ADT 2007 Annual Report Download - page 55

salary, with an adjustment of plus or minus 25% based on individual performance. Under the retention
plan, Mr. Evard and Mr. Davidson received bonuses, as reflected in the ‘‘Bonus’’ column of the
Summary Compensation Table. Mr. Evard received the bonus in recognition of the complexity of the
tax-planning involved in the Separation and the continued importance of tax planning following the
Separation; Mr. Davidson received the bonus because he was essential to the Separation and the
regulatory process necessary to successfully complete it. One-half of the retention payments were paid
shortly after the Separation was completed. The remaining one-half of the retention payments will be
paid in January 2008, provided Mr. Evard and Mr. Davidson continue to be employed by Tyco on the
payment date. In setting these bonuses, the Compensation Committee reviewed the experience of other
companies making similar payments and set them at a level it believed was appropriate given the key
roles that Messrs. Evard and Davidson played in the Separation.
Long-Term Incentive Awards
The Company grants long-term equity incentive awards (‘‘LTI compensation’’) to Senior Officers as
part of its overall executive compensation strategy. These awards offer competitive compensation to
encourage the retention and motivation of key executives. The Company grants LTI compensation to its
employees, including the named executive officers, under the 2004 SIP. In general, and in contrast with
pre-2002 practices where stock options and restricted stock were primarily utilized, the Company’s
long-term incentive practices include stock options, RSUs and performance shares. For a description of
the material terms of stock options, RSUs and performance shares granted under the 2004 SIP, see the
narrative following the Grants of Plan-Based Awards Table.
The Company’s practice is to grant LTI compensation to employees once per year on a Board
meeting date in the first quarter of the fiscal year. However, special circumstances such as new hires
and retention situations will typically warrant off-cycle grants. In general, the factors used to determine
the number of shares subject to LTI compensation grants in any year include (i) target grant ranges
based on market data and recommended by the Compensation Committee’s consultant, (ii) the mix of
options and full-value shares anticipated to be granted, (iii) the Company’s stock price, (iv) the
anticipated equity-related expense that the Company will record, (v) total annual share utilization and
dilution, and (vi) the Company’s desire to manage dilution levels conservatively. LTI compensation
awards for fiscal 2007 were granted in November 2006. To enhance executive ownership in our new
Company post Separation, the fiscal year 2008 award that would have been granted in November 2007
was accelerated to July 2007. Each year, the Compensation Committee approves a pool of shares for
equity awards during the coming year.
Separation-Related Adjustments to Outstanding Equity Awards
As discussed above, Tyco split into three separate publicly traded companies on June 29, 2007. As
a result of the Separation, outstanding equity awards held by employees of Tyco were adjusted to
reflect both the one-for-four reverse stock split and the dividend of Tyco Electronics and Covidien
shares. The table below describes the adjustments (as approved by the Board in March 2007 and
reflected in the Separation and Distribution Agreement) made to the outstanding equity awards upon
the completion of the Separation. Throughout this proxy statement, and particularly in the tables
following this Compensation Discussion and Analysis, amounts in regard to outstanding equity awards
are presented on a post-Separation basis. The Compensation Committee structured the conversion
methodology described above to ensure that continuing Tyco corporate employees had appropriate
incentives to prepare Covidien and Tyco Electronics to be independent, particularly with respect to
staffing and financial matters.
2008 Proxy Statement 35