ADT 2006 Annual Report Download - page 52

free cash flow goals. The amount awarded to Mr. Coughlin was 25% above his target award, reflecting
his expanded leadership responsibilities related to the Proposed Separation and his exceptional
performance in his role as CFO. This amount remained below the maximum determined by the Board
at the start of fiscal 2006. The amount awarded to Dr. Gromer reflects a cash payment based 80% on
the performance of the Company’s Electronics segment and 20% on the performance of Tyco overall
during fiscal 2006. Mr. Lynch reflects a cash payment based 22% on the performance of the Company’s
Engineered Products and Services segment for the three month period of the fiscal year that he was
President of that segment, 58% on the performance of the Company’s Electronics segment for the nine
months that he served as CEO of that segment, and 20% on the performance of Tyco overall during
fiscal 2006.
Also, in December 2006, the Committee’s compensation consultant conducted a historical
pay-for-performance analysis that examined the Company’s alignment of pay for performance practices
relative to peer group companies. The analysis included a comparison with respect to the following:
• historical realizable pay (cash compensation and current value of in-the-money stock options and
restricted stock) value;
• historical realizable pay relative to pay opportunity (grant value of stock options and restricted
stock);
• historical financial performance; and
• compensation sharing ratios (compensation realizable as a percentage of specific financial
measures).
Overall, the analysis demonstrated that pay for the CEO and other named executive officers is
correlated with financial performance.
In addition, the Committee has reviewed tally sheets for each Senior Officer, containing
information similar to that required under the amended executive compensation rules.
Chief Executive Officer Compensation
The Compensation and Human Resources Committee and the Nominating and Governance
Committee jointly reviewed the performance of our Chief Executive Officer. This evaluation includes
use of a CEO scorecard introduced in 2003. The scorecard reviewed elements of personal performance
such as leadership, business acumen, selection and development of people, and adherence to principles
of corporate governance. In addition, an independent consultant conducted a review of Mr. Breen’s
leadership behaviors and effectiveness, and provided detailed feedback to Mr. Breen. The results of the
CEO performance evaluation process are used by the Board in determining CEO compensation.
For fiscal 2006, Mr. Breen did not receive an increase to his annual salary, consistent with the
Company’s practice of extending intervals for senior executive salary adjustments. His resulting
annualized salary is $1,625,000. Consistent with the decision to award Annual Performance Bonuses at
target to Senior Officers at Tyco corporate headquarters, Mr. Breen earned a fiscal 2006 Annual
Incentive of $1,625,000. Design of the CEO, equity awards has been an evolving process. Mr. Breen’s
initial grant reflected both the high level of risk and buy-out of forfeited value from his prior employer.
The initial equity grant covered both 2002 and 2003. In 2004 and 2005, the Committee considered the
relatively high level of equity value held by the CEO to be a significant factor in deciding to award
premium priced options. For 2006, the form of Mr. Breen’s grant was conformed to other senior
officers with the inclusion of Performance Stock Units. Thus, in November 2005, the Committee
awarded Mr. Breen 140,000 shares of restricted stock, 120,000 Performance Stock Units and 500,000
stock options. The restricted stock granted to Mr. Breen vests on the third anniversary of the grant,
while the options granted to Mr. Breen vest in equal installments over a three-year period, with
exercise prices per share of $29.00, the fair market price at the date of grant. The Performance Stock
Units will vest on the third anniversary of the grant date, with one third of the granted units converting
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