3,429.0 1,800.0

Cigna David M. Cordani 1,014.6 2,592.0 -5.1 3,002.1 0.0 6,038.9 0.0

Community Health Systems Wayne T. Smith 1,400.0 4,200.0 4.8 319.2 2,107.0 0.0 0.0

DaVita HealthCare Kent J. Thiry 1,050.0 5,200.0 25.0 12,074.4 7,976.0 0.0 0.0

Express Scripts George Paz 1,146.2 3,442.5 311.3 3,200.0 2,000.0 2,800.0 0.0

Gilead Sciences John C. Martin 1,494.2 3,375.0 15.6 5,433.4 0.0 4,947.1 0.0

HCA Holdings Richard M. Bracken 1,387.5 3,358.3 60.1 10,641.9 0.0 0.0 0.0

Health Net Jay M. Gellert 1,200.0 0.0 -56.2 0.0 1,967.0 5,900.9 0.0

Henry Schein Stanley M. Bergman 1,201.9 2,242.5 -0.5 0.0 0.0 2,250.0 0.0

Humana Michael B. McCallister 1,085.0 1,627.5 -14.4 3,307.8 1,746.7 0.0 0.0

Johnson & Johnson Alex Gorsky 7 1,087.2 1,494.6 N.A. 2,670.0 1,780.0 4,450.0 0.0

Lilly (Eli) John C. Lechleiter 1,500.0 2,982.0 8.7 0.0 0.0 5,625.0 0.0

Medtronic Omar Ishrak 7 1,168.3 2,540.0 N.A. 2,150.6 9,480.8 9,588.7 2,816.7

Merck Kenneth C. Frazier 1,500.0 2,500.0 -13.0 3,800.0 0.0 3,285.0 0.0

Owens & Minor Craig R. Smith 878.4 0.0 -11.4 0.0 450.0 634.1 0.0

Pfizer Ian C. Read 1,737.5 3,400.0 -1.2 6,497.6 3,220.9 3,220.9 0.0

Stryker Kevin A. Lobo 7 585.4 545.4 N.A. 1,792.3 3,428.7 2,500.0 0.0

Tenet Healthcare Trevor Fetter 1,103.4 1,549.4 7.7 2,351.9 1,299.5 1,039.6 1,750.0

Thermo Fisher Scientific Marc N. Casper 1,030.0 1,892.8 27.1 0.0 8,352.8 2,089.6 0.0

UnitedHealth Group Stephen J. Hemsley 1,300.0 4,000.0 7.3 0.0 3,500.0 3,500.0 650.0

WellPoint John Cannon 7 744.2 1,143.6 N.A. 400.0 3,100.1 1,000.0 0.0

Health care medians 1,201.0 2,787.0 4.8 3,307.8 2,053.5 3,464.5 1,750.0

Health care

94

Footnotes:









The Hay Group 300: 2012 data | Health care

Total direct comp.

($000s) 2

% Change

from 2011: TDC 1

Change in NQ

deferred comp.

+ pension value

($000s)


Total comp. ($000s)

Total realized

LTI ($000s)


net income 3,5

2012 company

TSR 4,5

2010–2012

company TSR 4,5

3-year realized

total direct comp.

($000s) 6

Health care

$18,086.2 14.9% $6,162.9 $869.7 $25,118.8 $18,066.1 26.1% 20.3% 10.4% $55,646.1

11,334.5 -14.8 33.6 257.0 11,625.1 34,229.9 -16.5 11.6 14.6 N.A.

13,150.0 N.A. 0.0 420.1 13,570.1 1,702.9 18.0 36.8 16.2 N.A.

16,003.0 25.1 1,509.8 9.0 17,521.8 0.0 4.6 38.3 6.9 43,288.6

7,714.1 N.A. 1,662.5 41.8 9,418.3 573.8 -8.0 9.7 6.3 N.A.

15,189.9 16.1 1,194.0 818.1 17,202.0 8,194.3 -47.2 -3.7 13.5 N.A.

9,858.0 -15.3 0.0 416.7 10,274.7 22,240.8 -98.3 3.6 24.6 N.A.

12,647.7 3.1 123.1 110.7 12,881.5 253.5 28.8 27.4 15.0 25,760.6

8,026.2 -40.2 8,994.6 240.4 17,261.2 9,957.9 31.5 77.6 -4.5 44,141.2

26,300.4 54.2 0.0 498.7 26,799.1 58,707.3 12.1 45.8 23.5 106,669.3

12,588.7 51.4 0.0 166.0 12,754.7 22,586.7 2.9 20.8 7.7 92,874.6

15,249.8 -2.3 0.0 7.5 15,257.3 80,584.7 -7.6 79.5 19.3 171,349.5

15,387.7 419.2 7,799.3 21,989.9 45,176.8 9,367.2 -34.9 70.8 N.A. 51,905.9

9,067.8 21.2 1,004.0 88.6 10,160.4 2,282.1 69.2 -20.1 1.4 16,600.9

5,694.4 -39.8 0.0 403.4 6,097.8 7,569.1 5.6 24.8 15.2 18,201.2

7,767.0 14.9 0.0 667.0 8,434.0 7,443.9 -13.9 -20.6 17.0 26,788.7

11,481.8 N.A. 2,050.0 159.8 13,691.6 3,265.9 12.2 10.8 6.6 N.A.

10,107.0 3.7 4,423.6 90.0 14,620.6 21,410.1 -6.0 24.1 17.3 49,760.7

27,745.1 N.A. 0.0 97.2 27,842.3 0.0 16.8 -6.1 8.6 N.A.

