FairPoint Communications 2006 Annual Report Download - page 111

3. Executive Compensation Decisions for 2006
Discussed below are the key components of the compensation that our NEOs received in 2006 as categorized in the Summary Compensation Table.
Based on the fair value of equity awards granted to NEOs in 2006, their base salaries generally accounted for approximately 28% of their total compensation,
while incentive compensation, including annual bonuses, accounted for approximately 69% of their total compensation. The compensation committee believes
that the balance described below of 2006 levels for salary, cash bonus, restricted stock, and other benefits reflect both (i) an appropriate and performance-
oriented structure for total compensation, and (ii) a suitable correlation of total NEO compensation to the Company’s strong financial and business
performance in 2006. Note that the Summary Compensation Table below reports the value of certain equity awards based on the compensation expense
recorded under FAS 123(R) value rather than based on their current fair value.
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In March of 2006, upon the recommendation of the compensation committee, our board of directors approved a new employment agreement for
Mr. Johnson which, among other things, provided for an increase in his annual base salary to $460,000 and eliminated all executive perquisites. The base
salaries of the other NEOs increased approximately 2% compared to 2005.
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The compensation committee established the 2006 target bonuses and related performance goals for certain members of our senior management under the
FairPoint Communications, Inc. Annual Incentive Plan, or the Annual Incentive Plan, on December 14, 2005 and, accordingly, we paid bonuses equal to the
established target levels discussed below.
Below is a chart that identifies the target bonus for each NEO, who was eligible to participate in the Annual Incentive Plan in 2006 and the performance
criteria used to evaluate the NEO’s performance. The performance criteria were weighted as indicated. The compensation committee, in its sole discretion but
with input from the chief executive officer for all NEOs other than himself, determines whether or not individual performance goals were satisfied. Any bonus
awards are subject to the terms of the Annual Incentive Plan.
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
 
Eugene B. Johnson Chief Executive Officer 100%(i) 50%—FairPoint achieving a specified EBITDA target for 2006; (ii) 20%
—FairPoint not exceeding a specified total debt to EBITDA ratio for 2006;
(iii) 10%—providing company and industry leadership to the public policy debate
around USF and intercarrier compensation; (iv) 10%—leading succession
planning efforts for all key positions in FairPoint; and (v) 10%—continuing to
foster a culture that places a premium on high standards of ethical behavior and
integrity.
Peter G. Nixon Chief Operating Officer 50%(i) 70%—FairPoint achieving a specified EBITDA target for 2006; (ii) 15%
—effecting certain operational improvements; (iii) 5%—developing FairPoint’s
employees; (iv) 5%—supporting public policy initiatives and FairPoint complying
with the internal control requirements of the Sarbanes-Oxley Act; (v) 2.5%
—achieving specified customer service and community relations goals; and
(v) 2.5%—promoting workers’ safety and reducing workers compensation claims.
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