ADT 2011 Annual Report Download - page 63

Compensation Governance
The Company’s executive compensation programs are based on the philosophy that they must:
(i) reinforce the Company’s business objectives and the creation of long-term shareholder value;
(ii) provide for performance-based reward opportunities that support growth and innovation without
encouraging or rewarding excessive risk; (iii) align the interests of executives and shareholders by
weighting a significant portion of compensation on sustained shareholder returns through long-term
performance programs; (iv) attract, retain and motivate key executives by providing competitive
compensation with an appropriate mix of fixed and variable compensation, short-term and long-term
incentives, and cash and equity based pay; and (v) recognize and support outstanding individual
performance and behaviors that demonstrate our core values—Integrity, Excellence, Teamwork and
Accountability. 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 2011, one hundred percent of long-term incentive awards
for our CEO were performance-based—consisting of 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
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. Effective January 2012, the Company’s
cash-allowance perquisite has been discontinued. In December 2011, executives formerly eligible
for this program received a one-time grant of restricted stock units in connection with the
discontinuance.
• 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 for both directors and
officers. Named executive officers are required to achieve and maintain minimum stock
ownership levels (two to ten times base salary). Directors are required to achieve and maintain
minimum stock ownership levels of five times the annual cash retainer.
2012 Proxy Statement 49