Waste Management 2011 Annual Report Download - page 46

Similar to the annual cash bonus performance metric calculations, the MD&C Committee has discretion to
make adjustments to the ROIC calculation for unusual or otherwise non-operational matters that it believes do
not accurately reflect results of operations expected from management for bonus purposes. In February 2012, the
MD&C Committee approved adjustments to the calculation of results under the 2009 awards that had a
performance period ended December 31, 2011. Net operating profit after taxes used in the calculation of results
was adjusted to 1) include the effects of impairment charges resulting from the abandonment of licensed software
and a cash litigation settlement received in connection with litigation pertaining to such software; and 2) exclude
the effects of: (i) revisions of estimates associated with remedial liabilities; (ii) changes in ten-year Treasury
rates, which are used to discount remediation reserves; (iii) withdrawal from underfunded multiemployer pension
plans and labor disruption costs; (iv) charges related to the acquisition and integration of the acquired Oakleaf
business; and (v) benefits from investments in low-income housing and a refined coal facility on tax rates.
Capital used in the calculation of results was adjusted to exclude the impact of: (i) investments in low-income
housing and a refined coal facility; (ii) the purchase price for Oakleaf, less goodwill and (iii) certain investments
by our Wheelabrator subsidiary. Additionally, stockholders’ equity used in the calculation of capital excludes the
impact of prior year tax audit settlements.
Adjustments are made to ensure that rewards are aligned with the right business decisions and are not
influenced by potential short-term gain or impact on bonuses. Adjusting for certain items, like those discussed
herein, avoids creating incentives for individuals to fail to take actions for the longer-term good of the Company
in order to meet short-term goals. The aggregate impact of the adjustments mentioned above resulted in
increasing the payout percentage on performance shares units from 71.4% to 86.99%.
Stock Options — The MD&C Committee believes use of stock options is appropriate to support the growth
element of the Company’s strategy. The grant of options made to the named executive officers in the first quarter
of 2011 in connection with the annual grant of long-term equity awards was based on the targeted dollar amounts
established for total long-term equity incentives (set forth in the table above) and multiplied by 70%. The actual
number of stock options granted was determined by assigning a value to the options using an option pricing
model, and dividing the dollar value of compensation by the value of each option. The resulting number of stock
options, including the transformational award, are shown in the table below:
Named Executive Officer
Number of
Options
Mr. Steiner ............................................................... 583,333
Mr. Preston* .............................................................. 184,584
Mr. Simpson .............................................................. 145,616
Mr. Trevathan ............................................................. 109,084
Mr. Trevathan** ........................................................... 150,000
Mr. Harris ................................................................ 109,084
Mr. Woods ............................................................... 109,084
* Initial grant of stock options received by Mr. Preston when he joined the Company, based on a target
compensation value of $1 million.
** Additional grant received by Mr. Trevathan upon his June 2011 promotion, based on a target compensation
value of $964,500.
The stock options will vest in 25% increments on the first two anniversaries of the date of grant and the
remaining 50% will vest on the third anniversary. The exercise price of the options is the average of the high and
low market price of our Common Stock on the date of grant, and the options have a term of 10 years. See the
Grant of Plan-Based Awards in 2011 table below for specific exercise prices. We account for our employee stock
options under the fair value method of accounting using a Black-Scholes methodology to measure stock option
expense at the date of grant. The fair value of the stock options at the date of grant is amortized to expense over
the vesting period.
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