This excerpt taken from the AN DEF 14A filed Mar 27, 2008.
Proposal 3: Approval of AutoNation, Inc.
2008 Employee Equity and Incentive Plan
On March 14, 2008, our Board of Directors, upon the recommendation of its Compensation Committee, approved a new employee equity and incentive plan, subject to the requisite approval by our stockholders. The purpose of the AutoNation, Inc. 2008 Employee Equity and Incentive Plan (the 2008 Plan) is to ensure that we attract and retain high-quality employees and independent contractors and to align the interests of our employees and independent contractors with our stockholders. The principal features of the 2008 Plan are summarized below. This summary does not contain all information about the 2008 Plan. A copy of the complete text of the 2008 Plan is attached as Exhibit A to this proxy statement, and the following description is qualified in its entirety by reference to the text of the 2008 Plan.
If the requisite stockholder approval is obtained, the 2008 Plan would be effective as of March 14, 2008 (the date the 2008 Plan was approved by our Board of Directors). The AutoNation, Inc. Amended and Restated 1998 Employee Stock Option Plan (the 1998 Plan) has expired, and no additional awards may be granted to employees under the 1998 Plan or any other equity compensation plan of AutoNation (other than the recently adopted 2008 Plan). If our stockholders do not approve the 2008 Plan by March 14, 2009, any awards granted under the 2008 Plan will be null and void.
The 2008 Plan is being submitted to our stockholders in order to ensure its compliance with Section 162(m) (Section 162(m)) of the Internal Revenue Code of 1986, as amended (the Code) and the NYSE Corporate Governance Standards concerning stockholder approval of equity compensation plans (the Corporate Governance Standards). The Corporate Governance Standards provide that stockholders must be given the opportunity to vote on all equity compensation plans and material revisions thereto. The 2008 Plan is an equity compensation plan (i.e., a plan that provides for the delivery of our common stock to our employees and independent contractors as compensation for their services) and we are asking in this proposal for your approval of the 2008 Plan in compliance with the Corporate Governance Standards.
Section 162(m) denies a deduction by an employer for certain compensation in excess of $1,000,000 per year paid by a publicly held corporation to the following individuals who are employed at the end of the corporations taxable year (Covered Employees): the Chief Executive Officer and the four other most highly compensated executive officers for whom compensation disclosure is required under the proxy rules. Certain compensation, including compensation based on the attainment of performance goals, is excluded from this deduction limit if certain requirements are met. Among the requirements for compensation to qualify for this exception is that the material terms pursuant to which the compensation is to be paid be disclosed to and approved by the stockholders in a separate vote prior to the payment of any such compensation, and that the plan be administered by outside directors. Accordingly, if the 2008 Plan is approved by stockholders and other conditions of Section 162(m) relating to the exclusion for performance-based compensation are satisfied, compensation paid to Covered Employees pursuant to the 2008 Plan will not be subject to the deduction limit of Section 162(m). We are asking in this proposal for your approval of the 2008 Plan and the performance goals that are applicable under the 2008 Plan where an award is intended to qualify as performance-based compensation under Section 162(m).