Kodak 2004 Annual Report Download - page 148

Compensation
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E A S T M A N฀ K OD A K ฀ C O M PA N Y
LONG-TERM฀INCENTIVE฀PLAN
Leadership฀Stock฀Program
Effective฀January฀1,฀2004,฀the฀Compensation฀Committee฀allocated฀performance฀stock฀units฀for฀the฀first฀time฀under฀the฀new฀Leadership฀Stock฀Program฀to฀
the฀Company’s฀executives,฀including฀the฀named฀executive฀officers.฀The฀Leadership฀Stock฀Program฀was฀established฀in฀the฀fall฀of฀2003฀to:
฀ •฀improve฀the฀linkage฀between฀controllable฀performance฀factors฀and฀executive฀compensation;
฀ •฀enhance฀the฀focus฀of฀the฀Company’s฀executives฀on฀long-term฀operating฀goals;
฀ •฀de-emphasize฀stock฀options฀by฀granting฀these฀awards฀only฀to฀those฀who฀are฀most฀responsible฀for฀influencing฀the฀Company’s฀stock฀price;฀and
฀ •฀reduce฀the฀Company’s฀share฀usage.
The฀program฀runs฀in฀two-year฀cycles฀with฀a฀new฀cycle฀beginning฀each฀January.฀All฀of฀the฀Company’s฀executives฀(approximately฀800฀employees)฀are฀eligible฀
to฀participate฀in฀the฀program.฀Awards฀are฀granted฀in฀the฀form฀of฀performance฀stock฀units,฀which,฀if฀earned,฀are฀paid฀in฀the฀form฀of฀shares฀of฀Kodak฀stock.฀
The฀program’s฀awards฀are฀totally฀performance-based,฀not฀merely฀time-based.฀Individual฀award฀determinations฀are฀based฀on฀an฀executive’s฀level฀of฀respon-
sibility฀and฀leadership฀assessment.฀฀
The฀program’s฀sole฀performance฀metric฀is฀Company฀earnings฀per฀share฀(EPS)฀performance฀over฀a฀two-year฀period.฀EPS฀is฀used฀because฀it฀is฀an฀operation-
al฀metric฀that฀each฀executive฀can฀directly฀influence.฀In฀setting฀the฀EPS฀target฀for฀each฀two-year฀period,฀however,฀the฀Compensation฀Committee฀evaluates฀
the Company's฀implied฀return฀on฀invested฀capital฀to฀ensure฀that฀an฀acceptable฀level฀of฀return฀to฀shareholders฀is฀achieved฀at฀target฀performance฀levels.฀
Target payout for฀the฀period฀cannot฀be฀achieved฀unless฀the฀Company’s฀cost฀of฀capital฀is฀surpassed.฀Having฀both฀an฀EPS฀measure฀and฀a฀capital฀efficiency฀
floor for setting target฀performance฀ensures฀that฀management฀will฀be฀rewarded฀for฀adding฀value.
The฀payment฀of฀any฀stock฀units฀earned฀under฀the฀program฀is฀delayed฀for฀one฀year฀contingent฀on฀the฀executive’s฀continuous฀employment฀with฀the฀Company.฀
During฀this฀year,฀dividend฀equivalents฀are฀paid฀on฀the฀stock฀units,฀but฀they฀too฀are฀subject฀to฀this฀one-year฀vesting฀period.฀At฀the฀end฀of฀this฀year,฀the฀stock฀
units,฀and฀all฀of฀the฀dividend฀equivalents฀earned฀on฀these฀stock฀units,฀are฀paid฀to฀the฀executive฀in฀the฀form฀of฀shares฀of฀the฀Company’s฀stock.
