This excerpt taken from the APPY 10-K filed Apr 29, 2009.
Compensation Discussion and Analysis
This section describes our compensation program for our named executive officers (NEOs). The following discussion focuses on our compensation program and compensation-related decisions for fiscal 2008 and also addresses why we believe our compensation program is appropriate for the Company.
Compensation philosophy and overall objectives of executive compensation programs
It is our philosophy to link executive compensation to corporate performance and to create incentives for management to enhance our value. The following objectives have been adopted by the Compensation Committee as guidelines for compensation decisions:
Procedures for determining compensation
Our Compensation Committee has the overall responsibility for designing and evaluating the salaries, incentive plan compensation, policies and programs for our NEOs. The Compensation Committee relies on input from our Chief Executive Officer regarding the NEOs (other than himself) and an analysis of our corporate performance. With respect to the compensation for the Chief Executive Officer, the Compensation Committee evaluates the Chief Executive Officers performance and sets his compensation. With respect to our corporate performance as a factor for compensation decisions, the Compensation Committee considers, among other aspects, our long-term and short-term strategic goals and development goals.
Our Chief Executive Officer plays a significant role in the compensation-setting process of the other NEOs and makes recommendations to the Compensation Committee concerning performance objectives and salary and bonus levels for the other NEOs. The Compensation Committee then discusses the recommendations with the Chief Executive Officer at least annually. The Compensation Committee may, in its sole discretion, approve, in whole or in part, the recommendations of the Chief Executive Officer. The Compensation Committee makes recommendations to the full board for their final approval regarding the overall compensation structure for the NEOs. In fiscal 2008, the Compensation Committee and the board approved the Chief Executive Officers recommendations for salary and bonus with respect to each of the other NEOs.
In determining the adjustments to the compensation of our NEOs, during fiscal 2008 we conducted a limited review of peer group study information but we did not perform a benchmarking survey for fiscal 2008 or rely on a compensation consultant. Our Compensation Committee relied on their experience with other public companies, and those experiences informed and guided our compensation decisions for fiscal 2008.
Elements of compensation
The compensation of our NEOs consists primarily of four major components:
The base salary of each of our NEOs is determined based on an evaluation of the responsibilities of that position, each NEOs historical salary earned in similar management positions. A significant portion of each NEOs total compensation is in the form of base salary. The salary component was designed to provide the NEOs with consistent income and to attract and retain talented and experienced executives capable of managing our operations and strategic growth. Annually, the performance of each NEO is reviewed by the Compensation Committee using information and evaluations provided by the Chief Executive Officer with respect to the other NEOs and its own assessment of the Chief Executive Officer, taking into account our operating and financial results for the year, a subjective assessment of the contribution of each NEO to such results, the achievement of our strategic growth and any changes in our NEOs roles and responsibilities. During fiscal 2008, only one NEO received a merit-based increase in base salary.
Annual incentive plan
Annually, management of the Company develops goals and milestone objectives in the form of a written goal set (Incentive Plan) that is then approved by the Compensation Committee and the Board. This Incentive Plan is designed to recognize and reward our employees including the NEOs for contributing towards the achievement of our annual business plan. The Compensation Committee believes the Incentive Plan serves as a valuable short-term incentive program for providing cash bonus opportunities for our employees upon achievement of targeted operating results as determined by the Compensation Committee and the board of directors. The fiscal 2008 Incentive Plan was based primarily on advancement of development activities surrounding our appendicitis product. Generally, bonus payouts for 2008 were determined to be based on 30% achievement of the Incentive Plans targeted goals.
At the close of the performance period, the Compensation Committee determined the bonuses for the employees, including the NEOs following the annual audit and reporting of financial results for fiscal 2008 and recommended such awards to the board of directors, who approved them. The Compensation Committee believes the incentive awards were warranted and consistent with the performance of such executives during fiscal 2008 based on the Compensation Committees evaluation of each individuals overall contribution to accomplishing our fiscal 2008 corporate goals and of each individuals achievement of strategic and individual performance goals during the year.
Long-term equity awards
The Compensation Committee believes that it is essential to align the interests of the executives, other key management personnel and all employees responsible for our growth with the interests of our stockholders. The Compensation Committee has also identified the need to retain tenured, high performing executives. The Compensation Committee believes that these objectives are accomplished through the provision of stock-based incentives that align the interests of management personnel with the objectives of enhancing our value, as set forth in the AspenBio Pharma 2002 Stock Incentive Plan (the Plan).
The board of directors awarded stock options to the employees, including the NEOs during January 2009. The Plan was established, generally, to compensate option recipients for working to increase our value. In general, we provide our employees, including NEOs with stock options subject to vesting schedules general over three years.
The Compensation Committee periodically reviews long-term incentives to assure that our executive officers and other key employees are appropriately motivated and rewarded based on our long-term financial success.
Perquisites and Other Benefits. We offer our NEOs modest perquisites and other personal benefits that we believe are reasonable and in our best interest and generally in line with benefits we offer to all of our employees. See 2008 Summary compensation table.
Severance Benefits. We have entered into employment agreements with several of our NEOs. These agreements provide our NEOs with certain severance benefits in the event of involuntary termination. See Employment agreements.