FCN » Topics » Long-Term Incentive Compensation

This excerpt taken from the FCN DEF 14A filed Apr 11, 2007.

Long-Term Incentive Compensation

     Long-term incentives are used as a mechanism to link named executive officer compensation with increases in stockholder value. The Compensation Committee believes that the use of equity incentives aligns the interests of the named executive officers with long-term stockholder value better than cash alone. The Compensation Committee on the recommendation of named executive officers also uses equity awards upon hiring of an officer or employee to immediately link the interests of that person with our interests and those of our stockholders. See “Executive Officers and Compensation-Equity Compensation Plans – Grants of Plan Based Awards for Fiscal Year Ended December 31, 2006” for a description of all equity awards made to our named executive officers in 2006.

     Long-Term Incentive Plans. We currently have three long term equity plans in effect with shares of common stock authorized for grant to our officers, including named executive officers, employees and individual outside consultants in the discretion of the Compensation Committee as administrator of the plans. As of December 31, 2006, our 1997 Stock Option Plan, as amended (our 1997 plan), had 97,419 shares that remained available for grant, all of which were available for restricted stock awards. No grants may be awarded for stock options and common stock under our 1997 plan after March 25, 2007. Our 2004 plan, had 271,223 shares that remained available for grant, of which 73,116 shares were available for restricted stock awards. Prior to the approval of our 2006 plan, by our stockholders in June 2006, equity awards to our named executive officers were made from the 1997 plan and 2004 plan. Our 2006 plan authorized 3,500,000 shares of common stock to be used for equity awards, of which 1,100,000 shares may be used for restricted stock awards. As of December 31, 2006, 2,532,793 shares remained available for grant under our 2006 plan, of which 912,500 shares were available for restricted stock awards. In total, we currently have up to 2,804,016 authorized shares available for grant, of which up to 985,616 shares may be awarded in the form of restricted stock. The Compensation Committee as administrator may make awards of equity under the 2006 plan in the form of incentive or nonqualified stock options, stock appreciation rights, restricted and unrestricted stock awards, phantom stock, performance awards and other stock based and cash based awards.

     2006 Long-Term Equity Compensation. Since 1996, Mr. Dunn has received a quarterly grant of a performance-based stock option exercisable for 22,500 shares of common stock. The grant is automatic and made and priced the day following the publication of our quarterly and annual earnings press release. Each grant of options is made at an exercise price per share equal to 110% of the closing price per share of our common stock for the date of grant. Each option becomes fully exercisable upon an increase of 25% in the market value of a share of our common stock from the date of grant but not earlier than one year after the date of grant, and becomes exercisable eight years from 

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the date of grant if the market value does not reach the target value. The Compensation Committee believes that these awards directly align with and keep our chief executive officer focused on long-term increases in stockholder value.

     In January 2006, the Compensation Committee made stock option and restricted stock awards to Mr. MacColl as provided in his offer letter. Mr. MacColl was awarded a stock option exercisable for 50,000 shares of common stock that vested with respect to 25,000 shares upon grant, with the balance vesting in equal annual increments over three years beginning on the first anniversary of the date of grant. The 10,000 shares of restricted stock awarded to Mr. MacColl vest in equal annual increments over three years beginning on the first anniversary of the date of grant. In June 2006, upon approval of the 2006 plan by our stockholders, the Compensation Committee awarded Mr. MacColl an additional stock option exercisable for 25,000 shares of our common stock pursuant to the terms of his offer letter with an exercise price equal to the closing price per share of our common stock for the date of grant, which vests in equal increments over three years beginning on the first anniversary of the date of grant.

     In March 2006, after reviewing the data compiled by Mercer with respect to equity compensation received by the chief executive officers of the companies in our compensation peer group, the Compensation Committee decided that the 2006 total compensation for each of our chief executive officer and executive chairman of the board should equate to an approximate value of $4,000,000, of which base salary at the time and target cash incentive compensation would comprise 50% or approximately $2,000,000. In recognition that long-term and at-risk equity incentives have comprised a lower proportion of the total compensation of our chief executive officer and executive chairman of the board than that of the officers with whom they were compared in the compensation peer group, the Compensation Committee concluded that the balance of their 2006 compensation should be at-risk in ways that are aligned with and support stockholder interests and be comprised of restricted stock and stock option awards. The Compensation Committee initially intended to award additional equity grants to our chief executive officer and chairman of the board in the third quarter of 2006. The Company, however, was in the process of executing on its acquisition strategy (which culminated in the acquisition of FD International (Holdings) Limited on October 4, 2006) and the Committee decided that it was appropriate to defer the authorization of additional equity awards to any named executive officers until the acquisition was either complete or discussions were terminated.