For฀most฀executives,฀the฀Leadership฀Stock฀Program฀replaces฀the฀Company’s฀historical฀practice฀of฀granting฀an฀annual฀stock฀option฀award.฀Only฀the฀Com-
pany’s฀officers฀continue฀to฀be฀eligible฀for฀an฀annual฀award฀of฀stock฀options.฀The฀target฀Leadership฀Stock฀awards฀for฀the฀Company’s฀officers฀are฀reduced฀to฀
reflect฀their฀continuing฀participation฀in฀the฀stock฀option฀program.฀In฀converting฀the฀amount฀of฀an฀executive’s฀former฀target฀award฀under฀the฀management฀
stock฀option฀program฀to฀his฀or฀her฀target฀award฀under฀the฀new฀program,฀the฀Compensation฀Committee฀used฀a฀value-neutral฀approach฀recommended฀by฀
an฀external฀independent฀compensation฀consultant.฀This฀methodology฀provided฀fair฀treatment฀to฀the฀executives฀and฀was฀sensitive฀to฀the฀interests฀of฀the฀
Company’s฀shareholders.
The฀Leadership฀Stock฀Program฀also฀replaced฀the฀Company’s฀Performance฀Stock฀Program.฀This฀was฀a฀program฀for฀the฀Company’s฀top฀executives฀that฀
measured฀performance฀over฀a฀three-year฀period฀based฀on฀the฀Company’s฀relative฀shareholder฀return.฀The฀Compensation฀Committee฀decided฀to฀replace฀the฀
program฀to฀improve฀the฀linkage฀between฀controllable฀performance฀and฀executive฀compensation,฀and฀the฀desire฀to฀enhance฀the฀focus฀on฀the฀Company’s฀
long-term฀operating฀goals.฀The฀pending฀cycles฀of฀the฀Performance฀Stock฀Program,฀however,฀will฀continue฀to฀run฀until฀they฀expire.฀The฀target฀awards฀under฀
the฀Leadership฀Stock฀Program฀for฀those฀participants฀who฀were฀formerly฀eligible฀for฀the฀Performance฀Stock฀Program฀were฀increased฀to฀reflect฀their฀former฀
participation฀in฀this฀program.
Because฀the฀amount฀of฀an฀executive’s฀earned฀award฀under฀the฀Leadership฀Stock฀Program฀is฀dependent฀upon฀the฀Company’s฀EPS฀performance฀and฀the฀
executive’s฀continued฀employment,฀the฀amount฀of฀payout฀(if฀any)฀to฀an฀executive฀under฀the฀program฀cannot฀be฀determined฀at฀this฀time.฀The฀following฀table฀
describes฀the฀awards฀that฀would฀be฀payable฀to฀a฀named฀executive฀officer฀under฀the฀program฀for฀the฀2004-2005฀cycle,฀assuming฀threshold,฀target฀and฀
maximum฀EPS฀performance฀is฀achieved฀and฀the฀named฀executive฀officer฀satisfies฀the฀cycle’s฀one-year฀vesting฀period.฀฀
Long-Term฀Incentive฀Plan — Awards฀in฀Last฀Fiscal฀Year
฀ ฀ ฀ ฀ ฀ Estimated฀Future฀Payouts฀Under
฀ ฀ ฀ ฀ ฀ Non-Stock฀Price-Based฀Plans
฀ ฀ Number฀of฀ Performance฀or
฀ ฀ Shares,฀Units฀ Other฀Period฀Until฀ Threshold฀ #฀of฀Shares฀ Maximum
฀ Name฀ or฀Other฀Rights฀ Maturation฀or฀Payout฀ #฀of฀Shares฀฀ at฀Target฀Performance฀ #฀of฀Shares
฀ D.฀A.฀Carp฀฀ N/A฀ 2004-2005฀ 0฀ 60,000฀ 120,000
฀ A.฀M.฀Perez฀฀ N/A฀ 2004-2005฀ 0฀ 35,000฀ 70,000
฀ R.฀H.฀Brust฀฀ N/A฀ 2004-2005฀ 0฀ 8,050฀ 16,100
฀ J.฀T.฀Langley฀ N/A฀ 2004-2005฀ 0฀ 6,580฀ 13,160
฀ B.฀V.฀Masson฀ N/A฀ 2004-2005฀ 0฀ 8,050฀ 16,100