11,085.0 3.6 4,316.8 57.9 15,459.6 1,705.4 -1.7 13.1 8.4 N.A.

1,962.5 -5.4 1,024.1 46.4 3,033.0 2,016.7 -5.4 5.7 2.6 9,012.3

18,076.9 1.6 7,147.4 409.9 25,634.1 5,620.1 45.6 20.4 15.9 N.A.

8,851.7 N.A. 0.0 376.4 9,228.2 0.0 -3.5 12.1 4.3 N.A.

9,093.9 7.3 3,107.2 201.9 12,403.0 34,879.9 85.4 58.2 14.6 50,973.4

13,365.2 149.2 0.0 189.9 13,555.1 11,995.3 -11.4 43.2 10.5 20,978.9

12,950.0 2.9 0.0 287.4 13,237.5 29,133.7 7.5 8.5 22.8 131,074.5

6,387.9 N.A. 0.0 85.5 6,473.4 3,994.1 0.3 -6.4 2.6 N.A.

11,961.6 3.7 2,384.8 221.1 13,396.3 9,957.9 2.9 20.3 12.0 46,951.0

95

Footnotes:









The Hay Group 300: 2012 data | Industrials

Company Executive

2012 salary

($000s)

2012 annual

incentives ($000s)

% Change from 2011:

salary + annual

incentives1


Stock option grants

Restricted stock

grants


Equity Cash

Industrials

3M Inge G. Thulin 7 $1,228.4 $1,994.9 N.A. $3,059.8 $0.0 $4,000.1 $0.0

Aecom Technology John M. Dionisio 1,075.0 1,540.0 -34.6% 0.0 2,200.0 3,300.0 0.0

AGCO Martin H. Richenhagen 1,205.6 2,219.9 4.7 1,531.4 0.0 4,870.5 0.0

Arrow Electronics Michael J. Long 1,000.0 1,200.0 4.8 950.0 950.0 1,900.0 0.0

Automatic Data Processing Carlos A. Rodriguez 7 729.7 1,452.4 N.A. 1,673.9 0.0 926.2 0.0

Avnet Richard P. Hamada 850.0 470.3 N.A. 578.5 598.1 1,196.3 0.0

Ball John A. Hayes 973.6 2,077.5 N.A. 1,991.8 2,103.7 0.0 984.9

BoeingW. James McNerney, Jr. 1,930.0 4,439.0 0.0 3,763.5 3,763.5 0.0 5,018.0

CaterpillarDouglas R. Oberhelman 1,562.5 2,132.2 -21.0 10,780.0 0.0 0.0 2,698.8

Crown Holdings John W. Conway 1,075.0 2,769.2 -10.4 0.0 2,290.0 4,580.0 0.0

CSX Michael J. Ward 1,100.0 792.0 -15.9 0.0 1,522.1 4,566.4 0.0

Cummins N. Thomas Linebarger 1,162.5 726.6 N.A. 2,052.1 0.0 2,432.9 2,089.0

Danaher H. Lawrence Culp Jr. 1,117.8 4,525.0 -3.8 7,888.6 0.0 7,653.3 0.0

Deere Samuel R. Allen 1,352.4 3,225.7 4.2 3,059.0 2,185.0 3,837.6 1,646.6

Donnelley (R. R.) & Sons Thomas J. Quinlan 1,000.0 0.0 -44.9 1,053.8 969.2 1,538.2 0.0

Dover Robert A. Livingston 900.0 1,020.0 -20.8 4,076.8 0.0 1,321.1 1,200.0

Emerson Electric David N. Farr 1,250.0 1,900.0 -13.1 0.0 3,314.0 0.0 0.0

FedEx Frederick W. Smith 1,263.1 1,325.2 61.0 5,371.7 0.0 0.0 4,000.0

Fluor David T. Seaton 1,105.8 936.0 N.A. 2,364.3 2,364.4 2,371.4 0.0

General Dynamics Jay L. Johnson 1,587.5 3,600.0 3.8 6,169.5 3,084.0 3,084.0 0.0

General Electric Jeffrey R. Immelt 3,300.0 4,500.0 6.8 0.0 0.0 0.0 0.0

Grainger (W.W.) James T. Ryan 1,056.3 1,088.4 -32.1 3,435.6 0.0 1,990.8 0.0

Honeywell International David M. Cote 1,800.0 4,800.0 8.2 9,289.0 0.0 0.0 9,500.0

Illinois Tool Works E. Scott Santi 7 522.8 852.4 N.A. 1,250.0 0.0 691.9 500.0

Jabil Circuit Timothy L. Main 1,100.0 1,273.8 -21.3 0.0 2,262.7 4,593.9 0.0

Industrials

96

Footnotes:










Total direct comp.

($000s) 2

% Change

from 2011: TDC 1

Change in NQ

deferred comp.

+ pension value

($000s)


Total comp. ($000s)

Total realized

LTI ($000s)


net income 3,5

2012 company

TSR 4,5

2010–2012

company TSR 4,5

3-year realized

total direct comp.

($000s) 6

Industrials

$10,283.1 N.A. $3,977.7 $523.7 $14,784.5 $5,290.7 3.8% 16.7% 6.7% N.A.

8,115.0 -16.8% 316.3 126.4 8,557.7 3,856.6 -121.2 19.8 -8.0 $24,513.8

9,827.4 14.2 2,445.5 74.9 12,347.8 11,525.0 -10.5 14.3 14.9 26,487.9

6,000.0 15.4 2,783.7 47.9 8,831.5 1,976.3 -15.4 1.8 8.7 14,011.8

4,782.2 N.A. 636.7 50.5 5,469.4 1,373.5 10.7 8.8 19.8 N.A.

