Kodak 2004 Annual Report Download - page 145

Compensation
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2 0 0 5 ฀ N O T I C E ฀ O F ฀ A N N U A L ฀ M E E T I N G ฀ A N D ฀ P R O X Y ฀ S T A T E M E N T
BASE฀SALARY
Base฀salary฀is฀the฀only฀fixed฀portion฀of฀an฀executive’s฀compensation.฀Each฀executive’s฀base฀salary฀is฀reviewed฀annually฀based฀on฀the฀executive’s฀relative฀
responsibility฀and฀market฀comparisons.
SHORT-TERM฀VARIABLE฀PAY฀PLAN฀
Three฀key฀principles฀underlie฀the฀Executive฀Compensation฀for฀Excellence฀and฀Leadership฀Plan฀(EXCEL),฀the฀Company’s฀short-term฀variable฀pay฀plan฀for฀its฀
executives:฀alignment,฀simplicity฀and฀discretion.฀Alignment฀to฀Company฀objectives฀is฀achieved฀through฀the฀two฀performance฀metrics฀used฀to฀fund฀the฀Plan:฀
revenue฀growth฀and฀investable฀cash฀flow.฀The฀inclusion฀of฀revenue฀growth฀as฀a฀performance฀metric฀emphasizes฀the฀Company’s฀need฀for฀sustained฀profit-
able฀growth.฀In฀2004,฀investable฀cash฀flow฀replaced฀economic฀profit฀to฀underscore฀the฀importance฀of฀cash฀flow฀to฀the฀Company’s฀new฀growth฀strategy.฀
Simplicity฀is฀accomplished฀through฀ease฀of฀plan฀administration.฀Under฀EXCEL,฀each฀participant฀has฀three฀to฀four฀key฀performance฀goals.฀Discretion,฀the฀
third฀key฀principle,฀may฀be฀used฀to฀adjust฀the฀size฀of฀the฀Plan’s฀funding฀pool,฀modify฀the฀funding฀pool’s฀allocation฀to฀the฀Company’s฀units฀and฀determine฀the฀
performance฀and฀rewards฀of฀the฀Plan’s฀participants.฀
Participants฀in฀EXCEL฀are฀assigned฀target฀awards฀for฀the฀year฀based฀on฀a฀percentage฀of฀their฀base฀salaries฀as฀of฀the฀end฀of฀that฀year.฀This฀percentage฀is฀
determined฀by฀the฀participant’s฀wage฀grade.฀For฀2004,฀target฀awards฀ranged฀from฀25%฀of฀base฀salary฀for฀lower-level฀executives฀to฀155%฀of฀base฀salary฀for฀
the฀CEO.฀
In฀February฀of฀each฀year,฀the฀Compensation฀Committee฀establishes฀a฀performance฀matrix฀for฀the฀year฀based฀on฀the฀Plan’s฀two฀performance฀metrics.฀This฀
matrix฀determines฀the฀percentage฀of฀the฀Plan’s฀target฀corporate฀funding฀pool฀that฀will฀be฀earned฀for฀the฀year฀based฀on฀the฀Company’s฀actual฀performance฀
against฀these฀two฀metrics.฀The฀target฀corporate฀funding฀pool฀is฀the฀aggregate฀of฀all฀participants’฀target฀awards฀for฀the฀year.฀Under฀the฀performance฀matrix,฀
the฀corporate฀funding฀pool฀will฀fund฀at฀100%฀if฀target฀performance฀for฀each฀performance฀metric฀is฀met.
