This excerpt taken from the MKC DEF 14A filed Feb 20, 2008.
The Plan provides that awards may consist of the following share-based awards and cash-based awards, which may be granted singly or in combination with other awards:
Non-Qualified Stock Options. A non-qualified stock option is an award in the form of a stock option to purchase shares of McCormicks Stock. Non-qualified stock options do not qualify for the special tax treatment accorded to incentive stock options under Section 422 of the Internal Revenue Code. The exercise price of each non-qualified stock option will not be less than the fair market value of the Stock on the date on which the stock option is granted.
Incentive Stock Options. An incentive stock option is an award in the form of a stock option to purchase shares of Stock that is intended to comply with the requirements of Section 422 of the Internal Revenue Code. The exercise price of each incentive stock option will not be less than the fair market value of the Stock on the date on which the stock option is granted.
Stock Appreciation Rights. A stock appreciation right is an award in the form of a right to receive cash, Stock, or other forms of payment in an amount equal to the appreciation in the value of the Stock over a base price established in the award. The Committees may grant stock appreciation rights either independently of stock options or in tandem with stock options such that the exercise of one cancels the other. The minimum base price of a stock appreciation right will not be less than the fair market value of the underlying Stock on the date on which the stock appreciation right is granted.
Restricted Stock. Restricted stock is an award of shares of Stock that are issued subject to specified restrictions on transfer, forfeiture and/or such other restrictions on incidents of ownership.
Restricted Stock Units. A restricted stock unit is an award payable in cash or Stock that is represented by a bookkeeping credit equal to the fair market value of a share of Stock on the date on which the restricted stock unit is granted.
Unrestricted Stock Awards. An unrestricted stock award is an award of shares of Stock that are not subject to the satisfaction of any conditions or restrictions.
Performance Shares and Performance Units. An award of performance shares or performance units is an award of restricted stock or restricted stock units where the vesting of the award is conditioned on the attainment of performance objectives.
Cash-based awards are awards that provide participants with the opportunity to earn cash payments based upon the achievement of one or more performance goals established for an award cycle. For each award cycle, the Committees will determine the relevant performance criteria, the length of the award cycle, the goal for each criterion, the achievement necessary for awards to be paid, the weighting of performance goals, and the size of the awards.
Section 162(m) of the Internal Revenue Code limits publicly-held companies, such as McCormick, to an annual deduction for Federal income tax purposes of $1 million for compensation paid to their chief executive officer or any one of the three other most highly compensated officers. However, performance-based compensation is excluded from this limitation. The Plan is designed to permit the Compensation Committee to grant awards that qualify as performance-based for purposes of satisfying the conditions of Section 162(m).
To qualify as performance-based:
In the case of compensation attributable to stock options, the performance goal requirement (summarized in (i) above) is deemed satisfied, and the certification requirement (summarized in (iv) above) is inapplicable, if the grant or award is made by the Committee; the plan under which the option is granted states the maximum number of shares of Stock with respect to which options may be granted during a specified period to an employee; and under the terms of the option, the amount of compensation is based solely on an increase in the value of the Stock after the date of grant.
Under the Plan, one or more of the following business criteria, on a consolidated basis, and/or with respect to specified subsidiaries or business units, are used exclusively by the Committees in establishing performance goals: (i) net sales; (ii) operating income; (iii) pre- or after-tax income; (iv) operating profit minus capital charges; (v) cash flow, including operating cash flow, free cash flow, cash flow return on equity, and cash flow return on investment; (vi) net income; (vii) earnings per share; (viii) earnings before interest and taxes; (ix) earnings before interest, taxes, depreciation and/or amortization; (x) return on equity; (xi) return on invested capital; (xii) return on assets; (xiii) economic value added (or an equivalent measure); (xiv) share price performance; (xv) total stockholder return; (xvi) improvement in or achievement of expense levels; (xvii) improvement in or achievement of working capital levels; (xviii) innovation as measured by a percentage of sales of new products; (xix) market share; (xx) productivity ratios; (xxi) completion and/or integration of acquisitions of businesses or companies; and (xxii) completion of divestitures and asset sales.