3,693.2 N.A. 899.5 36.6 4,629.3 1,425.1 -15.3 -3.2 13.6 N.A.

8,131.5 N.A. 160.6 692.4 8,984.4 5,163.3 -9.1 26.5 21.1 N.A.

18,914.0 6.4 6,366.8 840.8 26,121.6 13,711.7 -2.9 5.3 14.5 42,651.5

17,173.4 11.2 4,636.7 345.6 22,155.7 22,030.8 15.3 1.6 19.1 N.A.

10,714.2 -4.0 118.3 1,312.9 12,145.4 24,561.5 97.5 9.6 12.9 61,523.2

7,980.6 -5.7 0.0 109.5 8,090.1 3,328.4 2.0 -3.9 9.2 53,208.4

8,463.0 N.A. 4,435.9 77.8 12,976.7 3,714.1 -11.0 25.3 35.1 N.A.

21,184.6 1.2 1.9 712.2 21,898.7 84,535.5 10.1 19.1 14.3 125,920.7

15,306.3 2.4 1,884.0 439.0 17,629.3 4,588.6 9.5 15.1 25.9 24,548.5

4,561.2 -22.1 102.6 37.1 4,700.8 3,917.4 N.M. - -31.6 -20.6 20,516.3

8,518.0 1.1 3,010.5 9.3 11,537.7 7,271.4 -9.4 15.7 19.0 15,394.7

6,464.0 -38.9 3,398.0 498.1 10,360.1 9,132.7 -20.6 20.6 9.5 60,261.0

11,960.0 15.7 0.0 471.0 12,431.0 18,490.3 39.9 -4.2 17.9 64,403.3

9,142.0 N.A. 20.7 183.6 9,346.2 3,894.2 -23.1 18.3 10.4 N.A.

17,524.9 12.5 0.0 485.8 18,010.8 28,876.1 -113.1 8.2 3.5 43,836.7

7,800.0 -28.3 5,351.6 574.5 13,726.1 12,080.3 -3.6 21.2 15.1 36,413.4

7,571.1 -7.9 0.0 919.4 8,490.5 3,755.0 4.8 9.8 30.0 22,576.0

25,389.0 59.2 16,968.2 390.0 42,747.2 60,875.8 41.6 19.8 20.6 134,743.3

3,817.0 N.A. 459.3 46.0 4,322.3 3,333.0 38.6 33.6 11.2 N.A.

9,230.4 -10.3 0.0 2.1 9,232.5 13,999.3 3.6 37.2 29.9 29,869.8

97

Footnotes:










Company Executive

2012 salary

($000s)

2012 annual

incentives ($000s)

% Change from 2011:

salary + annual

incentives1


Stock option grants

Restricted stock

grants


Equity Cash

Industrials (cont’d)

Jacobs Engineering Craig L. Martin $1,260.2 $1,443.1 44.6% $1,536.6 $0.0 $3,882.5 $0.0

KBR William P. Utt 1,050.0 250.0 -31.6 1,000.0 600.0 0.0 3,429.0

L-3 Communications Michael T. Strianese 1,300.0 2,500.0 0.0 2,775.0 2,775.0 1,850.0 1,850.0

Lockheed Martin Robert J. Stevens 1,800.0 4,914.0 2.9 2,880.1 2,879.9 0.0 5,650.0

ManpowerGroup Jeffrey A. Joerres 1,200.0 804.2 -51.1 1,713.1 1,400.0 3,500.0 0.0

Masco Timothy Wadhams 1,000.0 4,080.1 408.0 1,811.5 0.0 0.0 1,500.0

Navistar International Lewis B Campbell 7 94.2 250.0 N.A. 5,335.0 0.0 0.0 0.0

Norfolk SouthernCharles W. Moorman IV 1,000.0 1,343.3 3.2 1,811.8 901.7 4,466.6 0.0

Northrop Grumman Wesley G. Bush 1,500.1 4,117.5 2.2 0.0 2,400.0 5,600.0 0.0

Oshkosh Charles L. Szews 1,000.0 1,344.4 N.A. 0.0 0.0 0.0 0.0

Paccar Mark C. Pigott 1,420.0 1,652.6 -32.3 1,698.5 2,319.1 0.0 2,130.0

Parker-Hannifin Donald E. Washkewicz 1,212.8 2,921.2 4.9 2,272.1 0.0 3,295.6 0.0

Raytheon William H. Swanson 1,414.4 3,400.0 10.2 0.0 4,700.0 6,646.8 0.0

Republic Services Donald W. Slager 1,000.0 572.5 -38.6 1,000.0 2,000.0 0.0 900.0

Robinson (C.H.) John P. Wiehoff 410.0 1,589.3 2.9 1,500.1 0.0 1,500.0 0.0

Sherwin-WilliamsChristopher M. Connor 1,222.0 2,300.0 29.0 3,302.0 1,848.9 1,848.9 0.0

Textron Scott C. Donnelly 1,000.0 1,187.0 -9.0 3,057.0 2,905.9 4,208.2 0.0

Union Pacific John J. Koraleski 7 580.4 3,000.0 N.A. 950.1 475.1 950.3 0.0

United Technologies Louis Chenevert 1,700.0 3,500.0 -15.9 7,029.0 0.0 7,804.3 0.0

UPS D. Scott Davis 1,049.7 1,190.1 -17.8 463.7 0.0 7,580.6 0.0

URS Martin M. Koffel 1,100.0 2,466.8 51.9 0.0 3,512.0 2,172.5 0.0

Waste Management David P. Steiner 1,127.5 0.0 -49.1 1,039.7 0.0 5,266.5 0.0

World Fuel Services Michael J. Kasbar 575.0 0.0 N.A. 0.0 0.0 4,592.0 0.0

Industrials medians 1,117.8 1,589.3 0.0 2,162.1 2,262.7 3,668.8 2,109.5

98

Footnotes:










Total direct comp.

