HR Block 2005 Annual Report Download - page 38

ITEM 2 ON FORM OF PROXY
APPROVAL OF THE H&R BLOCK EXECUTIVE PERFORMANCE PLAN, AS AMENDED ⬎⬎⬎
the Code. The Committee has authority to determine the terms
INTRODUCTION ⬎⬎⬎ The shareholders originally approved the
and conditions of awards granted to eligible persons under the
H&R Block Short Term Incentive Plan (the ‘‘Plan’’) at the 1996
Plan. Awards under the Plan are in the form of cash
Annual Meeting and most recently reapproved the Plan, as
compensation and may be granted only to employees of the
amended, at the 2000 Annual Meeting. The Board recommends Company or its subsidiaries who are at the level of Assistant Vice
amendments to the Plan to (1) change the name of the Plan from President or a more senior level and who are selected for
the H&R Block Short Term Incentive Plan to the H&R Block participation by the Committee. The Committee may grant annual
Executive Performance Plan; and (2) increase the aggregate performance-based awards with respect to each fiscal year of the
amount of all awards under the Plan to any participant for any Company, or a portion thereof (a ‘‘Performance Period’’). Within
Performance Period from $1,000,000 to $2,000,000. 90 days after the beginning of a Performance Period, the
The Plan allows the Company to include in the compensation Committee establishes performance goals for the Company and
package of an executive officer a bonus component intended to its subsidiaries for the Performance Period and specific target
qualify as performance-based compensation under Section 162(m) awards for each participant selected by the Committee. The
of the Internal Revenue Code of 1986, as amended (‘‘Code’’). Committee specifies the performance goals applicable to each
Section 162(m) provides that compensation in excess of $1 million participant for each Performance Period, as well as the portion of
paid for any tax year to a corporation’s chief executive officer and the target award to which each performance goal applies. Awards
the four other highest paid executive officers (‘‘Covered are nontransferable other than by will or by the laws of descent
Employees’’) at the end of such year will not be deductible by the and distribution.
corporation for federal income tax purposes unless certain The Plan specifies that performance goals established by the
conditions are met. Two such conditions are that the compensation Committee each year must be based on one or more of the
must qualify as ‘‘performance-based compensation’’ and that the following business criteria: (a) earnings, (b) revenues, (c) sales of
shareholders of the corporation must approve the material terms products, services or accounts, (d) numbers of income tax
of the performance goals under which such compensation is to be returns prepared, (e) margins, (f) earnings per share, (g) return
paid. The Plan satisfies these conditions. on equity, (h) return on capital, and (i) total shareholder return.
The Board believes that the amendment changing the name of For any Performance Period, performance goals may be
the Plan will help eliminate any confusion between the Plan and measured on an absolute basis or relative to internal goals, or
the Company’s short-term incentive program. The Board further relative to levels attained in fiscal years prior to the Performance
believes that the increase in the limitation of awards will allow the Period. In addition, a participant must remain in the continuous
Company the flexibility to take full advantage of the deductibility employ of the Company or one or more of its subsidiaries
of executive compensation under Code Section 162(m). The Board through the end of a Performance Period to be eligible to receive
believes that the Plan has enabled, and will enable, the Company payment of an award. The Plan grants the Committee discretion
and its subsidiaries to attract and retain highly qualified individuals to pay in full or on a prorated basis an award determined in
as executive officers and to obtain from such officers the best accordance with the Plan to a participant whose employment
possible performance to achieve particular business objectives terminates during the Performance Period due to death, disability
established for the Company. Accordingly, the Board has approved or retirement.
the amendments to the Plan and is submitting the Plan, as so Following the end of a Performance Period, the Committee
amended, to the shareholders for their approval. certifies the extent to which each performance goal has been
SUMMARY OF THE PLAN AND AMENDMENTS ⬎⬎⬎ The achieved and then, to arrive at the actual award payout,
primary features of the Plan and the proposed amendments are determines a performance percentage for each goal to be
summarized below. The summary is qualified in its entirety by multiplied by the portion of the target award to which the goal
reference to the specific provisions of the Plan, as it is proposed relates. The Compensation Committee has the discretion to
to be amended, the full text of which is set forth as Appendix B establish with respect to each performance target and each
to this proxy statement. Performance Period a schedule or other objective method
The Plan is administered by the Committee, which is composed (‘‘Performance Schedule’’) of determining the applicable
of ‘‘outside directors’’ within the meaning of Section 162(m) of performance percentage to be used in arriving at the actual award
H&R BLOCK 2005 Proxy Statement
10