HR Block 2006 Annual Report Download - page 42

ITEM 3 ON FORM OF PROXY
APPROVAL OF MATERIAL TERMS OF PERFORMANCE GOALS FOR PERFORMANCE SHARES ISSUED PURSUANT TO THE 2003
LONG-TERM EXECUTIVE COMPENSATION PLAN –
INTRODUCTION –As discussed in the Compensation as fractional Performance Shares until vesting. Performance
Committee Report on Executive Compensation, the Company Shares do not carry voting rights while they are unvested, but will
will implement in fiscal year 2007 a new performance-based long- carry voting rights once they are paid out upon achievement of
term incentive program that provides for performance shares performance objectives.
(‘‘Performance Shares’’) to be issued to senior executives MATERIAL TERMS OF THE PERFORMANCE GOALS –The
pursuant to the 2003 Long-Term Executive Compensation Plan material terms of the performance goals for Performance Shares
(the ‘‘2003 Plan’’) in lieu of restricted stock. You are being asked consist of (i) the class of executive officers eligible to receive
to approve the material terms of the performance goals for the Performance Shares, (ii) the business criteria on which the
Performance Shares. This approval is required under Internal performance goals are based and (iii) the maximum number of
Revenue Service regulations to permit the Company to deduct for shares of the Company’s common stock that can be awarded
federal income tax purposes the payment of Performance Shares under the 2003 Plan during any calendar year.
to certain executive officers. We are not asking you to approve The Company’s key senior executives comprise the class of
any amendments to the 2003 Plan. executive officers eligible to receive Performance Shares. This
PURPOSE OF PROPOSAL –The Company generally seeks to group consists generally of the Company’s chief executive officer,
preserve its ability to claim tax deductions for compensation paid Company-level and subsidiary-level presidents, executive vice
to executives to the greatest extent practicable. Section 162(m) of presidents and senior vice presidents, and other executives who
the Internal Revenue Code limits the Company’s federal income are leaders of the Company’s key strategic business units.
tax deduction for compensation paid in a taxable year to an The business criteria on which performance goals are based
individual who, on the last day of the taxable year, was (i) the consist of one or more of the following: (a) the Company’s
chief executive officer or (ii) among the four other highest- relative total shareholder return compared to the Standard &
compensated executive officers whose compensation is reported Poor’s 500 over a specified period of time; (b) strategic business
in the Summary Compensation Table. ‘‘Qualified performance- unit earnings before or after taxes; (c) strategic business unit
based compensation,’’ which can include compensation from earnings before or after taxes and amortization of intangibles
performance shares, is not subject to this deduction limit and is from acquisitions; (d) earnings (either in the aggregate or on a
thus fully deductible if certain conditions are met. One of these per-share basis, reflecting dilution of shares as the Compensation
conditions is shareholder approval of the material terms of the Committee deems appropriate and if the Committee so
performance goal under which the compensation is paid. As a determines, net of or including dividends) before or after interest
result, the Company is seeking shareholder approval of the and taxes or before or after interest, taxes, depreciation and
performance goals for Performance Shares so that compensation amortization; (e) gross or net revenue or changes in annual
paid in Performance Shares is deductible for federal income tax revenues; (f) cash flow(s) (including either operating or net cash
purposes to the extent it is ‘‘qualified performance- flows); (g) financial return ratios; (h) stockholder return based on
based compensation.’’ growth measures or the attainment by the shares of a specified
DESCRIPTION OF PERFORMANCE SHARES –Performance value for a specified period of time, share price, or share price
Shares will vest after three years, subject to pre-established appreciation; (i) earnings growth or growth in earnings per share;
performance objectives. An executive will earn the target number (j) return measures, including return or net return on assets, net
of Performance Shares for achievement of targeted performance. assets, equity, capital, investment, or gross sales; (k) adjusted
An executive may receive up to a maximum of one and one-half pre-tax margin; (l) pre-tax profits; (m) operating margins;
times the target number of Performance Shares for superior (n) operating profits; (o) operating expenses; (p) dividends;
performance and as few as one half of the target number of (q) net income or net operating income; (r) growth in operating
Performance Shares for performance below target. Performance earnings or growth in earnings per share; (s) value of assets;
Shares reflect a face value equal to the market value of the (t) market share or market penetration with respect to specific
Company’s stock price and are paid out in Company common designated products or services or product or service groups
stock at vesting. Performance Shares do not pay dividends during and/or specific geographic areas; (u) aggregate product price and
the vesting period. Instead, any dividend equivalents are carried other product measures; (v) expense or cost levels, in each case,
H&R BLOCK 2006 Proxy Statement
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