This excerpt taken from the GMCR DEF 14A filed Jan 26, 2009.
Role of Compensation and Organizational Development Committee
Our Compensation and Organizational Development Committee (the Committee) makes the final decision with respect to the amounts of compensation paid to our named executive officers based on the bulleted factors set forth above. The Committee also sets the mix of base salary, annual incentives and long-term equity incentives that our named executive officers receive and the financial and non-financial targets under our annual incentive plan. Compensation levels are set such that incentive compensation, both short-and long-term, represents at least 70% of the chief executive officers total compensation package and at least 50% for other named executives. To support our linkage between compensation and providing long-term value to shareholders, we provide more incentive opportunity to our executives through our long-term incentive plan than our short-term incentive plan.
In making compensation determinations the Committee considers each element of compensation in relation to the total amount of compensation paid to the named executive officer. In fiscal 2008, our vice president of human resources and organizational development, Kathryn Brooks, presented to the Committee a report detailing each element of compensation in relation to total compensation of each named executive officer. The Committee referred to the report prepared by Ms. Brooks as a general reference to ensure that our compensation programs meet our overall objectives and remain in line with our compensation philosophy. In fiscal 2007, the Committee used tally sheets prepared by a compensation consultant which provided the same information as the report prepared by Ms. Brooks this year, except the tally sheets also took into account payments due upon a change of control. The Committee did not use tally sheets in fiscal 2008 because of its comprehensive review of change of control payments in fiscal 2007. The Committees fiscal 2007 review of change of control payment policies of the Company led to the adoption in fiscal 2008 of the change of control severance plan discussed later in this report. Given the Committees familiarity with the newly adopted change of control plan, the Committee did not deem it necessary to use tally sheets in fiscal 2008.
Prior to 2007, the Committee relied primarily upon the recommendations of our founder and former chief executive officer, Robert Stiller, and our vice president of human resources and organizational development, Kathryn Brooks, in making final compensation decisions. In 2007 Lawrence Blanford became chief executive officer and the Committee assumed a more robust role in the process of actively determining compensation. This trend continued in fiscal 2008 and comports with our board of directors belief that it is more appropriate, at this stage of our growth, to have the Committee act as the driving force behind our compensation program. In fiscal 2008, the Committee reviewed each element of our compensation program to ensure its consistency with our compensation objectives and market practices. In making its final determinations the Committee considers recommendations of both our chief executive officer and the other members of our executive management team as one factor in making compensation determinations. In particular, the Committee relies upon the chief executive officer to help evaluate the performance of our named executive officers with respect to their individual goals. It is our policy that no executive officer participates or makes recommendations regarding their own compensation.
During fiscal 2008 the Committee engaged Mercer Human Resource Consulting (Mercer), a nationally recognized compensation consultant, to assist in evaluating our compensation in light of market practices. The
Committee also used Mercer in fiscal 2007, and this prior review identified several areas the Committee stated it would further consider in future compensation decisions, such as developing consistent severance and change in control programs for executives and determining whether the ongoing use of stock options as the primary equity vehicle continues to be appropriate. As discussed in more detail later in this report, in fiscal 2008 the Committee recommended and the board of directors approved and adopted a change in control program for certain designated participants. The Committee also continues to evaluate whether the ongoing use of stock options as the primary equity vehicle continues to be appropriate.
During fiscal 2008, the Committee requested that Mercer prepare an analysis benchmarking and assessing our overall compensation package against market standards. The Committees purpose in requesting this analysis was to ensure that the Companys compensation practices are competitive in the marketplace and to identify areas where our compensation program could be advanced. The Mercer report used composite survey data, which, based on discussions with management and the Committee, represented organizations similar in nature to the Company. The survey data used focused on comparable companies in the manufacturing non-durable goods sector with revenues of $500 million to $1 billion. In the prior fiscal 2007 survey prepared by Mercer, the survey data used focused on companies with revenues of $300 to $500 million. Given the Companys growth, the Committee believed it important to re-assess compensation packages to ensure they remain competitive in the marketplace and sufficient to retain top executive talent. The surveys used in Mercers analysis were the Mercer, US Global Premium Executive Remuneration Suite, Watson Wyatt/ECS Top Management Survey and The Survey Group Compensation Survey.
The Mercer report provides benchmarking data for the base salary, annual incentives, equity and total compensation paid to each named executive officer against the 25th, 50th and 75th percentiles of composite survey data. The compensation philosophy adopted by the Committee targets total compensation at the 50th percentile (market median) as a guideline for making compensation decisions. The Committee only uses benchmarking as a guideline in making compensation decisions. The Committee reserves the flexibility to pay executives above or below the targeted compensation philosophy based on the executives experience, organizational role, and year-over-year performance and we discuss any such decisions on an individual basis in the following sections. The Committee observed that in fiscal 2008, as compared to the larger companies reflected in the survey, the Companys compensation tended to be either at or below the market median. The Committee considered this change as one factor in making compensation determinations and gauging the Companys compensation practices with respect to market. To supplement the Mercer composite survey data, the Committee also reviewed the compensation levels at Starbucks Corporation, Peets Coffee & Tea and Caribou Coffee Company as a general reference point for the compensation paid to our named executive officers.