Waste Management 2013 Annual Report Download - page 45

of Oakleaf, Greenstar and RCI, less associated goodwill. 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 cash incentives. Adjustments are also necessary to take
account of major transactions, such as acquisitions, which were not known or included in the calculation of the
performance measures at the beginning of the performance period. The MD&C Committee considers both
positive and negative adjustments, and the MD&C Committee strives to ensure that it takes a consistent approach
to adjustments so that the nature of acceptable adjustments is very similar from year-to-year. Adjusting for
certain items, like those discussed above, avoids creating disincentives for individuals to take actions that are for
the longer-term good of the Company in order to meet short-term goals.
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 2013 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 20%. 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 target compensation by the value of an option. The resulting number of
stock options are shown in the table below.
Named Executive Officer
Number of
Options
Mr. Steiner ............................................................... 282,775
Mr. Trevathan ............................................................. 58,911
Mr. Fish ................................................................. 55,000
Mr. Harris ................................................................ 50,287
Mr. Morris ............................................................... 40,861
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 2013 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 less expected forfeitures, except for stock options granted to retirement-eligible employees, for
which expense is accelerated over the period that the recipient becomes retirement eligible.
Other Compensation Policies and Practices
Stock Ownership Requirements — All of our named executive officers are subject to stock ownership
guidelines. We instituted stock ownership guidelines because we believe that ownership of Company stock
demonstrates a commitment to, and confidence in, the Company’s long-term prospects and further aligns
employees’ interests with those of our stockholders. We believe that the requirement that these individuals
maintain a portion of their individual wealth in the form of Company stock deters actions that would not benefit
stockholders generally. Although there is no deadline set for executives to reach their ownership requirements,
the guidelines contain a holding requirement. Until the individual’s ownership requirement is achieved, Senior
Vice Presidents and above are required to retain 100% of all net shares acquired through the Company’s long-
term incentive plans and Vice Presidents are required to retain at least 50% of such net shares. The requisite
stock ownership level must thereafter be retained throughout the officer’s employment with the Company.
Additionally, the stock ownership guidelines generally require Senior Vice Presidents and above to hold all of
their net shares and Vice Presidents to hold 50% of their net shares for at least one year after such shares are
acquired, even if required ownership levels have already been achieved. Our MD&C Committee believes these
holding periods discourage these individuals from taking actions in an effort to gain from short-term or otherwise
fleeting increases in the market value of our stock.
The MD&C Committee regularly reviews its ownership guidelines to ensure that the appropriate share
ownership requirements are in place. Guidelines were last revised in November 2012, when the ownership
requirement for our Chief Executive Officer was increased from 165,000 shares to 225,500 shares, which is
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