HR Block 2006 Annual Report Download - page 46

price for the Company’s stock as of June 30, 2006 (the date on under the Executive Performance Plan, such officer does not
which restricted stock is awarded under the plan). receive an award under the Financial STI Component of the STI
Financial STI Component. Payments under the Financial STI Program. The Executive Performance Plan permits the Company
Component are paid after the end of a fiscal year only if the to provide its executive officers short-term incentive
Company (or applicable business unit) has met the financial- compensation intended to qualify as tax-deductible
performance goals reviewed by the Compensation Committee ‘‘performance-based compensation’’ under Section 162(m) of the
and approved by the Board’s non-employee directors for such Internal Revenue Code. Under the Executive Performance Plan,
fiscal year. Based upon the Compensation Committee’s review the Compensation Committee may grant performance-based
and recommendation, and prior to payment of the financial STI awards to certain officers of the Company or its subsidiaries who
component, the Board’s non-employee directors (i) determine the are selected by the Compensation Committee, including the
extent to which the requisite performance targets have been Company’s Chief Executive Officer and its four other highest paid
achieved and (ii) approve the payout for an executive officer executive officers whose remuneration is potentially subject to
based upon the previously established financial performance Section 162(m). Fiscal year 2006 performance criteria under the
goals. Under the Financial STI Component, participants can earn Executive Performance Plan were the same as the fiscal year
more or less than the target award (from 0% to 200% of the target 2006 performance criteria under the Financial STI Component.
award) depending upon how actual results compare to the pre- LONG-TERM INCENTIVE COMPENSATION –The Company
established performance targets. encourages stock ownership by its executive officers by issuing
Fiscal year 2006 performance criteria under the Financial STI long-term incentive awards tied to the Company’s Common
Component consisted of the following for corporate level Stock, such as stock options, restricted stock and performance
executive officers (including the named executive officers): shares (see the discussion of the new Long-Term Incentive Plan
쐍diluted earnings per share growth; below). These awards provide executives an economic interest in
쐍business segment pre-tax earnings growth; increasing shareholder value over the long term, thereby better
쐍revenue unit growth; and aligning their interests with those of the Company’s shareholders.
쐍improved cost-of-service performance. Under the Company’s 2003 Long-Term Executive Compensation
Fiscal year 2006 performance criteria under the Financial STI Plan, option exercise prices are set at 100% of the fair market
Component for individual business units typically included value of the stock on the date of grant and the options expire
growth in corporate diluted earnings per share and business-unit- after ten years. Options granted to executive officers in fiscal year
specific criteria. The business-unit-specific criteria generally 2006 generally become exercisable (i) over a three-year period in
included revenue and pre-tax earnings growth targets, as well as one-third increments or (ii) upon occurrence of a ‘‘change of
revenue unit growth and cost-of-service margins. control’’ of the Company (if earlier). Restrictions on restricted
Discretionary STI Component. Payments under the stock granted in fiscal year 2006 lapse over a three-year period in
Discretionary STI Component for fiscal year 2006 were based one-third annual increments beginning on the first anniversary of
upon achievement of individual and strategic performance the date of issuance. Prior to the lapse of restrictions, restricted
objectives that support the Company’s priorities. For most stock may not be transferred and is forfeited upon cessation of
executive officers (including the named executive officers), 20% employment. In addition, restricted stock recipients (i) receive
of the executive’s overall targeted STI Program compensation cash dividends payable with respect to unvested restricted stock
was based on the Discretionary STI Component. Actual incentive on the same basis as if restrictions on such stock had lapsed and
payouts under the Discretionary Objective STI Component could (ii) vote unvested restricted stock shares at
be from 0% to 200% of the target award. For fiscal year 2007, the shareholders meetings.
Committee has determined that the Discretionary STI component NEW LONG-TERM INCENTIVE PLAN –In fiscal year 2007, the
should be eliminated, with 100% of the STI opportunity based on Company will implement a new performance-based long-term
objective annual performance targets tied to business unit or incentive program for senior executives. Under this program, the
overall corporate results. restricted stock component of the Company’s current long-term
EXECUTIVE PERFORMANCE PLAN –In addition to the STI incentive compensation program will be replaced by performance
Program, the Company maintains the H&R Block Executive shares. Performance shares will vest after three years, subject to
Performance Plan, which was approved by the Company’s pre-established performance objectives. An executive will earn
shareholders on September 7, 2005 (the ‘‘Executive Performance the target number of performance shares for achievement of
Plan’’). To the extent an executive officer receives an award targeted performance. An executive may receive up to one and
H&R BLOCK 2006 Proxy Statement
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