The฀Compensation฀Committee฀may฀use฀its฀discretion฀to฀increase฀or฀decrease฀the฀amount฀of฀the฀corporate฀funding฀pool฀for฀any฀year.฀The฀Committee฀
considers฀a฀number฀of฀baseline฀metrics฀before฀applying฀this฀discretion.฀In฀2004,฀these฀baseline฀metrics฀included฀earnings฀from฀operations,฀days฀supply฀of฀
inventory฀from฀continuing฀operations,฀customer฀satisfaction,฀digital฀revenue฀growth฀and฀execution฀against฀the฀Company’s฀new฀business฀model.฀In฀addition,฀
the฀Compensation฀Committee฀may฀choose฀to฀exercise฀discretion฀to฀recognize฀such฀things฀as฀unanticipated฀economic฀or฀market฀changes,฀extreme฀currency฀
exchange฀effects฀and฀management฀of฀significant฀workforce฀issues.
The฀CEO฀allocates฀the฀corporate฀funding฀pool฀among฀the฀Company’s฀business฀units.฀Each฀business฀unit฀has฀its฀own฀targets฀for฀operational฀performance฀
for฀the฀year.฀Actual฀performance฀against฀these฀targets฀accounts฀for฀75%฀of฀the฀business฀unit’s฀allocation.฀The฀remaining฀25%฀is฀determined฀by฀overall฀
Company฀performance฀for฀the฀year฀measured฀against฀the฀Company’s฀targets฀for฀the฀year฀based฀on฀the฀two฀EXCEL฀performance฀metrics.
Senior฀management฀of฀each฀staff,฀regional,฀functional฀and฀business฀unit฀allocates฀the฀unit’s฀funds฀to฀its฀participants฀based฀on฀each฀participant’s฀individual฀
performance.฀This฀assessment฀includes฀performance฀against฀pre-established฀individual฀goals,฀leadership฀and฀support฀of฀the฀Company’s฀diversity฀and฀
inclusion฀strategy.
STOCK฀OPTION฀PROGRAM฀฀
Effective฀in฀the฀fall฀of฀2003,฀only฀the฀Company’s฀officers฀are฀eligible฀for฀an฀annual฀stock฀option฀grant.฀This฀change฀was฀made฀in฀large฀part฀in฀recognition฀of฀
the฀significant฀potential฀dilutive฀impact฀of฀these฀types฀of฀awards.฀The฀Company’s฀officers,฀including฀its฀named฀executive฀officers,฀continue฀to฀receive฀stock฀
options฀since฀they฀remain฀an฀effective฀incentive฀compensation฀vehicle฀for฀those฀who฀are฀most฀responsible฀for฀influencing฀shareholder฀value.฀
To฀further฀minimize฀the฀dilutive฀impact฀of฀the฀Company’s฀stock฀option฀grants,฀the฀Compensation฀Committee฀in฀2003฀approved฀two฀additional฀changes฀
to฀the฀stock฀option฀program.฀All฀options฀are฀now฀granted฀for฀a฀term฀of฀no฀more฀than฀seven฀years,฀rather฀than฀10฀years;฀except฀that฀through฀2004,฀the฀
directors฀continued฀to฀be฀granted฀options฀with฀a฀ten-year฀term.฀In฀addition,฀in฀those฀limited฀situations฀where฀participants฀are฀permitted฀to฀retain฀their฀stock฀
options฀upon฀termination฀of฀employment,฀the฀options฀expire฀three฀years฀thereafter,฀rather฀than฀upon฀expiration฀of฀their฀normal฀term.
The฀Company฀bases฀target฀grant฀ranges฀on฀the฀median฀survey฀values฀of฀the฀companies฀it฀polls.฀Grants฀to฀individual฀officers฀are฀then฀adjusted฀based฀in฀
large฀part฀on฀the฀officer’s฀relative฀leadership฀assessment.฀Finally,฀the฀Compensation฀Committee฀ultimately฀determines฀the฀size฀of฀the฀stock฀option฀awards฀
to฀the฀executive฀officers฀using฀the฀recommendations฀made฀by฀management฀as฀a฀starting฀point.฀The฀2004฀stock฀option฀awards฀granted฀by฀the฀Compensa-
tion฀Committee฀to฀the฀named฀executive฀officers฀are฀listed฀in฀the฀table฀below.