Diamond Management & Technology Consultants (DTPI)

DTPI » Topics » Principal Elements of Compensation and Total Direct Compensation

This excerpt taken from the DTPI DEF 14A filed Jul 28, 2009.

Principal Elements of Compensation and Total Direct Compensation

The partners’ compensation program consists of three major elements: base salary, variable cash compensation and equity awards. Although all three of these elements are integrated into the compensation program, each element is intended to achieve different objectives:

 

   

Base salaries provide a level of fixed cash compensation that is intended to assist in employee retention and recruitment;

 

   

Variable cash compensation provides additional motivation for the achievement of objectives at the corporate and individual levels; and

 

   

Equity awards also reward corporate and individual performance, while at the same time linking those rewards to the Company’s long-term success and the long-term interests of stockholders. Because the partner equity awards are generally subject to vesting over four to five years, they encourage executives to remain employees and work toward creating long-term stockholder value. As discussed in more detail below, the Company stopped granting annual equity awards on April 1, 2009, but will continue to make grants for new hires, major promotions and special grants in the discretion of the Committee.

When making compensation decisions, the Committee considers key financial measurements such as Company revenue, operating margins, earnings per share, free cash flow from operating activities and total shareholder return as well as strategic objectives such as acquisitions, dispositions or joint ventures, technological innovation, globalization, leadership, employee retention, mentoring, training and supporting Company values. The Committee does not adhere to any specific formulas or targets in determining compensation for the Named Executive Officers.

Starting in fiscal year 2009 and continuing into fiscal year 2010, the Company has substantially revised its compensation programs. The primary change was to cease issuing equity awards on an annual basis to virtually all employees as part of their annual compensation package and instead move to a more cash-based variable compensation program. After considering the stated desires of our current employees as well as feedback the Company received from its recruiting efforts, the Company concluded that employees sought more cash-based compensation and were willing to forgo a majority of their equity-based compensation in order to realize that change. Equity awards, however, are still an important component of the Company’s recruitment and retention programs (as opposed to the annual variable compensation program) as discussed in the equity awards section below. The Company also changed the performance year for reviewing employee performance and making annual compensation decisions from the fiscal year (April 1-March 31) to October 1-September 30. This better aligns the performance year with the timing of the Company’s campus recruiting cycles and allows more effective management of employee acquisitions and departures. The Company did not change its base salary program.

As part of the move to more cash-based variable compensation, the Company completed a tender offer in the fourth quarter of fiscal year 2009 in which the Company offered employees the opportunity to exchange 0.80 shares of common stock for each unvested restricted stock unit tendered by the employee. The common stock received by Mr. Gutstein and Mr. Bupp in the tender offer is subject to a restriction on sale or transfer until April 1, 2013. The restriction for the other Named Executive Officers is October 1, 2009 for 50% of the stock received and until April 1, 2011 for the remainder. We anticipate that this change away from stock awards and toward cash for variable compensation will improve our recruitment and retention of qualified employees by creating more attractive performance incentives. As a result, we believe that this will contribute to improved overall Company performance and help to maximize the value of our common stock for our stockholders. The effect of the tender offer is explained in the footnotes to the Summary Compensation Table on page 28 below.

This excerpt taken from the DTPI DEF 14A filed Jul 29, 2008.

Principal Elements of Compensation and Total Direct Compensation

The partners’ compensation program consists of three major elements: base salary, annual cash bonus and annual equity awards. Although all three of these elements are integrated into the compensation program, each element is intended to achieve different objectives:

 

   

Base salaries provide a level of fixed compensation that is intended to assist in employee retention and recruitment;

 

   

Cash bonuses provide additional motivation for the achievement of objectives at the corporate and individual levels; and

 

   

Equity awards also reward corporate and individual performance, while at the same time linking those rewards to the Company’s long-term success and the long-term interests of stockholders. Because the partner equity awards are subject to vesting over four to five years, they encourage executives to remain employees and work toward creating long-term stockholder value.

In addition, when making compensation decisions, the Committee considers key financial measurements such as Company revenue, operating margins, earnings per share, free cash flow from operating activities and total shareholder return as well as strategic objectives such as acquisitions, dispositions or joint ventures, technological innovation, globalization, leadership, mentoring, training and supporting Company values.

This excerpt taken from the DTPI DEF 14A filed Jul 31, 2007.
Principal Elements of Compensation and Total Direct Compensation
The partners’ compensation program consists of three major elements — base salary, annual cash bonus and annual equity awards (generally in the form of restricted stock units). Although all three of these elements are integrated into the compensation program, each element is intended to achieve different objectives:
 
•  Base salaries provide a level of fixed compensation that is intended to assist in employee retention and recruitment;
 
•  Cash bonuses provide additional motivation for the achievement of objectives at the corporate and individual levels; and
 
•  Equity awards also reward corporate and individual performance, while at the same time linking those rewards to the Company’s long-term success and the long-term interests of stockholders. Because the partner equity awards are subject to vesting over five years, they encourage executives to remain employees and work toward creating long-term stockholder value.
 
In addition, when making compensation decisions, the Committee considers key financial measurements such as Company revenue, operating margins, earnings per share, free cash flow from operating activities and total shareholder return as well as strategic objectives such as acquisitions, dispositions or joint ventures, technological innovation, globalization, leadership, mentoring, training and supporting Company values.
 
