This excerpt taken from the COLM DEF 14A filed Apr 3, 2009.
In 2004, shareholders re-approved the Executive Incentive Compensation Plan (the Compensation Plan), which was originally approved in 1999. We seek shareholder re-approval of the Compensation Plan this year to confirm the formal incentive compensation program for certain executive officers and to satisfy certain requirements under Section 162(m) of the Internal Revenue Code.
Description. A copy of the Compensation Plan is attached to this Proxy Statement as Appendix B and is incorporated herein by reference. The following description of the Compensation Plan is a summary and does not purport to be a complete description. See Appendix B for more detailed information.
Administration. The Compensation Plan is administered by the Compensation Committee, which consists of three independent directors.
Persons Covered. The Compensation Committee determines which executive officers of Columbia are eligible to participate in the Compensation Plan for any year no later than 90 days after the beginning of the year. In 2009, the following Company executive officers are eligible to participate in the Compensation Plan: the Chairman, the Chief Executive Officer and President, the Executive Vice President and Chief Operating Officer, the Executive Vice President of Global Sales and Marketing, the Vice President and Chief Financial Officer, the Vice President of Global Apparel Merchandising and ACE, the Vice President and General Counsel, the Vice President of Global Human Resources, the Vice President of Global Footwear Merchandising, and the Vice President of Latin America and Asia Pacific.
Performance Goals and Awards. No later than 90 days after the beginning of each year, the Compensation Committee establishes performance goals for each participating executive officer and the related cash performance awards related to achievement of those goals. Performance awards are stated as a percentage of an executives base salary. Performance goals may be based on our revenues, sales, earnings, or earnings per share, or the growth of our revenues, sales, earnings, or earnings per share. In 2008, the performance target set by the Compensation Committee consisted of a net income goal adjusted for income taxes and bonus payments. The net income target constitutes 80% of the total annual bonus potentially payable, while the remaining 20% of the total bonus is based on a participants individual performance during the year. Audited financial statements are used to measure all financial goals. The Compensation Committee has the discretion to include or exclude any extraordinary items in the financial statements and to adjust performance goals to take into account changes in accounting that occur during a given year, however, any decision to include or exclude extraordinary items or to adjust performance goals to reflect changes in accounting is made by the Compensation Committee at or prior to the time the Compensation Committee establishes performance goals for the calendar year. For the Chief Executive Officer and President, the corporate performance component of the award is based on a sliding scale, ranging from between 24 percent and 176 percent of his base salary, depending on whether we achieve between 80 percent and 120 percent of predetermined corporate performance goals. For all other eligible executive officers, performance awards are on a sliding scale, ranging from between 16 percent and 112 percent of each persons base salary, depending on whether the Company achieves between 80 percent and 120 percent of predetermined corporate performance goals. The Compensation Committee may use its discretion to reduce the amount payable to any eligible executive officer by up to 100%, based on factors it determines warrant such a reduction. The maximum amount payable under the Compensation Plan to any participant for a calendar year will not exceed $2 million.
Termination and Amendment. The Compensation Plan will remain in effect until terminated by the Board of Directors. The Compensation Committee may amend the Compensation Plan, with the approval of the Board of Directors, at any time, except to the extent that shareholder approval would be required to maintain the qualification of performance awards as performance-based compensation.
U.S. Federal Income Tax Consequences. The following is a general summary of the U.S. federal income tax consequences of bonus payments under the Compensation Plan to us and to participants in the Compensation
Plan who are citizens or residents of the United States for U.S. federal tax purposes. The summary is based on the Internal Revenue Code, the U.S. Treasury regulations promulgated thereunder, rulings and other guidance issued by the Internal Revenue Service and judicial decisions as in effect as of the date of this proxy statement, all of which are subject to change, possibly with retroactive effect. The summary is not intended to be a complete analysis or discussion of all potential tax consequences that may be relevant or important to participants in the Compensation Plan, including foreign, state or local tax consequences.
For U.S. federal income tax purposes, a participant generally will recognize compensation taxable as ordinary income in the year a bonus payment, if any, is actually paid to the participant pursuant to the terms of the Compensation Plan. If a participant elects to defer a portion of the bonus (if any such alternative is available), the participant may be entitled to defer the recognition of income. We intend for bonus payments under the Compensation Plan to be exempt from or comply with the requirements of Section 409A of the Internal Revenue Code. In general, we will be entitled to a deduction at the same time and in the same amount as a participant recognizes ordinary income, subject to the limitations under Section 162(m) and certain other limitations on deductions for compensation contained in the Internal Revenue Code.
Section 162(m) of the Internal Revenue Code limits to $1,000,000 per person the amount that we may deduct for compensation paid to our covered employees in any year. Covered employees are defined as our principal executive officer and any one of our three highest paid executive officers (other than the principal executive officer or the principal financial officer) as of the close of the applicable taxable year. Compensation that qualifies as performance-based is excluded for purposes of calculating the amount of compensation subject to the $1,000,000 limit. In general, one of the requirements that must be satisfied is that the material terms of the performance goals under the Compensation Plan be disclosed to and reapproved by a majority vote of our shareholders every five years. Thus, re-approval by our shareholders of the Compensation Plan is necessary to preserve our ability to exclude bonus payments to certain of our executives under the Compensation Plan from the $1,000,000 limit. If our stockholders do not reapprove the Compensation Plan, no bonuses will be paid to our covered employees under the terms of the Compensation Plan, and the Board of Directors and our Compensation Committee will make a determination in their business judgment as to the appropriate compensation for the covered Employees, considering the benefits and costs to us, including the additional costs arising from our inability to deduct all or a portion of the compensation paid to the covered employees.
2009 Performance Goals and Awards. In January 2009, the Compensation Committee established performance goals and related performance awards based on operating income for 2009. The actual amounts to be paid under those awards cannot be determined at this time, as such amounts are dependent on our performance for the current year.