($000s) 2

% Change

from 2011: TDC 1

Change in NQ

deferred comp.

+ pension value

($000s)


Total comp. ($000s)

Total realized

LTI ($000s)


net income 3,5

2012 company

TSR 4,5

2010–2012

company TSR 4,5

3-year realized

total direct comp.

($000s) 6

Industrials (cont’d)

$8,122.4 38.9% $3.4 $7.5 $8,133.3 $9,402.8 14.5% 25.2% -4.2% $16,261.2

6,329.0 -9.3 349.8 81.3 6,760.2 6,591.2 -70.0 8.1 17.2 21,198.0

13,050.0 -3.9 3,603.4 99.6 16,753.1 5,476.2 -15.3 23.0 -0.4 28,051.5

18,124.0 -0.3 3,704.0 1,637.5 23,465.4 23,429.6 3.4 19.5 11.5 60,101.2

8,617.4 -20.1 21.4 153.6 8,792.3 4,087.6 -21.5 21.5 -6.3 23,263.2

8,391.6 62.6 1,749.6 142.3 10,283.5 1,153.5 N.M. + 62.7 9.1 10,968.4

5,679.2 N.A. 0.0 88.4 5,767.6 0.0 -274.7 -55.4 -17.3 N.A.

9,523.4 0.7 2,924.4 217.3 12,665.1 8,037.6 -8.7 -12.6 8.4 28,287.1

13,617.6 -26.3 8,939.5 1,854.7 24,411.9 20,835.1 -6.6 19.6 13.7 44,244.1

2,344.4 N.A. 1,388.6 3.9 3,736.9 0.0 -15.6 74.3 -3.9 N.A.

9,220.3 -16.7 2,176.4 12.5 11,409.2 10,121.7 6.6 25.1 10.6 48,666.0

9,701.7 -13.6 4,395.2 190.8 14,287.6 16,432.2 9.8 -12.7 23.6 60,370.2

16,161.2 10.2 2,416.7 446.2 19,024.0 11,102.9 1.2 23.3 7.4 48,612.0

5,472.5 22.6 0.0 283.8 5,756.3 2,861.8 -3.0 9.9 4.2 N.A.

4,999.5 26.8 0.0 21.8 5,021.3 3,142.1 37.6 -7.4 4.4 22,688.1

10,521.9 36.3 0.0 460.1 10,982.0 56,417.3 42.8 74.4 37.9 80,048.3

12,358.1 37.2 701.1 104.2 13,163.4 5,785.4 143.4 34.5 10.0 25,627.9

5,955.9 N.A. 2,245.3 138.9 8,340.1 10,952.5 19.8 21.2 27.8 N.A.

20,033.3 -5.4 5,772.2 571.2 26,376.7 13,758.9 3.0 15.1 8.3 57,301.3

10,284.1 -18.6 1,453.0 40.3 11,777.4 11,813.9 -78.8 3.8 12.0 25,817.0

9,251.3 100.6 41.0 699.9 9,992.1 4,272.0 N.M. + 14.2 -3.4 23,248.4

7,433.7 3.7 0.0 228.5 7,662.1 2,536.1 -15.0 7.6 3.9 14,920.2

5,167.0 N.A. 0.0 38.9 5,205.9 591.0 -2.4 -1.5 15.9 N.A.

9,220.3 1.1 2,176.4 190.8 11,409.2 7,654.5 -2.4 15.4 11.4 28,287.1

99

Footnotes:









The Hay Group 300: 2012 data | Oil and gas

Company Executive

2012 salary

($000s)

2012 annual

incentives ($000s)

% Change from 2011:

salary + annual

incentives1


Stock option grants

Restricted stock

grants


Equity Cash

Oil and gas

Anadarko Petroleum R. A. Walker 7 $1,105.8 $2,248.9 N.A. $5,694.7 $4,987.6 $3,590.5 $0.0

Apache G. Steven Farris 1,750.0 4,000.0 -11.5% 3,028.1 3 ,578.1 3,197.3 0.0

Baker Hughes Martin S. Craighead 995.0 716.0 N.A. 3,587.2 1,950.0 0.0 1,950.0

Cameron International Jack B. Moore 1,110.1 1,763.4 64.9 2,560.0 1,280.0 2,559.0 0.0

