This excerpt taken from the BK DEF 14A filed Mar 14, 2008.
Pre-Merger Mellon Committee Actions Relating to Messrs. Elliott and OHanley
In February 2007, the Mellon committee established the base salary and the long-term equity components of Messrs. Elliotts and OHanleys compensation for 2007. The committee determined that the annual base salaries for Messrs. Elliott and OHanley would remain at $675,000. In addition, the committee approved equity awards for Messrs. Elliott and OHanley each with values of $2,500,000 and $5,750,000, respectively, in the form of a combination of stock options (which were $1,750,000 and $4,025,000, respectively) and restricted stock (which were $750,000 and $1,725,000, respectively).
In determining Mr. Elliotts equity award, the committee valued the stock option portion using the lattice binomial method and the restricted stock portion using a fair market value method in awarding a total equity award value to Mr. Elliott of $2,500,000. In determining Mr. OHanleys equity award, the Mellon committee valued the stock option portion using the Black-Scholes method and the restricted stock portion using a fair market value method in awarding a total equity award value to Mr. OHanley of $5,750,000. The committee elected to use the Black-Scholes method to value the stock option portion of Mr. OHanleys award, rather than the lattice binominal method used to value the options granted to Messrs. Kelly and Elliott, because the Black-Scholes method was used to develop the comparative compensation data from the peer group relevant to Mr. OHanley which was presented to and considered by the committee. The total value of the award, as well as the respective values of the stock option award and the restricted stock award, were above the median value of comparable awards made by the relevant peer group. As described above, these valuation methods differ from the accounting expense reported for these awards in the Summary Compensation Table and the Grants of Plan-Based Awards Table below.
When the Mellon committee established Mr. Elliotts base salary and long-term equity awards, it reviewed the amounts and types of compensation paid to comparable executives included in the peer group. The committee also reviewed Mellons performance in 2006 (which is discussed in the Pre-Merger Mellon Committee Actions Relating to Mr. Kelly above) and Mr. Elliotts role and responsibility in contributing to those results.
When the Mellon committee established Mr. OHanleys base salary and long-term equity awards, it reviewed the amounts and types of compensation paid to comparable executives included in his relevant peer group. The committee also reviewed the performance of Mellon Asset Management in 2006, and Mr. OHanleys role and responsibility in achieving these results. In particular, the committee considered the following factors in making its determination, including total revenue increase of 33% and performance fees increase of 109% (both versus full year 2005), pre-tax income increase of 59% (operating basis), pre-tax margin improvement to 31% from 27%, and achievement of a record level of assets under management of $820 billion, a 31% increase and 10% organic growth in assets under management (12 months ending December 31, 2006), which was the highest among leading U.S. asset managers. This performance was described in further detail in SEC filings by Mellon prior to the merger.
Finally, the committee granted additional special equity awards to Messrs. Elliott and OHanley valued at $1,753,000 and $831,600, respectively. These awards were composed of stock options and restricted stock and
were made in consideration of the agreement by each of Messrs. Elliott and OHanley to waive certain rights they had under pre-existing agreements that would have been triggered by the merger. In making the awards to Messrs. Elliott and OHanley, the committee considered the estimated economic value of waiving the automatic vesting of unvested equity upon Mellons change in control. The committee applied the same methods for valuing these equity awards as were used by the committee in valuing the previously described equity awards to Messrs. Elliott and OHanley.