This excerpt taken from the DY DEF 14A filed Oct 26, 2006.
Executive Officer Compensation Guidelines
Base Salary Adjustments
The Committee reviews, on an annual basis, salary recommendations for the Companys senior officers. In making these decisions, the Committee reviews each executives performance, market compensation levels for comparable positions, the Companys performance goals and objectives and other relevant information. The recommendations are submitted by the Chief Executive Officer and are based on the individuals performance and general market conditions. Salary levels are intended to recognize the challenge of different positions taking into consideration the type of activity of the position, the responsibility associated with the job and the relative size of the operation.
Performance-Based Annual Incentive Bonus Awards
In addition to paying a base salary, the Company provides for cash incentive compensation as a component of overall compensation for the Companys senior officers. Incentive compensation as a component of overall compensation is tied to individual performance and the Companys financial performance, usually with a heavy emphasis on the profitability of the Company. For the 2006 fiscal year, the target incentive compensation pool was established by formula based upon the Companys consolidated financial performance. The fiscal year 2006 key financial performance measures were total revenue and income before income taxes. Individual incentive compensation awards are recommended by the Chief Executive Officer for consideration and approval by the Committee.
The Committees policy is that a portion of each senior officers compensation should be at risk based on the performance of the Company, its subsidiaries and the respective officer so as to align the financial interests of the Companys senior officers with those of the Companys shareholders and the performance of the Companys common stock. The Committee believes that providing senior officers with an opportunity to acquire a financial interest in the Companys performance (through grants of restricted stock, stock options and other equity-based compensation) will incent and reward senior officers for job performance which enhances shareholder returns. The Company adopted its 2003 Plan at its 2003 Annual Shareholders Meeting on November 25, 2003 and amended such plan on August 30, 2004. Under the 2003 Plan, the Committee may award equity-based compensation to senior officers and key employees. Participants are selected based on their significant contributions or anticipated
contributions to the Company. Awards under the 2003 Plan may be in the form of either statutory or non-statutory stock options, restricted stock (or restricted stock units), performance shares (or performance share units), or other awards that are based on the value of the Companys common shares. The Company grants stock options with an exercise price per share equal to the fair market value per share on the date of grant. The employee is rewarded only to the extent that the Companys share price increases following the date of grant. Subject to a requirement of continued employment, the options become exercisable in equal installments over a period of four years after the date of grant.
For fiscal year 2006, the Committee granted the senior officers and other key employees restricted stock awards consisting of (i) shares of performance vesting restricted stock subject to the Company achieving annual pre-tax income goals and annual operating cash flow ratio goals (the Annual Goals) established by the Committee (the Target Award) and (ii) time vesting restricted stock awards which vest at the rate of 25% on each of December 14, 2006, 2007, 2008 and 2009. With respect to the performance vesting restricted stock, each Target Award will vest in three installments subject to the Company achieving the Annual Goals in each of fiscal year 2006, 2007 and 2008. In the event the Company achieves the Annual Goals with respect to a relevant fiscal year and the Company also achieves pre-tax income goals and operating cash flow ratio goals established by the Committee for the trailing three fiscal year period ending in such fiscal year (in the case of Mr. Nielsen and Mr. Estes, in respect of the twelve month performance, period ending on October 28, 2006, the twelve month period ending on October 28, 2006; in respect of fiscal year 2007, the trailing two fiscal year period ending in fiscal year 2007; and in respect of fiscal year 2008, the trailing three fiscal year period ending in fiscal year 2008), each senior officer will vest in up to an additional 100% of the amount of his Target Award that vested in such fiscal year. The performance periods for the Companys other senior officers differ from Mr. Nielsens and Mr. Estes because of the Committees intention that Mr. Nielsens and Mr. Estes Target Award be deductible under Section 162(m) of the Code. The terms of the restricted stock awards entitle the holder to all of the rights of a shareholder of the Company, including the right to receive any cash dividends that are declared with respect to the restricted stock.
Other Considerations with Respect to the Chief Executive Officers Compensation
In establishing Mr. Nielsens compensation for fiscal 2006, the Committee applied the principles outlined above in a similar manner to those applied to the other senior officers. The annual total compensation for Mr. Nielsen is set by the Committee with the goal of providing him with a competitive base salary amount and an annual cash incentive award which is consistent with individual and Company performance.
The base salary amount is set forth in the Nielsen Employment Agreement (as described herein) and is based upon a comparison with other peer group companies with which the Company competes for executive talent pursuant to information provided to the Committee by the compensation consultants. In accordance with this criteria and in connection with Nielsen Employment Agreement, the Committee increased Mr. Nielsens base salary from the $624,000 per annum a level which had been in effect since July 31, 2005 to $680,000 per annum, effective as of July 30, 2006, which represents an increase of approximately 9%.
The annual incentive award is based upon a pre-established combination of the Companys overall financial performance and Mr. Nielsens individual performance. The fiscal year 2006 pre-established financial performance measures were total revenue, operating cash flow, profit before income taxes and net income, both of the latter two measures being adjusted for asset impairments. Mr. Nielsens annual incentive award was calculated as a specified percentage (the Annual Incentive Payout Ratio) of the amount by which income before taxes, adjusted for asset impairments, exceeds a preset threshold of contract revenues. This threshold is set at or above the level of long-term performance of the Companys peer companies. The Annual Incentive Payout Ratio was determined by assessing operating cash flow relative to net income, adjusted for asset impairments, with a lower payout associated with
lower ratios. Mr. Nielsen receives an annual incentive award only if the award as calculated according to the foregoing guidelines equals or exceeds 10% of his fiscal 2006 base salary. In the event the award as calculated is less than 10% of Mr. Nielsens 2006 base salary, he will not receive an annual incentive award. The maximum annual incentive award payable to Mr. Nielsen for fiscal year 2006 is 125% of his base salary. The Compensation Committee may, in its discretion, reduce the amount of any incentive compensation award determined by the above calculation. Based on the performance criteria outlined above, Mr. Nielsen received no annual incentive award for fiscal year 2006.
As described above, the Committee believes that a portion of the compensation for the Chief Executive Officer, like the compensation of other senior officers of the Company, should be in the form of annual performance-based incentives that align investors and the Chief Executive Officers interests through common share ownership in the Company. For fiscal year 2006, the Committee granted Mr. Nielsen 23,079 shares of performance vesting restricted stock under the 2003 Plan. As discussed above, these shares will vest in three installments subject to the Company achieving specified levels of performance for the 12-month period ending on October 28, 2006 and in each of fiscal year 2007 and 2008. In the event the Company achieves the goals established by the Committee for the 12-month period ending on October 28, 2006, (in respect of the 12-month period ending October 28, 2006); for the trailing two fiscal year period ending in fiscal year 2007 (in respect of the fiscal year 2007); and for the trailing three fiscal year period ending in fiscal year 2008 (in respect of fiscal year 2008), Mr. Nielsen will vest in up to an additional 100% of the amount of his Target Award that vested in such fiscal year.