Base Salary
The base salaries of executive officers are set at levels intended to be competitive with other companies engaged in the consulting industry and with other businesses of comparable size and scope that compete for executive talent. The Committee also considers the scope of the duties and responsibilities of each individual’s position and their level of experience.
 
In addition, base salaries of executive officers are set at levels intended to create internal equity when compared to the salaries of partners who are not executive officers. The Company strongly believes that those partners who are managing the Company as executive officers (some of whom were previously partners in the


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consulting practice serving clients) should not receive compensation at a level which is disproportionate to the compensation of the other partners. Therefore, the Company maintains a base salary schedule for partners and follows the general guideline that the base salary of the CEO should not exceed three times the base salary of an entry-level consulting partner.
 
The Committee reviews base salaries of the CEO and the other executive officers annually and makes adjustments in light of past individual performance and the potential for making significant contributions in the future. The Committee generally considers both individual performance factors and overall Company performance in a particular year in determining base salary levels.
 
Cash Bonuses
For each performance year, the Committee determines the cash bonus pool, if any, for the partners, including the Named Executive Officers. The Committee reviews the cash bonus pool for the fiscal year first on a preliminary basis in February and then on a final basis in April after the close of the fiscal year. Generally, cash bonuses are only paid to partners if there are sufficient earnings to first provide for a return to the stockholders and bonuses to non-partner employees. The Company has established a guideline that at least 30 cents of each dollar of revenue above $38.8 million per quarter should be reflected in pre-tax income as additional corporate earnings. The Committee uses this guideline to help it determine the appropriate cash bonus pool for the employees (including the partners), if any.
 
Individual allocations of the pool to individual partners are based on a combination of corporate and individual performance criteria, as follows:
 
•  Named Executive Officers.  The individual allocations of the bonus pool to the Named Executive Officers are determined by the Committee and are based on the financial performance of the Company as well as individual qualitative performance factors. For the Named Executive Officers, the Committee considers Company performance against the Board-approved operating plan, achievement of significant strategic goals or transactions, stockholder return, leadership displayed and any other factors deemed significant by the Committee.
 
•  Other Partners.  The individual allocations of the bonus pool to other partners are based on financial performance of the Company, individual financial performance criteria (such as revenue growth, project contribution margins and cash collections), as well as individual qualitative performance factors such as leadership and mentoring. These partner individual allocation decisions are delegated to senior management.
 
For fiscal year 2006, no cash bonuses were paid to the partners including the Named Executive Officers. For fiscal year 2007, $1.75 million was paid to the partners, excluding the Named Executive Officers, and $156,085 was paid to the Named Executive Officers, both on April 30, 2007. A cash bonus recipient generally must be employed on the payment date to receive a cash bonus.
 
Equity Awards
Equity awards take the form of grants under the 1998 Plan which is overseen by the Committee. Although the 1998 Plan authorizes a variety of equity incentive awards, the only form of awards the Committee has granted to Named Executive Officers or partners during fiscal year 2007 is restricted stock units.
 
As with the cash bonus pool, the Committee reviews the aggregate dollar value of the equity award pool, in terms of grant-date compensation cost, for the fiscal year first on a preliminary basis in February and then on a final basis in April after the close of the fiscal year. The individual allocations of the equity award pool are determined consistent with, and in conjunction with, cash bonuses. Although the Committee delegates individual equity allocation decisions for partners to senior management, the Committee determines the specific allocations for each Named Executive Officer. The Committee expects to approve equity awards for each year, including years for which no cash bonus is paid.
 
Any equity awards are generally granted within the first 30 days of the fiscal year following the performance year. Once granted and accepted, these awards are subject to vesting over a five-year period, in ten equal semi-annual installments. Except as otherwise provided in the award agreement, the participant must be employed on the vesting date to receive the applicable portion of the award.
 
The Board of Directors has approved, upon the recommendation of the Committee, the Equity Compensation Award Policy and Grant Procedures to govern the granting of equity awards, including any made to Named


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Executive Officers and partners (see “Executive Compensation — Compensation Discussion and Analysis — Equity Award Grant Practices” below on page 17 of this proxy statement for a further description of such policy).
 
Total Direct Compensation
The Committee also reviews “total direct compensation,” in addition to the individual elements of compensation, when assessing the competitiveness and appropriateness of the Company’s pay practices. Total direct compensation for a given performance year consists of salary, any annual cash bonus earned and the value of any equity award granted with respect to performance during the last fiscal year. Cash bonuses and equity awards with respect to performance in a given year are paid or granted in the following year. Under the new federal securities laws applicable to proxy statements equity awards for a given fiscal year that are granted in the following fiscal year are not reflected in the Summary Compensation Table; rather, the table reflects the compensation expense recorded for all such equity awards in the Company’s financial statements as of the end of a fiscal year (and, thus, would not recognize any equity awards that had not been granted as of the end of the fiscal year). As a result, the equity compensation disclosed in the Summary Compensation Table represents the currently recognized portion of equity awards made during the last fiscal year and over a number of prior years, and not necessarily the value of an equity award granted for performance for a fiscal year.
 
The amounts of total direct compensation earned by the Named Executive Officers for fiscal years 2007 and 2006 are shown in the Supplemental Table on page 22 below to illustrate the Committee’s calculation of total direct compensation earned each fiscal year.
 
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