Avon 2004 Annual Report Download - page 48

Global Beauty 69
Notes to Consolidated
Financial Statements
Transformation Long-Term Incentive Plan
In 2002, the Compensation Committee of the Board
of Directors approved a Transformation Long-Term
Incentive Plan (“TLTIP”), which was designed to provide
additional long-term compensation to executive offi-
cers and other key executives driving the Company’s
Business Transformation initiatives. Under the TLTIP,
cash awards were payable if the Company achieved
certain financial objectives tied to the transformation
objectives during the performance period 2002-2004.
As of December 31, 2004, the Company achieved a sig-
nificant portion, but not all, of the performance goals
established by the plan. As a result, the Compensation
Committee used its discretion and determined that a
partial payout from the TLTIP of approximately $6.0,
which was equal to 12.5% of the TLTIP targets, was
appropriate to be paid under the plan. No payout was
made to the Chairman and Chief Executive Officer,
who declined to be considered for any payout under
the plan.
Board of Directors Remuneration
Each non-management director is annually granted
options to purchase 8,000 shares of common stock, at
an exercise price based on the market price of the stock
on the date of grant. Each grant of options becomes
fully exercisable one year after the date of grant and
expires ten years after the date of grant. The aggregate
annual grant made to all non-management directors in
2004 and 2003 consisted of 72,000 options in each year
with an exercise price of $36.43 and $26.40, respectively.
Effective January 1, 2004, the annual retainer paid to
non-management directors consists of $35,000 in cash
($30,000 prior to January 1, 2004) plus an annual grant
of restricted stock having a value of $35,000 ($30,000
prior to January 1, 2004) based on the average mean
price of the stock for the 10 days preceding the date of
grant. These shares are restricted as to transfer until the
director retires from the Board. The aggregate annual
grant of restricted stock made to all non-management
directors in 2004 and 2003 consisted of 6,896 and 9,360
shares, respectively. Compensation expense related to
grants of restricted stock to non-management direc-
tors was $.2 in 2004, 2003 and 2002.
In addition to the annual retainer, effective January 1,
2004, non-management directors are paid a $10,000
retainer for membership on the Audit Committee and
$5,000 for membership on each other committee of
the Board of Directors on which he or she serves. Non-
management directors appointed to chair a committee
are paid an additional $10,000 for the Audit Committee
and $5,000 for all other committees.
9Shareholders’ Equity
Stock Split and Dividends
At the May 6, 2004 Annual Meeting, the shareholders
approved an amendment to the Company’s Restated
Certificate of Incorporation to increase the number of
shares of authorized common stock from 800 million to
1.5 billion. Conditioned on such approval, the Board of
Directors in February 2004 had declared a two-for-one
stock split in the form of a 100% stock dividend, payable
May 28, 2004, to shareholders of record on May 17, 2004.
The stock split has been recognized by reclassifying the
$.25 par value of the additional shares resulting from
the split from retained earnings to common stock. The
effect of this stock split was not retroactively reflected
in the Consolidated Statements of Changes in Share-
holders’Equity for periods prior to the split; therefore, in
2004, shares issued for option exercises which occurred
prior to the stock split have not been adjusted for the
stock split. The effect of the stock split on such option
exercises of approximately 1.7 million shares is included
in the line two-for-one stock split effected in the form
of a dividend on the Consolidated Statements of
Changes in Shareholders’Equity. All references to the
number of shares and per share amounts elsewhere
in the financial statements and related footnotes have
been restated to reflect the effect of the split for all
periods presented.