Waste Management 2015 Annual Report Download - page 42

performance measure, and the remaining half of the PSUs granted in 2013 were subject to total shareholder
return relative to the S&P 500. For the performance period ended December 31, 2015, the Company delivered
ROIC of 17.5%, which was significantly above target performance of 16.0% and approaching the maximum of
17.6%; the performance level achieved yielded a 196.15% payout in shares of Common Stock that were issued in
February 2016. For purposes of this performance measure, ROIC is generally defined as net operating profit after
taxes divided by capital, and this measure has reinforced the need for capital discipline. With respect to the PSUs
with a performance period ended December 31, 2015 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 66.44%, resulting in a 132.88% payout in shares of Common Stock that were issued in
February 2016.
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 2016, the MD&C Committee ratified
and approved adjustments to the calculation of ROIC results for 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
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; and 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 adopted in 2014, no adjustments were made to the calculation of ROIC results for 2014
or 2015.
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 2015 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 ............................................................... 236,427
Mr. Trevathan ............................................................. 60,420
Mr. Fish ................................................................. 60,420
Mr. Harris ................................................................ 50,438
Mr. Morris ............................................................... 50,438
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 granted in 2015 is $54.635,
which 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. 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 Guidelines and Holding 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
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