Kodak 2005 Annual Report Download - page 203

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seven-year term, an exercise price equal to the fair market value of the Company’s common stock on the date of grant and a three-year vesting
schedule with one-third of the options vesting on each of the fi rst three anniversaries of the grant date. In addition, effective June 1, 2005, Mr. Perez
became eligible to receive: 1) a target performance cash bonus equal to 155% of his base salary under EXCEL, if earned; 2) a target leadership stock
allocation of 34,000 units for the 2006-2007 cycle under the Leadership Stock Program, subject to Company performance over the two years of the
cycle and minimum vesting requirements; and 3) a target stock option allocation of 72,000 non-qualifi ed stock options under the Company’s Offi cer
Stock Option Program. Effective December 31, 2005, when Mr. Perez became Chairman, he became eligible to receive: 1) a target leadership stock
allocation of 50,000 units, commencing with the 2007-2008 cycle, under the Leadership Stock Program, subject to Company performance over the
two years of the cycle and minimum vesting requirements; and 2) a target stock option allocation of 100,000 non-qualifi ed stock options under the
Company’s offi cer stock option program. The Company’s CEO and Chairman are required to use Company transportation, whenever possible, for
business and personal travel for reasons of safety and security.
Compensation Arrangements for Daniel A. Carp in Connection with Retirement
The compensation arrangements for Mr. Carp in connection with his planned retirement on January 1, 2006 were approved by the Committee on
May 10, 2005, after extensive discussions spanning two meetings which included the Committee’s independent external compensation consultant and
certain members of the Company’s management team (excluding Messrs. Carp and Perez). The Committee granted “permitted and approved reason”
status for all of Mr. Carp’s equity awards, including all stock options, restricted stock and restricted stock units held by Mr. Carp upon his retirement
from the Company, which means that Mr. Carp did not forfeit any of his equity awards as a result of his retirement, and all restriction periods on
restricted stock or restricted stock units previously granted to Mr. Carp terminated as of January 1, 2006. It should be noted that in the case of all but
less than approximately fi ve percent in value of the total equity awards held by Mr. Carp, he would have retained the value of those awards upon his
retirement by virtue of the terms of the awards, regardless of whether “permitted and approved reason” status was granted by the Committee.
Base Salary for Messrs. Perez and Carp
As discussed above, in 2005, the Committee increased Mr. Perez’s annual base salary from $975,000 to $1,100,000 in connection with Mr. Perez’s
election as CEO and Chairman. For 2006, the Committee chose to maintain Mr. Perez’s annual base salary at $1,100,000. To preserve the Company’s
deductibility of all of Mr. Perez’s base salary for U.S. income tax purposes, payment of base salary in excess of $1,000,000 will not be made until after
his retirement from the Company.
In 2005, the Committee chose to maintain Mr. Carp’s annual base salary at $1,100,000. To preserve the Company’s deductibility of all of Mr. Carp’s
base salary for U.S. income tax purposes, payment of $100,000 of his base salary was deferred until after his retirement from the Company.
Short-Term Variable Pay for Messrs. Perez and Carp
Mr. Perez’s and Mr. Carp’s short-term variable pay, like that of all the Company’s other executives, is payable based upon the successful attainment
of specifi c fi nancial goals established by the Committee each year under the Company’s short-term variable pay plan, EXCEL. As described earlier, for
2005, these fi nancial goals were based on digital revenue growth and investable cash fl ow. The Committee also considered each of Mr. Perez’s and
Mr. Carp’s performance against his key EXCEL performance goals. In particular, the Committee noted that the Company is well underway in the
execution of its digital transformation strategy and with regard to its leadership and diversity strategies. The Committee also took into account the
results under the 2005 EXCEL baseline metrics and other factors noted earlier in this Report. In addition, the Committee noted that Messrs. Perez and
Carp have been the chief architects in the digital transformation strategy of the Company, and that they each made substantial contributions to an
effective and seamless CEO and Chairman transition, all of which is in the best interests of the shareholders.
In light of all of the foregoing, the Committee fi xed each of Mr. Perez’s and Mr. Carp’s 2005 EXCEL award at 152%, which is the same level it
established for the corporate funding pool. The amounts of the awards are listed in the Summary Compensation Table on page 25.
Stock Options for Messrs. Perez and Carp
Effective December 7, 2005, the Committee granted a stock option award to Mr. Perez of 135,000 shares and to Mr. Carp of 108,000 shares.
These options were granted under the same terms and conditions as awards made to all offi cers generally under the Company’s offi cer stock option
program. That is, the options were priced at 100% of the fair market value of the Company’s common stock on the date of grant, have a term of
seven years and vest ratably over three years. With respect to Mr. Carp’s award, the stock options will expire on January 1, 2009 as a result of his
retirement, pursuant to the terms of the award. The amounts of the grants refl ect the revisions to the long-term incentive compensation guidelines
discussed earlier in this Report. The Committee determined each of these awards based on its review of competitive benchmark data and an
assessment of Mr. Perez’s and Mr. Carp’s respective leadership.
As noted earlier, effective June 1, 2005, the Committee granted a stock option award to Mr. Perez of 300,000 shares in connection with his promotion
to CEO. Effective June 1, 2005, the Committee granted a stock option award to Mr. Carp of 91,667 shares under a program to reward key executives
for their role in the Company’s digital transformation. The options were priced at 100% of the fair market value of the Company’s common stock on
the date of grant, have a term of seven years and vest ratably over three years. Mr. Carp’s stock options will expire on January 1, 2009 as a result of
his retirement, pursuant to the terms of the award.