This excerpt taken from the AWI 10-K filed Mar 30, 2007.
Rationale for Pay Elements
The base salary and annual incentive components of Armstrongs executive compensation program are the same as those used by other large manufacturing companies. Base salary and annual incentives are necessary to deliver competitive current compensation. Long-term incentive compensation is used to support executive retention and align a portion of the total direct compensation with the achievement of longer term goals which should result in an increase in shareholder value. While in Chapter 11, Armstrong could not use equity as a long-term incentive.
Effective October 2, 2006 (the date of AWIs emergence from Chapter 11), the Committee granted restricted stock awards and nonstatutory stock options to certain key managers as provided for under the Plan of Reorganization. Because AWI common stock was not trading on the New York Stock Exchange on the grant date, the Committee set the exercise price of the stock options as the volume weighted average closing price of reorganized AWI stock over the period of October 18 through October 31 as reported by the New York Stock Exchange, which was $38.42. The stock options have a ten-year term. Both the stock options and the restricted stock awards vest in three equal installments at two, three and four years from the grant date. The timing of these stock option grants was established to coincide with AWIs emergence from Chapter 11. With the exception of Mr. Lockhart whose Employment Agreement specifies that he receive annual long-term incentive awards, these emergence equity grants replace each managers long-term incentive award which would have been made in early 2007.
Typically, equity grants are made on the date of the Companys regular February board of directors meeting, and the Company has resumed that schedule. Equity grants for new hires who are not executive officers may be approved by the Committee Chair. These grants will be made on or about the date of hire and will be reported to the full Committee at the next scheduled meeting.