Kodak 2006 Annual Report Download - page 193

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2006-2007 Performance Cycle
For the 2006-2007 Leadership Stock Program performance cycle, the Committee also established DEFO as the single performance metric for the
plan. As with the prior performance cycle, awards are earned under the plan based on an executive’s allocation multiplied by the applicable perfor-
mance percentage. The maximum number of performance stock units that may be earned by an executive is 200% of the executive’s targeted share
allocation.
As determined by the Committee in March 2006, in order to achieve any payout under the plan, the Company’s aggregate DEFO for the two-year
period from January 1, 2006 to December 31, 2007 will need to be greater than $750 million. In order for participants to receive 100% of their target
allocation, the Company’s DEFO will need to equal $1 billion. To receive the maximum payout under the plan, equal to 200% of each participant’s
target allocation, the Company’s aggregate DEFO will need to reach $1.15 billion. If results fall between these DEFO targets, the Committee will deter-
mine the percentage payout based on interpolation. Given the pending divestiture of our Health Group, the Committee may, to the extent permitted by
the plan, adjust the actual Company results for the two-year period to reflect the divestiture.
The amount of shares earned by our Named Executive Officers for the 2006-2007 performance cycle cannot be determined at this time. However, the
award allocations that would be payable to each Named Executive Officer for the 2006-2007 cycle, assuming target and maximum DEFO performance
is achieved and the vesting period is satisfied, are shown in the Grants of Plan-Based Awards Table on page 50 of this Proxy Statement. As a result of
the Committee’s policy to increase the long-term variable equity incentive component of each Named Executive Officer’s total direct compensation, the
target range for each Named Executive Officer for the 2006-2007 performance cycle was increased by 25% over the 2005-2006 performance cycle.
Certain of our Named Executive Officers, other than our CEO, also received an additional upward adjustments to the target award size based on their
individual performance under the Company’s Relative Leadership Assessment program described above.
2006 Executive Performance Share Program
In May 2006, the Committee adopted the 2006 EPSP under the Company’s 2005 Omnibus Long-Term Compensation Plan. The EPSP grants per-
formance stock units payable in shares of Kodak stock to executives upon achievement of performance goals and after a one-year vesting period is
satisfied.
The program was designed to motivate and reinforce our executives’ focus on improving the Company’s digital operating margin. Digital operating
margin is a percentage obtained by dividing “digital earnings from operations” by “digital revenue.” Digital operating margin, the sole performance
metric for the EPSP, was selected by the Committee because it is a key metric in the achievement of the Company’s current business strategy of
digital transformation and links executives’ interests with shareholders’ interests. These awards also encourage executive retention since the payment
of any stock units earned under the program is delayed for one year contingent on the executive’s continued employment with the Company, except in
limited termination of employment circumstances, such as retirement, death, disability or an approved reason.
Each eligible executive, including our Named Executive Officers, received an allocation under the plan equal to 50% of their allocation under the 2006-
2007 performance cycle of the Leadership Stock Program. The actual number of shares to be received under the EPSP is based on an executive’s
allocation multiplied by the applicable performance percentage. The maximum number of performance shares that may be earned by an executive is
120% of the executive’s share allocation.
The threshold, target and maximum number of shares allocated to our Named Executive Officers under the 2006 EPSP are shown in the Grants of
Plan-Based Awards Table on page 50 of this Proxy Statement. In order to earn any shares under the plan, the Company’s Digital Operating Margin
for 2006 needed to be greater than 3.6%. In order for participants to receive 100% of their target allocation, the Company’s Digital Operating Margin
needed to equal 4.6%. To receive the maximum payout under the plan, equal to 120% of each participant’s target allocation, the Company needed to
achieve a Digital Operating Margin of 5.0%.
In 2006, the Company achieved a Digital Operating Margin equal to 4.5%, which corresponds to a payout percentage of 95%. The performance stock
units earned by our Named Executive Officers under the 2006 EPSP are reflected in the Outstanding Equity Awards at Fiscal Year-End 2006 Table on
page 54 of this Proxy Statement.