Equity Compensation
Equity compensation is a critical component of the Company’s efforts to attract and retain executives and key employees, encourage employee ownership in the Company, link pay with performance and align the interests of executive officers with those of stockholders. As an integral part of the compensation earned by the NEOs for services in fiscal year 2008, the Company provided the NEOs with an economic interest in the long-term appreciation of the Company’s common stock through the grant of stock options. Stock options provide value only if the Company’s stock price increases (benefiting all stockholders), and only if the executive remains with the Company until options vest.
The Board recognizes the potentially dilutive impact of stock options. The Company’s option grant practices were designed to balance the impact of dilution and the Company’s need to remain competitive by recruiting, retaining and providing incentives for high-performing employees. The following steps were taken by the Board and the Committee to maintain this balance:
- The Committee has sought to manage to an annual gross burn rate for stock options awarded to all participating employees not exceeding 2% of the Company’s outstanding shares. The actual burn rate over the past three years has been approximately 1.8%.
- The Company’s aggregate stock granting practices have been conservative, particularly with respect to options awarded to the NEOs. Upon review of peer group data and competitiveness of the Company with respect to equity compensation, the Committee determined that past equity compensation provided to its executive officers was low. Increases in equity compensation for the NEOs were therefore made for fiscal year 2008.
- For fiscal year 2008, equity grants to individual executive officers were based on Company and individual performance in the preceding year, as well as on the expected future contribution and long-term retention goals for the executive officer. For the NEOs other than the CEO, a target stock option award amount was established for each executive officer. A 40% portion of the target award was granted to accomplish long-term retention goals and a percentage of the remaining 60% of the target award amount was granted based on relative attainment of the annual opportunity for bonus compensation for the prior fiscal year under the first level of the Performance Incentive program as described in the Performance Incentive Bonus section above. The Compensation Committee established the stock option grant for the CEO after considering overall Company and individual performance considerations and long-term retention goals for the CEO.
In October 2007, the Committee approved stock options granted to the NEOs as set forth in the Grants of Plan-Based Awards table on page 26 of this proxy statement.
Following a review by the Committee and the Board of the Company’s equity compensation practices, the Committee has recommended a change from the award of stock options to the award of restricted stock units (“RSUs”) providing for the issuance of shares of the Company’s common stock upon vesting. For fiscal year 2009, the Committee approved the award of RSUs to participating employees, including the NEOs. The Committee concluded that the issuance of RSUs provides a compensation benefit more directly rewarding past performance than stock options, while continuing to encourage employees and management to focus on future growth and earnings. Continued ownership of Company shares by the NEOs upon vesting of RSUs will be further encouraged by stock ownership guidelines adopted by the Committee in December 2007.
Benefits and Perquisites
As is the case with most Company employees, the Company’s NEO’s are provided with standard health and welfare benefits, as well as the opportunity to participate in a 401(k) profit sharing plan. The 401(k) plan serves to provide Company employees, including the NEOs, with tax-advantaged retirement savings as an additional component of overall compensation. The Company’s contributions to the Plan may be invested by employees in a Company Stock Fund invested in shares of the Company’s common stock.
The Company maintains individual Supplemental Death Benefit Plan agreements with each of the NEOs other than Mr. Noble who has an equivalent life insurance benefit under his local U.K. compensation package and other than Mr. Rembolt who participates in the group life insurance program available to all employees of the Company. The Company’s Supplemental Death Benefit Plan agreement obligations are funded by permanent life insurance policies owned by the Company.
Prior to April 2008 the Company also maintained individual Supplemental Retirement Benefit Plan agreements with the NEOs other than Mr. Rembolt. Under the Supplemental Retirement Benefit Plan agreements, the participating executive officers would have received retirement benefits only in the event of the participant’s retirement on or after reaching age 65. The annual retirement benefit for participating executives would have been equal to twenty-five percent (25%) of the executive’s base salary as of the date of retirement, payable in quarterly installments over a period of fifteen years. Since the Supplemental Retirement Benefit Plan agreements only provided a benefit to the executive officer if he were to continue in the employment of the Company until age 65, the Committee determined that an alternative form of long term compensation would provide a greater mutual benefit to the Company and the executive officer. On March 25, 2008, the Committee approved agreements between the Company and the executive officers to terminate those agreements in exchange for the issuance of RSUs.
The Committee awarded RSUs to the executive officers as set forth in the table below. Information relating to these RSUs is also set forth in the Grants of Plan-Based Awards Table appearing on page 26 of this proxy statement.
| Executive Officer | Title |
RSUs Awarded1 (#) |
||
|---|---|---|---|---|
| Garry O. Ridge | Chief Executive Officer | 5,884 | ||
| Michael J. Irwin | Executive Vice President, Strategic Development | 3,971 | ||
| Graham P. Milner | Executive Vice President, Global Development, Chief Branding Officer | 3,971 | ||
| Michael L. Freeman | Division President, the Americas | 3,971 | ||
| William B. Noble | Managing Director, Europe | 3,971 |
- The RSUs provide for vesting in 3 equal annual installments over a period of 3 years from the grant date. RSUs not vested will be forfeited if the executive officer’s employment is terminated for any reason prior to the vesting date. The RSUs will be settled by issuance of an equivalent number of shares of the Company’s common stock 6 months following termination of employment. Whether vested or not, the RSUs provide for the payment of dividend equivalent compensation in amounts equal to dividends declared and paid on the Company’s common stock.
The Company also provides cars to its executives and private health insurance for Mr. Noble in excess of coverage available to other Company employees in the U.K. The costs associated with the benefits and perquisites provided to the NEOs are included in the Summary Compensation Table included on page 25 of this proxy statement and they are separately identified in the narrative description of such benefits included with the Summary Compensation Table.
The Compensation Committee considers the cost of the foregoing benefits and perquisites in connection with its recommendations to the Board for approval of the CEO’s compensation package and in connection with approval of the total compensation for each of the other NEOs. All of such costs are considered appropriate in support of the Compensation Committee’s objective of attracting and retaining high quality executives because they are common forms of compensation for senior executives and are expected by such executives when they consider competing compensation packages.