Chesapeake Energy Aubrey K. McClendon 975.0 1,951.0 0.0 0.0 13,627.6 0.0 0.0

Chevron John S. Watson 1,670.8 3,480.0 -7.5 9,807.0 0.0 7,095.7 0.0

ConocoPhillips Ryan M. Lance 7 1,258.7 2,476.2 N.A. 1,281.9 2,471.4 8,869.5 0.0

Devon Energy John Richels 1,400.0 1,225.6 -29.0 0.0 4,500.5 5,430.1 0.0

EOG Resources Mark G. Papa 940.0 1,833.0 -27.5 0.0 7,533.3 4,492.5 0.0

ExxonMobil Rex W. Tillerson 2,567.0 4,587.0 5.9 0.0 19,627.9 0.0 0.0

Halliburton David J. Lesar 1,530.0 0.0 -68.5 2,602.9 5,055.2 0.0 3,988.4

Hess John B. Hess 1,500.0 0.0 -68.4 0.0 3,953.5 4,561.2 0.0

HollyFrontier Michael C. Jennings 920.0 2,318.0 N.A. 0.0 2,250.0 3,145.5 0.0

Kinder Morgan Richard D. Kinder 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Marathon Oil Clarence P. Cazalot, Jr. 1,400.0 3,000.0 0.0 5,509.4 0.0 5,500.0 0.0

Marathon Petroleum Gary R. Heminger 1,250.0 3,250.0 N.A. 3,000.0 1,500.0 0.0 3,067.5

Murphy Oil Steven A. Cossé 7 610.9 915.8 N.A. 2,195.7 0.0 0.0 0.0

National Oilwell Varco Merrill A. Miller Jr. 975.0 1,420.4 -25.8 3,886.3 0.0 3,806.1 0.0

Occidental Petroleum Stephen I. Chazen 1,400.0 1,691.0 N.A. 0.0 4,000.0 6,000.0 0.0

Tesoro Gregory J. Goff 1,179.8 2,654.0 22.1 0.0 0.0 7,346.3 0.0

Valero Energy William R. Klesse 1,500.0 3,735.0 0.0 1,013.2 5,243.4 789.6 0.0

Western Refining Jeff A. Stevens 873.3 1,800.0 121.8 0.0 713.3 0.0 576.8

Oil and gas medians 1,250.0 1,833.0 0.0 3,028.1 3,976.7 4,526.8 2,508.8

Oil and gas

100

Footnotes:









The Hay Group 300: 2012 data | Oil and gas

Total direct comp.

($000s) 2

% Change

from 2011: TDC 1

Change in NQ

deferred comp.

+ pension value

($000s)


Total comp. ($000s)

Total realized

LTI ($000s)


net income 3,5

2012 company

TSR 4,5

2010–2012

company TSR 4,5

3-year realized

total direct comp.

($000s) 6

Oil and gas

$17,627.5 N.A. $1,545.4 $492.0 $19,664.9 $8,550.0 N.M.+ -2.2% 6.6% N.A.

15,553.5 4.8% 0.0 1,537.8 17,091.3 5,536.4 -56.3% -12.7 -8.1 $41,221.9

9,198.3 N.A. 13.8 306.5 9,518.6 1,606.2 -24.6 -14.9 1.5 N.A.

9,272.5 29.8 164.9 213.2 9,650.7 3,284.8 43.8 14.8 10.5 19,333.2

16,553.6 -16.1 0.0 1,314.5 17,868.1 18,912.6 -144.1 -24.1 -12.6 55,366.1

22,053.5 23.5 9,948.2 225.4 32,227.1 21,141.0 -2.7 5.0 15.8 44,472.7

16,357.7 N.A. 2,567.1 362.5 19,287.2 715.6 -32.2 9.8 19.1 N.A.

12,556.1 -8.3 5,914.1 280.6 18,750.9 6,930.3 -104.4 -14.9 -9.9 N.A.

14,798.7 3.3 0.0 482.8 15,281.5 44,802.5 -47.7 23.4 8.1 57,862.9

26,781.9 8.7 13,037.2 447.4 40,266.5 8,069.2 9.3 4.8 11.0 52,110.9

13,176.4 -4.7 256.9 1,606.8 15,040.2 20,034.1 -7.2 1.7 6.0 61,651.9

10,014.7 -24.4 3,106.6 20.0 13,141.3 4,862.2 18.9 -6.0 -3.7 49,741.6

8,633.5 N.A. 0.0 474.4 9,107.9 4,837.1 68.8 116.1 61.6 N.A.

0.0 0.0 0.0 0.0 0.0 1,116,685.1 -47.0 14.1 N.A. 1,177,625.1

15,409.4 -36.5 2,587.7 316.8 18,313.8 14,026.9 -46.3 7.2 20.8 65,765.0

12,067.6 N.A. 8,002.4 328.2 20,398.2 2,543.0 41.9 94.1 N.A. N.A.

3,722.4 N.A. 748.1 49.3 4,519.8 3,265.3 11.2 14.0 6.7 N.A.

10,087.8 10.5 0.0 49.0 10,136.8 13,292.8 24.9 1.2 16.6 38,244.2

13,091.0 N.A. 0.0 838.0 13,929.0 25,477.0 -32.1 -16.2 0.1 N.A.

11,180.1 48.7 2,284.4 34.3 13,498.8 5,156.1 36.1 89.8 48.5 N.A.