     On October 24, 2006, the Compensation Committee authorized equity awards to certain named executive officers. The number of shares subject to the equity grants made to certain named executive officers on October 24, 2006 was determined by the Compensation Committee after discussions with our chief executive officer and executive chairman of the board. The grant date fair values of the equity awards granted to named executive officers on October 24, 2006 were determined, in the case of stock option awards using the Black-Scholes value of $12.52 per share, and in the case of shares of restricted stock using the closing price per share of our common stock of $26.46 for that day. See “Executive Officers and Compensation-Equity Compensation Plans – Grants of Plan Based Awards for Fiscal Year Ended December 31, 2006” for a discussion of the grant date fair values of all equity awards made to our named executive officers in 2006.

     On October 24, 2006, the Compensation Committee granted to our chief executive officer (i) stock option awards exercisable for 80,000 shares of our common stock at an exercise price equal to the closing price per share of our common stock on that day, of which 60,000 will vest in three equal installments beginning on the first anniversary of the date of grant and 20,000 are subject to the satisfaction of the performance conditions set forth below and (ii)10,000 shares of restricted stock subject to the satisfaction of the performance conditions described below. When combined with our chief executive officer’s automatic quarterly market-based stock option grants, all equity grants made to him in 2006 equate to an approximate grant date fair value of $2,300,000.

     After discussions with our executive chairman of the board, the Compensation Committee agreed to make equity awards to him that are intended to reward him through the expiration date of his employment agreement in October 2009, subject to a greater portion of such equity compensation being performance-based. On October 24, 2006, the Compensation Committee awarded him (i) stock options exercisable for 200,000 shares of our common stock at an exercise price equal to the closing price per share of our common stock on that day, of which 150,000 shares will vest in three equal installments beginning on the first anniversary of the date of grant and 50,000 shares are subject to the satisfaction of the performance conditions described below and (ii) 50,000 shares of restricted stock subject to the satisfaction of the performance conditions described below. All equity grants to our executive chairman of the board in 2006 equate to a grant date fair value of approximately $3,800,000, which the Compensation Committee believes is within the parameters targeted by the Committee. 

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     Our chief operating officer did not receive performance-based and other equity awards in 2006 because he is the highest paid named executive officer of the Company and in November 2005, in connection with his new employment agreement, he received a stock option award for 100,000 shares of common stock subject to pro rata vesting over three years beginning on the first anniversary of the date of grant and a restricted stock award for 125,000 shares subject to vesting over nine years and two months, which the Compensation Committee believes sufficiently aligns his interests with our long-term success.

     Our chief financial officer did not receive performance-based equity awards in 2006 because his employment agreement is set to expire in November 2007 and he may not be present to contribute fully to the achievement of the associated performance goals. The Compensation Committee awarded him a stock option exercisable for 25,000 shares of common stock at an exercise price equal to the closing price per share of our common stock on the date of grant, which will vest in three equal installments beginning on the first anniversary date of the date of grant.

     Our chief legal and risk officer received a stock option exercisable for 100,000 shares of our common stock, of which 60,000 shares will vest in three equal installments beginning on the first anniversary of the date of grant and 40,000 shares are subject to the satisfaction of the performance conditions described below.

     The Compensation Committee awarded stock option awards to our chief executive officer, executive chairman of the board, chief financial officer and chief legal and risk officer, subject to three year vesting terms, in recognition of the contributions they made during 2006 to the strategic growth of the Company through the successful completion of five acquisitions and our business and financial growth during 2006.

     The performance-based equity awards to our chief executive officer, executive chairman of the board and chief legal and risk officer are subject to cliff vesting as of December 31, 2009 after final determination that the performance goals have been achieved for any fiscal year ending December 31, 2007, December 31, 2008 or December 31, 2009 based on the Company’s audited financial statements for such year. The performance goals were set by the Compensation Committee based on the then remaining three years under our five year strategic plan. In this way the named executive officers who received performance-based awards, have strong incentives to remain with the Company, are motivated to focus on our long-term strategic goals and receive compensation that directly correlates to their success in expanding and managing our business to meet those goals.

     In order for the performance-based equity awards to vest as of December 31, 2009, the following performance goals must be achieved:

Consolidated Revenues:  $1.0 billion or more 
 
EBITDA:  $ 250.0 million or more (before stock option 
  expense under FAS Statement 123(R)) 
 
Revenues outside of the U.S.:  $150.0 million 
 
Leverage Ratio: Net Debt/EBITDA:  Less than 3.0 to 1 

     Employee Stock Purchase Plan. Our employee stock purchase plan (our ESPP) is designed to encourage stock ownership by our employees. All employees working more than 20 hours a week, including named executive officers, are eligible to participate in our ESPP. All employees participate on the same terms. No participant is permitted to acquire more than $25,000 worth of shares of our common stock during each calendar year. In 2006, none of the named executive officers participated in the ESPP.

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