Mattel 2009 Annual Report Download - page 87

expenses. Separately, Mattel has purchased group trust-owned life insurance contracts designed to assist in
funding these programs. The cash surrender value of these policies, valued at $60.4 million and $55.3 million as
of December 31, 2009 and 2008, respectively, are held in an irrevocable grantor trust, the assets of which are
subject to the claims of Mattel’s creditors and are included in other noncurrent assets in the consolidated balance
sheets.
Incentive Compensation Plans
Mattel has annual incentive compensation plans under which officers and key employees may earn incentive
compensation based on Mattel’s performance and subject to certain approvals of the Compensation Committee of
the Board of Directors. For 2009, 2008, and 2007, $96.6 million, $15.4 million, and $73.5 million, respectively,
was charged to expense for awards under these plans.
The Mattel 2003 Long-Term Incentive Plan was approved by Mattel’s stockholders in May 2003 and
expired in 2008. This plan was intended to motivate and retain key executives of Mattel who regularly and
directly make or influence decisions that affect the medium- and long-term success of Mattel. This plan became
effective as of January 1, 2003 and replaced a prior long-term incentive plan that was approved in June 1999.
Mattel has had two long-term incentive program (“LTIP”) performance cycles in place for some portion of
the time period between 2007 and 2009: (i) a January 1, 2005—December 31, 2007 performance cycle, which
was established by the Compensation Committee of Mattel’s Board of Directors in March 2005, and (ii) a
January 1, 2008—December 31, 2010 performance cycle, which was established by the Compensation
Committee of Mattel’s Board of Directors in March 2008.
For the January 1, 2005—December 31, 2007 LTIP performance cycle, cumulative financial performance
was measured against annually escalating operating result targets that used a net operating profit after taxes less
capital charge calculation. Because the performance targets escalate each year, reaching the cumulative targets
became increasingly difficult when the performance targets were not met in the earlier periods. Awards were
based upon the financial performance of Mattel during the specified performance period and were settled in cash
when the required financial performance was met. During 2006, considering Mattel’s actual cumulative
performance during 2005 and 2006 and expectations for 2007, Mattel determined that the likelihood of payments
being made was probable, and $14.8 million was charged to expense. During 2007, an additional $10.1 million
was charged to expense for a cumulative total of $24.9 million relating to the January 1, 2005—December 31,
2007 LTIP performance cycle, which was subsequently paid in cash during 2008.
For the January 1, 2008—December 31, 2010 LTIP performance cycle, during 2009 and 2008, Mattel
granted performance RSUs under the Mattel, Inc. 2005 Equity Compensation Plan to officers and certain
employees providing services to Mattel. Performance RSUs are units that may become payable in shares of
Mattel’s common stock at the end of the three-year performance period, beginning January 1, 2008 and ending
December 31, 2010 (“the performance period”). Performance RSUs are earned based on an initial target number
with the final number of performance RSUs payable being determined based on the product of the initial target
number of performance RSUs multiplied by a performance factor based on measurements of Mattel’s
performance with respect to: (i) annual operating result targets for each year in the performance period using a
net operating profit after taxes less capital charge calculation (“the performance-related component”), and
(ii) Mattel’s total stockholder return (“TSR”) for the three-year performance period relative to the TSR realized
by companies comprising the S&P 500 as of January 1, 2008 (“the market-related component”). For the
performance-related component, the range of possible outcomes is that between zero and 0.7 million shares are
earned for each of the three years during the three-year performance period. For the market-related component,
possible outcomes range from an upward adjustment of 0.7 million shares to a downward adjustment of
0.7 million shares to the results of the performance-related component over the three-year performance period.
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