12,281.2 -24.9 4,553.8 248.1 17,083.0 4,980.9 -0.3 66.1 28.8 25,105.8

3,963.4 67.4 0.0 10.6 3,974.1 1,136.3 200.7 133.7 87.5 6,219.7

12,281.2 3.3 3,106.6 311.6 15,040.2 6,930.3 -2.7 6.1 9.3 50,926.3

101

Footnotes:









The Hay Group 300: 2012 data | Technology

Company Executive

2012 salary

($000s)

2012 annual

incentives ($000s)

% Change from 2011:

salary + annual

incentives1


Stock option grants

Restricted stock

grants


Equity Cash

Technology

Apple Timothy D. Cook $1,357.7 $2,800.0 N.A. $0.0 $0.0 $0.0 $0.0

Applied Materials Michael R. Splinter 980.0 1,500.0 -38.0% 0.0 0.0 6,727.5 0.0

Broadcom Scott A. McGregor 932.6 2,312.4 20.1 0.0 5,940.3 4,703.0 0.0

Cisco Systems John T. Chambers 375.0 3,953.4 N.M. 0.0 0.0 7,348.3 0.0

Computer Sciences J. Michael Lawrie 7 48.1 0.0 N.A. 0.0 0.0 0.0 0.0

Corning Wendell P. Weeks 1,197.3 2,170.9 142.3 1,668.6 1,750.0 0.0 3,500.0

Dell Michael S. Dell 986.6 3,314.8 -0.8 2,387.7 0.0 9,435.3 0.0

EMC Joseph M. Tucci 1,000.0 1,467.4 -21.4 1,310.7 3,008.7 9,689.0 0.0

Google Larry Page 0.0 0.0 N.A. 0.0 0.0 0.0 0.0

Hewlett-Packard Margaret C. Whitman 0.0 1,686.9 N.A. 6,414.2 4,200.0 2,840.1 0.0

IBM Virginia M. Rometty 1,500.0 3,915.0 N.A. 0.0 0.0 9,259.0 0.0

Ingram Micro Alain Monié 7 840.5 1,613.7 N.A. 0.0 1,188.7 2,967.3 0.0

Intel Paul S. Otellini 1,200.0 5,234.5 -14.9 1,963.2 2,847.5 7,092.9 0.0

Micron Technology D. Mark Durcan 7 791.1 576.4 N.A. 2,248.8 1,124.9 1,408.7 0.0

Microsoft Steven A. Ballmer 685.0 620.0 -4.4 0.0 0.0 0.0 0.0

Motorola Solutions Gregory Q. Brown 1,200.0 3,370.0 -13.8 2,668.0 1,263.7 0.0 3,000.0

Oracle Lawrence J. Ellison 0.0 3,918.7 -70.6 90,693.4 0.0 0.0 0.0

Qualcomm Paul E. Jacobs 1,189.2 3,402.8 -31.0 0.0 6,900.0 8,100.0 0.0

SAIC John P. Jumper 7 1,119.8 1,248.0 N.A. 1,125.0 1,125.0 750.0 0.0

Synnex Kevin Murai 600.0 1,784.4 -11.8 759.8 380.0 726.9 0.0

Texas Instruments Richard K. Templeton 1,035.8 2,748.6 0.4 3,950.3 5,123.7 0.0 0.0

Xerox Ursula M. Burns 1,100.0 1,072.5 3.9 0.0 0.0 7,750.0 0.0

Technology medians 8 993.3 2,530.5 -11.8 2,387.7 3,008.7 7,348.3 N.M.

Technology

102

Footnotes:









The Hay Group 300: 2012 data | Technology

Total direct comp.

($000s) 2

% Change

from 2011: TDC 1

Change in NQ

deferred comp.

+ pension value

($000s)


Total comp. ($000s)

Total realized

LTI ($000s)


net income 3,5

2012 company

TSR 4,5

2010–2012

company TSR 4,5

3-year realized

total direct comp.

($000s) 6

Technology

$4,157.7 N.A. $0.0 $17.3 $4,175.0 $139,653.9 61.0% 75.6% 53.5% N.A.

9,207.5 -3.5% 0.0 12.6 9,220.1 3,842.4 -94.3 -11.3 -2.2 $21,130.6

13,888.3 -5.8 0.0 5.0 13,893.3 9,165.6 -22.4 14.4 2.9 39,025.6

11,676.6 -9.3 0.0 11.0 11,687.7 15,800.7 23.9 1.4 -9.5 61,368.5

48.1 N.A. 0.0 1.4 49.5 0.0 -673.2 -36.8 -5.4 N.A.

10,286.8 23.2 1,193.7 572.3 12,052.8 10,606.8 -38.4 -0.3 -11.7 36,760.4

16,124.4 272.0 0.0 14.1 16,138.5 0.0 32.5 30.9 22.0 9,586.4

16,475.7 25.7 0.0 116.5 16,592.2 14,963.6 11.0 17.5 13.1 81,076.9

0.0 N.A. 0.0 0.0 0.0 0.0 10.3 9.5 4.5 N.A.

15,141.2 N.A. 0.0 220.9 15,362.1 85.8 -278.8 -46.7 -32.7 N.A.

14,674.0 N.A. 823.0 687.7 16,184.7 15,805.0 4.7 6.0 15.6 N.A.

6,610.2 N.A. 0.0 34.2 6,644.3 0.0 25.2 -7.0 -1.0 N.A.

18,338.1 9.8 130.0 523.2 18,991.3 32,575.1 -15.0 -11.8 3.9 56,797.3

6,149.9 N.A. 0.0 14.0 6,164.0 624.1 -718.0 5.1 -5.5 N.A.

1,305.0 -4.4 0.0 13.1 1,318.1 0.0 -26.7 20.9 11.4 4,010.0

11,501.7 -64.1 21.4 1,802.1 13,325.2 10,294.1 -23.9 22.6 21.6 38,151.0

94,612.1 24.5 0.0 1,548.6 96,160.7 31,747.0 16.8 -22.0 11.4 55,710.9

19,592.0 -6.6 0.0 1,138.9 20,730.9 25,803.5 43.4 30.5 13.4 74,449.7

5,367.8 N.A. 0.0 0.0 5,367.8 78.0 789.8 -2.0 -11.7 N.A.

