ADT 2010 Annual Report Download - page 54

Compensation Governance
The Company’s philosophy is to pay for performance. The Company recognizes that in order to
execute on this philosophy, a strong governance framework is required. Accordingly, the Company’s
compensation programs are characterized by the following compensation governance features:
• Variable compensation is heavily weighted on long-term incentives to align compensation with
sustained shareholder returns. In fiscal 2010, one hundred percent of long-term incentive awards
for named executive officers were performance-based equity (stock options and performance
share units).
• Incentive awards are contingent on achieving targets that are established and approved by the
Compensation Committee at the beginning of the applicable performance period. All awards are
assigned thresholds that define a minimum level of achievement before they pay out, and all
award payments are capped at 200% of target.
• The Compensation Committee is comprised solely of independent directors. The Committee’s
independent consultant, Exequity, provides no other services to the Company and has no prior
relationship with any of the named executive officers.
• The peer group of companies used to benchmark executive compensation levels is carefully
reviewed at least annually by the Compensation Committee with input from its independent
consultant. Changes to the peer group require Compensation Committee approval.
• The Compensation Committee annually completes a risk assessment of the Company’s executive
and broad-based compensation programs to evaluate whether they drive behaviors that are
demonstrably within the risk management parameters it deems prudent.
• A ‘‘double-trigger’’ is required before severance benefits are paid or equity acceleration occurs
in connection with a change in control event (other than for the Chief Executive Officer).
Named executive officers are not entitled to excise tax gross-ups (other than the Chief Executive
Officer). For our Chief Executive Officer, the terms of the employment agreement that he
entered in 2002 govern in these scenarios.
• The Company eliminated tax gross-ups on supplemental benefits for all named executive officers
effective January 1, 2010. Effective December 2010, supplemental life, disability and long-term
care benefits have been discontinued for new executives.
• Other than the Chief Executive Officer, the Company does not provide any pension plans for its
named executive officers.
• The Company maintains a robust share ownership and retention policy. Named executive
officers are required to achieve minimum stock ownership levels (two to ten times base salary)
and comply with share retention guidelines (25%-75% upon exercise or vesting of awards).
• The Company maintains an expansive pay recoupment policy to claw back compensation earned
as a result of fraudulent or illegal conduct. We expect to modify the policy upon implementation
of the Dodd-Frank Act to comply with applicable regulations.
• Under the Company’s insider trading policy, employees, including named executive officers, are
prohibited from speculating in Company securities or engaging in transactions designed to hedge
their ownership interests.
The features described above are important components of the Company’s executive compensation
governance framework. The sections that follow provide more detailed information regarding the
governance framework, as well as more information regarding the pay elements used in the
compensation of our named executive officers.
46 2011 Proxy Statement