HR Block 2006 Annual Report Download - page 45

EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION –
The Compensation Committee is responsible for reviewing the the targeted level of total compensation can be achieved only
Company’s executive compensation program and policies each when targeted performance objectives are met. Consequently,
year and recommending to the non-employee members of the executives may receive total compensation substantially above or
Board of Directors the compensation of the Company’s executive below the target level depending upon performance.
officers. The Compensation Committee’s charter reflects these
responsibilities. You can find a copy of the Compensation COMPENSATION PROGRAM
Committee charter on the Company’s website at The Company’s executive compensation program consists of four
www.hrblock.com under the tab ‘‘Our Company’’ and then under elements: base salary, short-term incentives, long-term incentives
the heading ‘‘Block Investors’’ and then under and benefits and perquisites. This section of the report describes
‘‘Corporate Governance.’’ each of these elements, why they were selected and how the
The Compensation Committee consists solely of directors who amounts of each element are determined.
are each: BASE SALARY –Base salaries are determined based on the
쐍independent under the New York Stock Exchange’s listing scope of an executive’s role, his or her experience, talents and
standards and the Board’s Director Independence Standards, performance, internal equity and similarly-scoped roles in peer
쐍an outside director for purposes of Section 162(m) of the companies. The peer companies utilized for this determination
Internal Revenue Code, and (the ‘‘Peer Group Companies’’) are selected based upon industry,
쐍a ‘‘non-employee director’’ pursuant to Rule 16b-3 under size, and similarity to the Company in revenue, earnings, and
federal securities laws. market capitalization.
The Compensation Committee has retained Mercer Human SHORT-TERM INCENTIVE PROGRAM –The Company’s
Resource Consulting, an independent compensation consultant, short-term incentive program (the ‘‘STI Program’’) through fiscal
to advise on executive compensation matters and generally assist year 2006 consists of two components – an objective incentive
the Compensation Committee in fulfilling its responsibilities. compensation component and a discretionary incentive
Among other things, Mercer advises the Compensation compensation component. The objective incentive compensation
Committee on ‘‘best practices’’ in executive compensation and component is based upon annual performance targets tied to
assesses the Company’s competitive position and the levels of business unit or overall corporate results and specifically ties
compensation for the different components of the Company’s executive pay to Company performance (the ‘‘Financial STI
executive compensation program. Mercer also advises the Component’’). The discretionary incentive compensation
Compensation Committee with respect to specific executive component is based on achieving pre-established individual or
compensation decisions. The Compensation Committee has the strategic performance objectives (the ‘‘Discretionary STI
right to terminate Mercer’s services at any time. Component’’). A greater emphasis for executive officers
The Company continues to be strongly committed to maximizing (including the named executive officers) is placed upon the
shareholder value through consistent growth and profitability. Financial STI Component – 80% of targeted incentive
Superior performance by the Company’s executive officers and compensation in most cases in fiscal year 2006. Under the STI
management team is essential to reaching that goal. As such, the Program, financial-performance goals based on the Company’s
Company’s philosophy is to assure that executive compensation is fiscal year business plan and individual target bonus awards are
linked directly to sustained improvements in individual and reviewed by the Compensation Committee and approved by the
corporate performance and increases in total shareholder return. Board’s non-employee directors.
The Compensation Committee works with Mercer to define the Short-term incentive compensation generally is paid in cash.
appropriate market for executive compensation and benchmarks Short-term incentive payouts exceeding 150% of the targeted
the Company’s executive compensation program against that payouts are paid in restricted stock. Restricted stock is issued
market each year. In general, the Compensation Committee under the Company’s 2003 Long-Term Executive Compensation
targets total compensation at the median of the market with a Plan and is described in more detail under ‘‘Long-Term Incentive
substantial portion of total compensation at risk for performance. Compensation’’ below. Pursuant to this plan’s terms, the amount of
The Compensation Committee links performance objectives to restricted stock awarded is calculated by dividing the cash value of
specific award levels (threshold, target and maximum) such that the applicable incentive compensation by the last reported closing
H&R BLOCK 2006 Proxy Statement
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