4,251.1 8.9 0.0 0.0 4,251.1 712.2 0.7 12.5 5.3 8,853.8

12,858.5 -5.8 185.5 272.7 13,316.6 20,634.5 -21.3 8.7 8.0 47,142.1

9,922.5 3.5 3,093.8 54.0 13,070.2 11,451.0 -7.7 -12.4 -5.1 21,556.8

12,267.5 0.0 504.2 168.7 13,320.9 14,963.6 -3.5 5.5 4.2 38,588.3

103

Footnotes:









The Hay Group 300: 2012 data | Telecom, utilities

Company Executive

2012 salary

($000s)

2012 annual

incentives ($000s)

% Change from 2011:

salary + annual

incentives1


Stock option grants

Restricted stock

grants


Equity Cash

Telecommunications

AT&T Randall L. Stephenson $1,550.0 $6,060.0 42.6% $0.0 $6,293.3 $6,293.3 $0.0

CenturyLink Glen F. Post, III 1,047.6 1,767.8 25.4 0.0 2,278.4 2,878.6 0.0

Verizon Lowell C. McAdam 1,400.0 3,150.0 N.A. 0.0 3,500.0 5,250.0 0.0

Telecommunications medians 8 1,400.0 3,150.0 N.M. N.M. 3,500.0 5,250.0 N.M.

Utilities

AES Andres Gluski $1,000.0 $1,455.0 N.A. $800.9 $850.0 $2,595.0 $0.0

American Electric Power Nicholas K. Akins 903.5 1,500.0 N.A. 0.0 1,840.0 2,760.0 0.0

Con Edison Kevin Burke 1,214.0 1,892.6 4.2% 0.0 0.0 4,179.1 0.0

Dominion Resources Thomas F. Farrell II 1,300.5 977.0 -3.8 0.0 3,500.0 0.0 3,500.0

DTE Energy Gerard M. Anderson 1,200.0 1,982.0 17.0 0.0 1,809.1 2,660.5 0.0

Duke Energy James E. Rogers 0.0 3,036.2 36.2 1,600.0 2,000.0 2,373.0 0.0

Edison International Theodore F. Craver, Jr. 1,192.1 2,049.3 21.9 2,670.0 1,335.0 1,335.1 0.0

Entergy J. Wayne Leonard 1,343.1 1,539.3 -13.9 838.4 827.1 1,805.3 0.0

ExelonChristopher M. Crane 7 1,078.8 1,442.1 N.A. 1,191.3 0.0 4,234.7 0.0

FirstEnergy Anthony J. Alexander 1,340.0 1,005.8 -44.3 0.0 11,984.9 5,482.1 0.0

NextEra Energy James L. Robo 7 954.1 1,640.2 N.A. 720.7 2,300.0 5,753.8 0.0

NRG Energy David Crane 1,210.0 1,476.2 29.9 0.0 1,597.5 3,242.6 0.0

Oneok John W. Gibson 950.0 1,050.0 -16.7 0.0 592.8 2,746.9 0.0

PG&E Anthony F. Earley, Jr. 1,250.0 1,715.0 N.A. 0.0 2,613.7 3,912.0 0.0

PPL William H. Spence 1,049.0 1,956.9 N.A. 972.5 1,529.9 1,799.3 0.0

PSEG Ralph Izzo 1,004.7 1,653.8 7.1 0.0 2,289.6 3,434.4 0.0

Sempra Energy Debra L. Reed 1,030.0 1,419.9 N.A. 0.0 0.0 4,120.9 0.0

Southern Co. Thomas A. Fanning 1,114.8 1,837.1 3.1 2,025.0 0.0 3,037.5 0.0

Williams Companies Alan S. Armstrong 984.6 1,154.0 -15.7 902.2 1,000.0 1,945.6 0.0

Xcel EnergyBenjamin G.S. Fowke III 1,100.0 2,000.0 N.A. 0.0 0.0 3,641.2 0.0

Utilities medians 8 1,107.4 1,596.6 3.7 972.5 1,703.3 2,760.0 N.M.

Telecommunications / Utilities

104

Footnotes:









The Hay Group 300: 2012 data | Telecom, utilities

Total direct comp.

($000s) 2

% Change

from 2011: TDC 1

Change in NQ

deferred comp.

+ pension value

($000s)


Total comp. ($000s)

Total realized

LTI ($000s)


net income 3,5

2012 company

TSR 4,5

2010–2012

company TSR 4,5

3-year realized

total direct comp.

($000s) 6

Telecommunications

$20,196.6 0.1% $1,234.8 $803.3 $22,234.7 $18,828.1 84.2% 17.5% 12.7% $72,738.6

7,972.5 14.7 649.2 103.4 8,725.0 7,716.3 35.6 13.1 10.6 29,918.6

13,300.1 N.A. 213.5 535.6 14,049.1 22,850.4 -63.6 13.2 17.8 N.A.

13,300.1 N.M. 649.2 535.6 14,049.1 18,828.1 35.6 13.2 12.7 N.M.

Utilities

$6,700.8 N.A. $0.0 $153.5 $6,854.4 $1,643.0 N.M. - -9.3% -6.9% N.A.

7,003.5 N.A. 176.3 106.7 7,286.5 1,503.3 -35.3% 8.2 12.3 N.A.

7,285.7 -0.5% 7,414.2 139.0 14,838.9 7,487.1 7.4 -6.7 11.9 $35,611.9

9,277.5 -1.0 3,988.6 186.7 13,452.7 6,546.6 -78.6 1.6 14.7 30,491.3

7,651.6 27.5 1,904.7 127.5 9,683.8 5,344.7 -14.2 14.9 16.4 N.A.

