This excerpt taken from the FLS DEF 14A filed Apr 3, 2009.
Contingent Performance Share Awards. Contingent performance shares are restricted share units that vest, if at all, based on the Companys achievement of pre-determined financial metrics, measured over a three-year performance period, in relation to the high performance peer groups achievement of these same financial metrics at the time of measurement. Until vesting, holders of contingent performance share units do not have voting rights on the units and are entitled to receive dividend accruals. Mr. Klings contingent performance restricted stock is not eligible to receive dividends and does not have voting rights. The O&C Committee believes that these performance-based awards, as compared to restricted common stock that vest ratably over time, provide a stronger incentive for our executives to achieve specific performance goals over the performance period that advance our business strategies, build long-term shareholder value and encourage executive retention, as these awards are subject to forfeiture if the executives employment terminates for any reason other than death, disability or retirement before the end of the three-year performance period or if the performance goals are not reached.
Target contingent performance share grants to the Named Executive Officers (except Mr. Kling, who received contingent performance restricted stock for the same purpose) in 2008 represented approximately one-half of the executives total target long-term incentive opportunity. As with the restricted common stock grants, target grants were determined by dividing this portion of the executives long-term incentive opportunity by the price of the Companys common stock, which was calculated by taking an average of closing prices reported on the NYSE during the last twenty trading days of 2007.
In 2008, the O&C Committee approved contingent performance share long-term incentive opportunities (or counterpart contingent performance restricted stock for Mr. Kling) that will vest in March 2011 based on the Companys achievement of a three-year RONA performance relative to the high performance peer groups RONA performance. The O&C Committee believes that RONA is a financial measure that is more highly correlated to shareholder value creation than other financial measures, such as more simplistic return on equity measures, particularly when compared to the high performance peer group. The O&C Committee also believes that tying vesting amounts to comparisons with the high performance peer group, rather than the market in general, will ensure that performance is measured in a more transparent manner and will not benefit disproportionately from general market movement.
Prior to the granting of contingent performance share awards (or counterpart contingent performance restricted stock for Mr. Kling) each year, the O&C Committee establishes a vesting percentage range around each executives target long-term incentive opportunity allocated to the contingent performance shares that is based on the Companys RONA performance relative to the high performance peer group. This vesting percentage range has an established upper limitation and a minimum below which no shares will vest. Similar to the annual cash incentive awards, the percentage vesting range ultimately determines the amount of contingent performance shares that actually vest relative to the original award amount.
For 2008, the vesting percentage range established for each Named Executive Officer was 0% to 200% of his respective target long-term incentive opportunity allocated to the contingent performance shares. In order to achieve a target (100%) vesting percentage, the Company must achieve an average RONA over the three-year performance period equivalent to 100% of the RONA average of the high performance peer group. To illustrate, if the high performance peer group had an average 15.0% RONA over the performance period, then the Company would have to achieve a 15.0% RONA over the same period to achieve a target vesting percentage. The following table illustrates the vesting percentage of the contingent performance
shares at different levels of Company RONA performance relative to the average RONA performance of the high performance peer group.