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This excerpt taken from the AN DEF 14A filed Mar 27, 2008. Annual
Incentive Bonus
A core component of our compensation program is the AutoNation
Operating Performance Plan (the “AOP”), the annual
bonus program in which bonus-eligible, corporate-level employees
participate. The AOP is designed to incentivize management to
continually improve our operating performance and to use capital
to maximize returns. The Subcommittee structured the AOP for
2007 to reward participants upon the
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achievement of specified levels of adjusted operating income per
share (75% weight) and adjusted operating income as a percentage
of gross profit (25% weight). For 2007, the targeted level of
adjusted operating income per share was $3.28, and the targeted
level of adjusted operating income as a percentage of gross
profit was 23.0%. Bonus awards under the AOP for 2007 were
payable on a sliding scale based on our actual achievement
relative to the predetermined goals, with the possibility that
bonuses earned may exceed or be less than the targeted level. In
calculating the level of our performance under the AOP,
operating income per share is adjusted to reflect a capital
charge for acquisitions and the repurchase of shares of our
common stock, as well as to exclude the effect of certain
extraordinary or one-time items. Certain other adjustments are
made as well to ensure operating performance is measured to
incentivize management appropriately (for example, floorplan
interest expense is charged against operating income to ensure
management manages this expense; on a generally accepted
accounting principles basis, floorplan interest expense is not
included in operating income). The capital charge is designed to
encourage more productive uses of capital and to discourage less
productive uses of capital. The adjusted operating income as a
percentage of gross profit metric is designed to incentivize
management to increase variability in our expense structure and
to increase the productivity of our operations so that
bottom-line profitability and stockholder value are maximized.
On February 5, 2007, our Board adopted a new Senior
Executive Incentive Bonus Plan (the “Executive Incentive
Bonus Plan”). The Executive Incentive Bonus Plan, which is
administered by the Subcommittee, was approved by our
stockholders at the 2007 Annual Meeting. The Executive Incentive
Bonus Plan, which is substantially identical to the AutoNation,
Inc. Senior Executive Incentive Bonus Plan that was approved by
stockholders in 2002 (the “Prior Executive Incentive Bonus
Plan”), replaced the Prior Executive Incentive Bonus Plan.
The Executive Incentive Bonus Plan is designed to create a
direct link between pay and performance for our named executive
officers and to ensure that annual cash performance bonuses
payable to executive officers of the Company are tax deductible
by the Company pursuant to Section 162(m) of the Code.
Under the Executive Incentive Bonus Plan, the Subcommittee, in
its sole discretion, determines which of our named executive
officers or other key employees participate in the plan in any
particular year. In addition, the Subcommittee is responsible
for identifying annual “performance factors” and
establishing specific performance targets with respect thereto
that must be met in order for annual bonuses to be paid under
the Executive Incentive Bonus Plan. The Subcommittee retains
absolute “negative discretion” to eliminate or reduce
the amount of any award under the Executive Incentive Bonus Plan
and to make all determinations under the Executive Incentive
Bonus Plan.
In accordance with the terms and objectives of the AOP, the
Subcommittee established an incentive bonus program for 2007 for
certain of our named executive officers under the Executive
Incentive Bonus Plan. For 2007, the Subcommittee selected Mike
Jackson, Chairman and Chief Executive Officer, Michael E.
Maroone, Director, President and Chief Operating Officer,
Michael J. Short, Executive Vice President and Chief Financial
Officer, and Jonathan P. Ferrando, Executive Vice President,
General Counsel and Secretary, to participate in the Executive
Incentive Bonus Plan. Under the terms of the Executive Incentive
Bonus Plan, the Subcommittee set specific annual performance
goals and established an objective formula for calculating the
amount of the target awards for participants. Bonus awards were
payable based on a sliding scale based on our actual achievement
relative to the predetermined goals, with the possibility that
bonuses earned may exceed or be less than the targeted level.
The Subcommittee had absolute “negative discretion” to
eliminate or reduce the amount of any award under the Executive
Incentive Bonus Plan. The target incentive award percentages
assigned to our select named executive officers are set forth
below.
The performance goals that the Subcommittee established for 2007
under the Executive Incentive Bonus Plan for the executives
named above — adjusted operating income per share (75%
weight) of $3.28 and adjusted operating income as a percentage
of gross profit (25% weight) of 23.0% — were the same
as those
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the Committee established for 2007 under the AOP for all other
corporate bonus plan participants, including Mr. Westfall,
who was eligible to receive a target award as a percentage of
his base salary of 45%. The Subcommittee believes this symmetry
assures that all participants are appropriately aligned to
achieve our objectives. One hundred percent of the target award
for each participant in the Executive Incentive Bonus Plan was
based upon achievement of the predetermined performance goals.
For 2007, the performance goals were not met at the level
necessary to achieve a bonus payout, and, as a result, the
Subcommittee awarded no bonuses to Messrs. Jackson,
Maroone, Short, and Ferrando under the Executive Incentive Bonus
Plan, or to other corporate bonus plan participants, including
Mr. Westfall, under the AOP. The Executive Incentive Bonus
Plan was the only bonus program in which our named executive
officers participated in 2007 (other than Mr. Westfall who
participated in the AOP only). For 2007, Mr. McAllister was
not eligible to receive a target award under the Executive
Incentive Bonus Plan or the AOP. However, in December 2006, the
Committee approved a $100,000 retention bonus for
Mr. McAllister which was paid in April 2007.
On February 4, 2008, the Subcommittee selected the
participants in the Executive Incentive Bonus Plan for 2008,
established specific objective annual performance goals, and set
target awards for participants in the Executive Incentive Bonus
Plan for 2008. For 2008, the Subcommittee selected
Messrs. Jackson, Maroone, Short, and Ferrando to
participate in the Executive Incentive Bonus Plan. The
performance goals that the Subcommittee established for 2008
under the Executive Incentive Bonus Plan are based upon the
achievement of specified levels of adjusted operating income per
share (minus a charge for capital deployed for acquisitions or
share repurchases) and adjusted operating income as a percentage
of gross profit for the Company during 2008. The performance
goals established under the Executive Incentive Bonus Plan for
2008 also constitute the performance goals that have been
established for bonus-eligible corporate employees of the
Company under the AOP to ensure that the corporate management
team is fully aligned. Bonus awards will be payable based on a
sliding scale based on our actual achievement relative to the
predetermined goals, with the possibility that bonuses earned
may exceed or be less than the targeted level (up to a maximum
of 200% of the targeted level). The Subcommittee will have
absolute “negative discretion” to eliminate or reduce
the amount of any award under the Executive Incentive Bonus
Plan. The target incentive award percentages assigned to our
select named executive officers for 2008 are set forth below.
In February 2008, the Committee increased Mr. Short’s
base salary by $36,000 to $561,000. Kevin Westfall’s target
award as a percentage of base salary under the AOP is 45% for
2008, and based on his performance, his base salary was
increased in February 2008 by $14,040 to $482,040. As part of
our retention efforts with respect to Mr. Jackson, a
portion of the target bonus for Mr. Jackson in 2008 and
2009 (to the extent earned) under the Executive Incentive Bonus
Plan (equal to
331/3%
of his base salary) will be payable to him on a deferred basis
in 2010 (without interest), subject to certain terms and
conditions.
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