9,009.2 9.0 388.3 369.2 9,766.7 9,863.1 3.6 1.3 13.0 42,036.9

8,581.5 12.0 2,782.3 126.8 11,490.6 5,957.8 -518.2 12.4 12.8 15,620.6

6,353.2 -13.2 5,892.8 95.9 12,341.9 9,018.2 -36.5 -8.2 -3.6 44,961.3

7,946.8 N.A. 2,063.9 190.6 10,201.3 799.6 -53.5 -27.3 -10.6 N.A.

19,812.8 39.2 3,448.8 49.3 23,310.8 13,939.3 -13.0 -1.0 1.8 28,958.5

11,368.8 N.A. 292.5 156.5 11,817.7 10,952.0 -0.6 17.9 13.7 N.A.

7,526.3 8.9 49.6 43.6 7,619.5 572.6 183.8 28.0 -0.6 9,536.4

5,339.7 -18.8 3,579.0 147.4 9,066.1 28,848.2 0.0 1.5 28.4 42,960.3

9,490.7 N.A. 300.0 158.9 9,949.6 1,060.6 -3.3 1.7 0.7 N.A.

7,307.6 N.A. 3,324.1 76.2 10,707.9 1,179.8 2.1 2.3 1.1 N.A.

8,382.5 2.1 2,064.0 67.0 10,513.5 4,492.5 -15.2 -3.0 1.6 17,558.3

6,570.8 N.A. 5,507.6 125.5 12,203.9 1,994.7 -35.4 33.8 12.0 N.A.

8,014.4 21.3 4,712.4 67.5 12,794.3 4,674.7 6.5 -3.4 13.9 N.A.

5,986.4 8.3 981.2 22.6 6,990.1 6,316.9 128.5 24.9 27.1 N.A.

6,741.2 N.A. 4,154.7 69.9 10,965.8 1,389.4 7.6 0.5 12.6 N.A.

7,417.0 8.6 3,324.1 116.1 10,610.7 5,009.7 -3.3 1.6 12.2 30,491.3

105

Hay Group has a 70-year track record of helping companies and their compensation committees create executive pay strategies that contribute to their long-term success. With a deep-rooted understanding of the fi eld, we help our clients resolve complex executive pay issues. Backed by our proprietary research and analysis – and our understanding of your business – we develop executive pay solutions that are suited to your needs.

About us

106About us

Contributors

Irv Becker, Metro New York

Irv is the national practice leader of our executive compensation practice. He works with boards and senior management in the design and development of reward programs to align executive efforts and results with the success of the company. His financial background provides him with a grounded perspective on performance measurement and performance management. For the last six years, Irv has been included on the Directorship 100, a list published by Directorship magazine recognizing the most influential people who are shaping agendas and corporate governance issues in boardrooms across America.

Irv can be reached at +1.215.861.2495 or [email protected].

Bill Gerek, Chicago

Bill assists organizations with all aspects of executive remuneration as well as a wide range of regulatory matters. Bill helps corporations and executives to gain a clear understanding of all aspects of executive pay.

Bill can be reached at +1.312.228.1814 or [email protected].

107

Steve Sabow, Metro New York

Steve is director of executive compensation research. Steve provides research, analysis, and advisory services for Hay Group’s compen-sation practice nationwide. He is also the project manager for the annual Wall Street Journal /Hay Group CEO compensation study.

Steve can be reached at +1.201.557.8401 or [email protected].

David Wise, Metro New York

David Wise is a vice president and director of practice development. David advises boards and executives on programs to motivate, develop and reward their top executive talent.

As a recognized thought leader, David operates at the forefront of the changes to the regulatory and market landscape for executive pay, helping boards navigate increasingly complex challenges and align their programs with their business strategies.

David can be reached at +1.201.557.8406 or [email protected].

About us

108

Gregory Kopp, Arlington

Greg is a senior principal practicing in executive compensation and equity incentives. He provides consulting services to senior management and boards of directors and works with companies to evaluate, design, and implement incentive and reward programs that address the organization’s business and human capital strategies and objectives, while balancing the financial statement impact and shareholder performance expectations.

Greg can be reached at +1.703.841.3118 or [email protected].

Cory Morrow, Dallas

Cory is a senior principal and specializes in the design and delivery of cash and equity-based compensation programs for executives, non-employee directors, and employees. Cory has worked extensively with executive compensation strategy and particularly with short and long-term incentive plan design and corporate governance issues for public and private entities.

Cory can be reached at +1.469.232.3826 or [email protected].

James Otto, Atlanta

Jim is a senior principal and works with boards and senior management to assist in developing and implementing compensation programs that are consistent with the organization’s strategy, desired competitive positioning, and other relevant factors.

Jim can be reached at +1.404.575.8740 or [email protected].

About us

109

Martin Somelofske, New York Metro

Martin Somelofske is a senior principal and northeast practice leader for executive compensation. He has 20 years of experience providing executive compensation advisory services to a broad range of public and privately held organizations in diverse industries. Martin advises Boards and executives on all matters related to executive compensation and benefits.

Martin can be reached at +1.201.557.8405 or [email protected].

Brian Tobin, Chicago

Brian is the Midwest region leader for Hay Group’s executive compensation practice. In this role, he oversees executive compensation projects for Hay Group in the Chicago and Kansas City offices.

Brian can be reached at +1.312.228.1847 or [email protected].

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