ADT 2007 Annual Report Download - page 47

Role of the Compensation Committee
The Compensation Committee is responsible for the Company’s executive compensation strategies,
structure, policies and programs. The Committee is comprised exclusively of independent Directors,
who are also ‘‘outside directors’’ as defined in section 162(m) of the Internal Revenue Code. In
executing its responsibilities, the Compensation Committee relies on information and advice from its
independent consultant and on information that Tyco purchases from other data providers such as
Hewitt Associates. In addition, as appropriate, the Company’s Human Resources Department supports
the Compensation Committee in its work. The Compensation Committee submits its recommendations
to the full Board for review and approval.
In general, Company management develops pay strategies and recommendations for our Chief
Executive Officer, which are provided to the Compensation Committee. All matters involving Chief
Executive Officer compensation are reviewed and discussed by the Compensation Committee and its
independent consultant. The Compensation Committee either provides guidance to Company
management on its proposals or it prepares its own recommendation for the Board to review and
discuss. The full Board has the sole authority to approve compensatory actions for our Chief Executive
Officer, except that performance measures are set by the Compensation Committee. With respect to
our other Senior Officers and employees, our Chief Executive Officer and our Senior Vice President of
Human Resources develop pay strategies and recommendations for the Compensation Committee’s
review and discussion, with the full Board having sole authority to approve payments, subject to the
Compensation Committee’s authority with respect to performance measures. The Board has granted
the Chief Executive Officer and his designees the authority to approve pay actions for employees below
the Senior Officer level. In addition, the Compensation Committee reviews and approves actions
related to other aspects of compensation that affect employees below the level of Senior Officer.
Examples of other aspects of compensation include the size of bonus pools, annual incentive plan
performance goals, equity award design, equity value ranges and share pools.
The Compensation Committee has the sole authority to retain, compensate and terminate its
independent compensation consultant. From 2003 through May 2007, the Compensation Committee
engaged the services of Watson Wyatt as their independent outside compensation consultant. In
May 2007, the Compensation Committee conducted a review of the compensation consultant services
and met with a number of consultants to determine whether it was appropriate for the Compensation
Committee to engage a new executive compensation consultant. After thorough review, and in light of
the Company’s needs after the Separation, the Compensation Committee engaged ExeQuity LLP as its
independent consultant for the next year. The Compensation Committee selected ExeQuity because it
felt ExeQuity would provide high quality work product and because of its independence from Tyco.
The Compensation Committee considers tally sheets throughout the year when evaluating Chief
Executive Officer and other Senior Officer pay actions. Tally sheets identify the value of each pay
element, including base salary, annual bonus, sign-on or other cash payments, long-term incentives, and
benefit and perquisite payments. Options on the tally sheets are valued using the Black-Scholes option
pricing model in accordance with FAS 123R at their full grant date value. RSUs and performance
shares are valued at grant date. Beginning in July 2007, the tally sheets that were previously provided
only to the Compensation Committee were provided to the full Board. Because tally sheets represent
an important part of the compensation review process, the Company will continue to provide them to
the Compensation Committee and the Board as part of the planning process.
The Compensation Committee and Company management devoted a substantial amount of time
and effort over the past two years to the Separation, and the Company has otherwise changed
significantly since August 2002. We expect that the needs and objectives of our Director and executive
compensation program will continue to evolve in the coming years as our business and the competitive
landscape evolve.
2008 Proxy Statement 27