Kodak 2010 Annual Report Download - page 162

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COMPENSATION DISCUSSION AND ANALYSIS
EXECUTIVE SUMMARY
Kodak is in the final stages of a process that began in 2003 to transform the Company from a film and chemicals-based business to a
profitable, sustainable digital company. Our executive compensation programs and awards are designed to provide incentives to the
Company’s leaders to complete this business transformation. The strategies necessary to drive the Company’s transformation include:
• Investments in and actions to profitably expand our four digital growth product lines consisting of Consumer Inkjet, Commercial
Inkjet, Packaging Solutions and Workflow Software and Services.
• Maximizing the performance of our established cash-generating digital businesses and restructuring our declining, analog
technology businesses.
• Leveraging our intellectual property to deliver cash to fund our investments in our four digital growth product lines, while also
enabling design freedom and access to new markets and partnerships.
In 2010, our compensation awards to our Named Executive Officers reflected both the progress the Company made in the digital
transformation strategies and the areas where the Company’s results did not meet our performance goals. Under the direction of the
Compensation Committee, the Company made a number of changes to our compensation programs and practices in 2010 to align with
best practices in executive compensation and the perspectives of our institutional shareholders.
2010 Results
The Company achieved a number of key strategic milestones in 2010. Our results demonstrated significant progress in our four digital
growth product lines. In particular, the Company achieved the following operating results:
• Our digital businesses, consisting of the Graphic Communications Group and the Consumer Digital Imaging Group, delivered
more than $300 million in earnings.
• Revenue in our digital growth product lines grew by 18% and represented 10% of the Company’s total revenue for the year.
• Sales of printers and ink collectively in our Consumer Inkjet business grew by 35%.
• In the Commercial Inkjet business, we surpassed unit placement goals for digital presses and we shipped our first PROSPER
digital presses, featuring our breakthrough continuous inkjet technology.
• With respect to Workflow Software and Services, through which Kodak provides services to enable customers to drive demand
for printing services, revenue grew by 21% in the second half of 2010.
• In the Packaging Solutions business, we doubled our installed base of FLEXCEL NX systems, a newly introduced product that is
central to our overall Packaging business.
Despite these significant strategic achievements, the Company did not meet its overall cash generation and digital revenue growth targets
in 2010. Competitive pricing, rising commodity costs, and a more modest than anticipated economic recovery in developed markets,
negatively impacted results in our more mature product lines, including Prepress Solutions, Digital Capture and Devices, and
Entertainment Imaging. Nonetheless, the Company achieved total segment earnings from operations within the range that had been
communicated to investors.
Performance-Based Compensation is Designed to Foster Business Strategy
The Committee designs our executive performance-based compensation to support the business strategy of the Company. The portion of
compensation of our Named Executive Officers’ annual target total direct compensation that is variable and based upon performance and
stock price appreciation ranges from 69% to 87%.
In 2010, the Committee selected three key performance metrics for its variable compensation plans to incent delivery of the Company’s
annual business plan, which is aligned with the long-term business strategy of the Company. Under the Company’s Executive
Compensation for Excellence and Leadership Plan (EXCEL), our annual variable cash plan, the Committee set two primary corporate
goals: Cash Generation before Restructuring Payments (Cash Generation) and Digital Revenue Growth. The Committee selected Total
Segment Earnings from Operations (Total Segment EFO) as a third key performance metric, which applies to the performance share
program of Mr. Perez, our CEO.
The Committee’s decisions on these performance metrics involved the following:
1) Cash Generation
• The Committee selected this goal as a primary performance metric to ensure financial flexibility necessary to invest in our digital
growth product lines. Further, to emphasize the importance of Cash Generation, 75% of the EXCEL target award to our Named
Executive Officers was based upon results for this metric and, unless the threshold level of performance was achieved in Cash
Generation, no EXCEL award would be paid, regardless of performance on other metrics.