ADT 2007 Annual Report Download - page 58

measures were no longer appropriate and were impractical to administer, and in July 2006 the
Compensation Committee approved the conversion of all outstanding performance shares into
time-based RSUs. The conversion of the RSUs was contingent upon the successful completion of the
Separation. The number of RSUs that each performance share converted into was based on Tyco’s
actual organic revenue growth and ROIC for fiscal year 2006, and the assumption that the performance
goals would be met at the target level for fiscal years 2007 and 2008. The table below sets forth the
performance share payout levels for fiscal year 2006.
Fiscal Year 2006 Performance Share Goals and Award Payout Levels
Target Actual Threshold Maximum
Performance Performance Performance Award Payout Target Award Award Payout
Measures Weight Level Level Level Payout Level Level
Organic Revenue Growth(1) . . 25% 4.49% 5.4% 50% of Target 100% of Target 200% of Target
ROIC(1) ................ 75% 10.30% 10.51% 50% of Target 100% of Target 200% of Target
(1) The Compensation Committee approved the target organic revenue growth rate as 35% above the
United States’ Gross Domestic Product growth rate over the same period, which equated to
approximately 4.5% organic revenue growth for fiscal 2006. The fiscal year 2006 ROIC target
performance level was based on Tyco’s long-term strategic plan for the corresponding performance
period.
Based on the methodology described in the preceding paragraph and the accompanying table, the
Compensation Committee approved the conversion of the performance shares at 120% of the target
award level at the completion of the Separation. All of the performance shares that converted into
post-Separation Tyco RSUs (or Tyco RSUs, Covidien RSUs and Tyco Electronics RSUs, in the case of
corporate employees) will vest on September 30, 2008. If an employee voluntarily leaves Tyco prior to
September 30, 2008, the RSUs will be forfeited. Employees may be eligible for full or partial vesting of
their RSUs for involuntary termination or for retirement depending on the terms and conditions of the
award agreement and if they are eligible for severance under a severance plan.
Fiscal 2007 and Accelerated Fiscal 2008 Equity Awards
In addition to the conversion of the performance shares, we granted two long-term incentive
awards during fiscal 2007. The annual fiscal year 2007 equity award was granted on November 21, 2006.
The accelerated fiscal year 2008 equity award was granted on the first trading day after the Separation.
LTI compensation for fiscal 2008 was accelerated into the 2007 fiscal year to retain and motivate
employees on a post-Separation basis by aligning their LTI compensation with post-Separation metrics
and goals. Details of these awards are summarized below.
Fiscal Year 2007 Equity Awards
The annual LTI grants for fiscal 2007 took the form of stock options and RSUs. The grant
structure approved by the Compensation Committee in July 2006 was a mix of 50% options and 50%
RSUs. This structure was intended to both enhance employee retention in light of the pending
Separation and minimize share dilution. Performance shares were not used because the Separation
made it impractical to set multi-year goals. The total number of shares available for LTI compensation
grants was capped at 0.9% of shares outstanding on July 12, 2006. In developing target LTI
compensation awards for the named executive officers, the Compensation Committee evaluated the
equity grant practices of our peer group at that time (the pre-Separation peer group). The
Compensation Committee also evaluated internally developed grant ranges prepared by our human
resources department; the performance of the named executive officers during the prior fiscal year; the
amount of equity held by named executive officers; and retention considerations. Using data provided
by consulting firm Watson Wyatt and market data collected from third-party surveys, the Compensation
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