Computer Associates 2006 Annual Report Download - page 98

3. We implemented processes to take account of an executive’s contribution to the establishment and
maintenance of high ethical and compliance standards in awarding the executive’s annual bonus.
Determination of Fiscal Year 2006 Compensation
Base Salaries. Base salaries for executive officers are designed to attract and retain talented, high-performing
individuals. Such salaries are determined by evaluating the following:
(i) responsibilities of the position;
(ii) the experience of the individual;
(iii) periodic reference to the competitive marketplace, including comparisons of base salaries for selected
comparable positions in our peer group and general industry; and
(iv) the financial performance and certain non-financial performance measures of the Company, and the
performance of the executive officer.
Base salary adjustments were determined with the assistance of our outside consultant after input from our CEO and
our decisions are reflected in the Summary Compensation Table.
Annual Incentives. We developed, with input from management and our outside consultant, performance
measures for fiscal year 2006 that were based 90% on financial measures and 10% on customer satisfaction as
measured by independent studies. The financial measures consisted of the Company’s achievement of specified
targets relating to:
(i) billings growth;
(ii) adjusted cash flow from operations; and
(iii) adjusted net income growth.
Under the program, payouts could range from 0% to 200% of the target, based on the degree to which the various
performance measures were achieved. Targets generally were established as a percentage of base salary. We
retained discretion to reduce the amount of any payout. The established performance measures for certain executive
officers were based solely on adjusted net income growth and customer satisfaction and calculated to a zero dollar
payout for these executives. Certain other executive officers had bonuses that were based on other financial metrics,
with a smaller portion of their bonus attributable to adjusted net income growth. Formulaically, the payout to these
executive officers would have been positive under those metrics. However, the Committee determined that because
of the Company’s overall financial performance in fiscal year 2006, it would use its discretion not to pay any awards
under the program for fiscal year 2006 to any of the participants in the program (including the Company’s Named
Executive Officers), even to those executives who would have been eligible to receive some payout under their pre-
established formulas.
Given certain of these executive officers’ positions in the organization, the Committee believed it was important to
pay some discretionary cash payments for retention purposes. Accordingly, this resulted in one of the Company’s
Named Executive Officers, Gary Quinn, receiving a discretionary bonus of $180,000, an amount significantly lower
than the amount that would have resulted when applying the formula applicable to Mr. Quinn under the program. In
addition, six other executive officers (including one who was a participant in a different incentive program) received
discretionary cash bonus payments totaling $643,625, five of whom otherwise would not have been eligible for a
bonus based on the financial metrics applicable to them. Overall, this resulted in payouts that were substantially less
than what would have been paid under the existing program. No cash bonus payments were awarded to eight
executive officers, including the Chief Executive Officer.
In accordance with the Company’s Deferred Prosecution Agreement, executive compensation has been tied to the
achievement of ethical standards. A failure to complete annual Company-wide ethics training results in a mandatory
10% reduction of an executive’s target annual bonus amount. No executive bonus was reduced for failure to
complete training; however, since the Committee determined not to pay any bonuses under the fiscal year 2006
program, any mandatory reduction would have been irrelevant with regard to the payout of this bonus. In addition,
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