Waste Management 2014 Annual Report Download - page 41

The different performance measure levels are determined based on an analysis of historical performance and
current projections and trends. The MD&C Committee uses this analysis and modeling of different scenarios
related to items that affect the Company’s performance such as yield, volumes and capital to set the performance
measures. As with the consideration of targets for the annual cash incentives, when the MD&C Committee
established the cash flow targets, the MD&C Committee carefully considered several material factors affecting
the Company for 2014 and beyond, including general economic and market conditions and economic indicators
for future periods, to ensure that the cash flow targets align with the Company’s long-range strategic plan.
Payout on PSUs for the Performance Period Ended December 31, 2014. Half of the PSUs granted in
2012 with the performance period ended December 31, 2014 were subject to an ROIC performance measure, and
the remaining half of the PSUs granted in 2012 were subject to total shareholder return relative to the S&P 500.
For the performance period ended December 31, 2014, the Company delivered ROIC of 16.302%, which was
slightly above target performance of 16.3%; the performance level achieved was 100% of target and yielded a
100.12% payout in shares of Common Stock that were issued in February 2015. For purposes of this performance
measure, we generally defined ROIC as net operating profit after taxes divided by capital. With respect to the
PSUs with a performance period ended December 31, 2014 that were subject to total shareholder return relative
to the S&P 500, the performance of the Company’s Common Stock on this measure translated into a percentile
rank relative to the S&P 500 of 46.52%, resulting in a 93.03% payout in shares of Common Stock that were
issued in February 2015.
As discussed above, the MD&C Committee has discretion to make adjustments to the performance
calculations for unusual or otherwise non-operational matters. In February 2015, the MD&C Committee ratified
and approved adjustments to the calculation of ROIC results for 2012 and 2013 that had been approved in prior
years, as follows: net operating profit after taxes used in the calculation of results was adjusted to exclude the
effects of: (i) adjustment of legal reserves; (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;
and (iv) charges related to acquisition and integration, and earnings on account of, the acquired Greenstar and
RCI businesses. Capital used in the calculation of results was adjusted to exclude the impact of the purchase
price for each of Greenstar and RCI, less associated goodwill. Additionally, stockholders’ equity used in the
calculation of capital excludes the impact of prior year tax audit settlements. In line with the MD&C
Committee’s policy on calculation adjustments, no adjustments were made to the calculation of ROIC results for
2014.
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 2014 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 ............................................................... 280,899
Mr. Trevathan ............................................................. 67,416
Mr. Fish ................................................................. 67,416
Mr. Harris ................................................................ 53,933
Mr. Morris ............................................................... 53,933
Mr. Aardsma .............................................................. 26,966
Mr. Weidman ............................................................. 18,924
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 2014 table below for specific exercise prices. We account for our employee stock
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