CSS » Topics » Long-Term Incentives - Equity Compensation

This excerpt taken from the CSS DEF 14A filed Jun 19, 2008.
Long-Term Incentives — Equity Compensation
 
We utilize equity compensation as our principal form of long-term compensation. During fiscal 2008, our equity compensation grants were in the form of options to purchase our common stock. The stock options granted during fiscal 2008:
 
  •  have a term of five years;
 
  •  vest as to one-quarter of the underlying shares on each of the first four anniversaries of the date of grant, and
 
  •  have an exercise price equal to the last sales price reported by the New York Stock Exchange on the trading day preceding the date of grant.
 
We believe that stock options provide a strong incentive to increase stockholder value, because the value of the stock options is entirely dependent on the increase in the market price of our common stock following the date of grant.
 
In May 2007, we granted stock options to each of our named executive officers other than Mr. Farber. The number of shares underlying stock options granted to the named executive officers are set forth in the Grants of Plan-Based Awards table on page 37 under the column heading, “All Other Option Awards: Number of Securities Underlying Options.” In determining the number of shares underlying the options granted to our named executive officers we considered the recommendations of management and Mercer’s analysis of management’s recommended grant levels as compared to peer group and survey data. We referenced information from Mercer indicating that the value of the stock option grants proposed by management (as determined by Mercer utilizing the Black-Scholes pricing model) when considered as a percentage of salary would be below the competitive median range indicated by the peer group data. Additionally, we referenced information provided by Mercer indicating that the stock option grant levels proposed by management would result in target total direct compensation (i.e., salary, plus target annual incentive compensation, plus long term incentive compensation) for the executive officers included in Mercer’s study being within or below the competitive range indicated by both the survey data and the peer group data.


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For additional information regarding stock option terms, see the discussion accompanying the Grants of Plan-Based Awards Table beginning on page 37. The amount shown in “Option Awards” column of the Summary Compensation Table reflects the dollar amount of stock option compensation expense recognized for financial statement purposes. Therefore, it includes amounts with respect to only a portion of the stock options granted during the fiscal year ended March 31, 2008, while also including amounts from earlier option grants. See footnote 2 to the Summary Compensation Table on page 36 for further information.
 
For fiscal 2009, we granted equity compensation awards to our named executive officers (other than Mr. Farber) in the form of both stock options and stock bonus awards of restricted stock units that vest only if certain performance goals are achieved. The equity compensation grants awarded to the named executive officers for fiscal 2009 differ from those provided in fiscal 2008 in certain respects, including the following:
 
  •  In addition to granting stock options to the named executive officers, we also granted stock bonus awards of restricted stock units (“RSUs”). Each RSU constitutes a phantom right and will be equivalent to one share of CSS common stock on the redemption date, which is the third anniversary of the grant date. The number of RSUs, if any, that will become eligible for redemption will be determined by the extent to which certain performance goals have been achieved. Redemption is further subject to the satisfaction of a vesting condition, which provides that an executive must continue to be employed by CSS on the redemption date in order to redeem any RSUs that are otherwise eligible for redemption based on satisfaction of the performance goals during the performance period, as described below.
 
  •  The performance period is the two year period from April 1, 2008 to March 31, 2010. The sole performance metric for determining the quantity of RSUs, if any, that will be eligible for redemption (subject to satisfaction of the vesting condition) is the achievement by CSS of at least a minimum “threshold” level of cumulative diluted earnings per share, as determined by the Human Resources Committee, during the performance period. For purposes of determining if, and the extent to which, the performance goal has been achieved, CSS’ earnings per share for the performance period will be subject to certain formulaic, non-discretionary adjustments for acquisitions, divestitures, restructurings, extraordinary items and the cumulative effect of tax or accounting changes. The number of RSUs that will become eligible for redemption upon satisfaction of the vesting condition will depend on whether, and the extent to which, the threshold level of cumulative earnings per share has been achieved or exceeded.
 
  •  The stock options granted to our named executive officers in fiscal 2009 have the same vesting provisions as those that were granted in fiscal 2008; however, the stock options granted in fiscal 2009 have a seven year term, as compared to a five year term for those granted in fiscal 2008. Based in part on the longer term of the fiscal 2009 stock option grants and the issuance of RSUs in fiscal 2009, the number of shares underlying stock option grants made to our named executive officers in fiscal 2009 was less than the number of shares underlying stock option grants made to these officers in fiscal 2008.
 
We awarded RSUs in fiscal 2009 because we believe they effectively address our compensation objectives to provide competitive compensation, performance incentives, stockholder incentives and retention incentives, while utilizing fewer underlying shares of CSS common stock than would be the case if we utilized only stock options to address these objectives. Additionally, we believe that the performance-based structure of the RSU grants creates an enhanced incentive for management to achieve strong results over an intermediate-term performance period of two years. With regard to our fiscal 2009 stock option grants, we utilized an option term of seven years in part to incentivize performance that will have a beneficial impact to CSS and its stockholders over a time horizon of longer than five years, which was the term applicable to stock options granted in fiscal 2008.
 
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