Kodak 2004 Annual Report Download - page 157
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2 0 0 5 N O T I C E O F A N N U A L M E E T I N G A N D P R O X Y S T A T E M E N T
BOARDCOMPOSITION
BasedontheCommittee’srecommendation,theBoardofDirectorselectedtwonewmemberstotheBoardin2004,AntonioM.PerezandMichaelJ.
Hawley.InaccordancewiththeBoard’snewDirectorSelectionProcess,theCommitteeoversawtheprocessofelectingbothMr.PerezandDr.Hawleyto
theBoard.InthecaseofDr.Hawley,anindependentnon-employeedirector,theCommitteeusedthenewprocesstorecruit,evaluateandselecthimwith
theassistanceofanoutsidesearchfirmengagedbytheCommittee.AcopyoftheBoard’sDirectorSelectionProcessandDirectorQualificationStandards
canbeaccessedinthe“CorporateGovernance”sectionofwww.kodak.com/go/governance.
DIRECTORCOMPENSATION
Inlate2003,theCommitteebeganareviewoftheBoard’sDirectorCompensationProgram.Toassistinthiseffort,theCommitteeretainedanexternal
independentcompensationconsultant.Asafirststepinthisprocess,theCommitteedevelopedthefollowingDirectorCompensationPrinciples:
•PayshouldrepresentamoderatelyimportantelementofKodak’sdirectorvalueproposition.
•Paylevelsshouldgenerallytargetnearthemarketmedian,andpaymixshouldbeconsistentwithmarketconsider-
ations.
•Paylevelsshouldbedifferentiatedbasedonthetimedemandsonsomemembers’roles,andtheBoardwillensure
regularrotationofcertainoftheseroles.
•TheprogramdesignshouldensurethatrewardsaretiedtothesuccessfulperformanceofKodakstock,andthe
mixofpayshouldallowflexibilityandBoarddiversity.
•Totheextentpracticable,Kodak’sDirectorCompensationPrinciplesshouldparallelthoseoftheCompany’sexecu-
tivecompensationprogram.
TheseprincipleswerethenusedbytheCommittee,withtheassistanceofitsindependentconsultant,to:1)assesstheappropriatenessoftheBoard’s
currentcompensationprogram;2)conductacompetitivereviewofdirectorpaylevelsandpracticesatpeercompanies;and3)recommendtotheBoarda
revisedcompensationprogram.BasedontheCommittee’srecommendations,theBoardapprovedarevisedDirectorCompensationPrograminApril2004.
Therevisedprogram,adescriptionofwhichbeginsonpage28,containsfourfundamentalchanges.First,theBoard’sannualretainerwasincreasedfrom
$65,000to$80,000,one-halfofwhichmustbetakenintheformofKodaksharesorstockunits.InrecommendingthischangetotheBoard,theCom-
mitteeconsideredthefollowingfactors:overallpaypositioningofthecurrentprogramwasbelowmarketmedian,theCompany’snewstrategicfocusis
demandingmoredirectoreffortandtimeandalldirectorsarefacingincreasedaccountabilitiesandriskexposureintoday’senvironment.
ThesecondadjustmentchangedtheannualequitycomponentoftheBoard’sretainerfrom2,000stockoptionsto1,500optionsand1,500sharesof
restrictedstock.TheCommitteerecommendedthischangeforthefollowingreasons:tostrengthentheBoard’salignmentwiththeCompany’ssharehold-
ers,toencouragetheBoard’slong-termfocus,tode-emphasizerelianceonstockoptionsinaccordancewithevolvinggovernancepracticesandtoplace
theequitycomponentoftheBoard’scompensationonparwithmarketmedian.
ThethirdchangeimplementedanannualretainerforthechairsoftheBoard’scommittees.Inthecourseofdevelopingthisrecommendation,theCommit-
teefoundthatthepaymentofanadditionalretainerinconnectionwithcommitteeleadershipwasaprevalentpracticeamongtheCompany’speersand
thatcurrentmarketpracticessuggestatrendofincreasingpaytothosedirectorswithincreasedworkload.Withthisinmind,theCommitteefeltthatthis
changewasappropriateinordertoacknowledgetheexpected/requiredlevelofcontributionsoftheBoard’schairsandtorewardthematpeerlevels.
TheadoptionofdirectorownershipguidelineswasthefinalchangetotheBoard’scompensationprogram.Asaresultofthischange,alldirectorsare
requiredtoretain100%ofallsharesacquiredthroughvestingandoptionexercise(netofexercisepriceandtaxes)untilandunlessanownershiplevel
equaltofivetimesthecashportionoftheannualretainer(currently$40,000)isachieved.TheCommitteeconcludedthatcommonalityofBoardinterests
withshareholders’interestsisessentialandthataneffectivewaytoensurethisistoimplementameaningfulshareownershiprequirement.TheCommit-
teechosetosetthemultipleofownershipatfivetimesinordertoparalleltheCompany’sexistingownershipguidelinesforitsCEO,whichisadeveloping
bestpractice.
TheCommitteefeelsthesefourchanges,eachofwhichismarketcompetitiveandinaccordwithemergingbestpractices,realignstheBoard’scompen-
sationprogramconsistentwithitsnewDirectorCompensationPrinciples,whileensuringthattheBoard’sinterestscontinuetobealignedwiththoseofits
shareholders.
Director
Compensation
Principles