This excerpt taken from the NTLS DEF 14A filed Mar 16, 2007.
Annual Cash Incentive Compensation
Our practice is to award annual cash bonuses under our annual cash incentive plan, which we refer to as our Team Incentive Plan or TIP. Participation in the TIP is available to all of our salaried-exempt employees with a hire date prior to October 1 of the applicable year, except those employees who are covered by a formal sales incentive plan. The TIP award is calculated by multiplying eligible earnings for the year by the individuals targeted bonus percentage, our weighted performance achievement percentage and the individuals performance achievement percentage. The TIP award gives an eligible participant the potential to receive a lump sum cash payment on or before March 15 of the succeeding year based on achievement of specified company-wide performance goals established by the Board of Directors and based on achievement of individual performance objectives determined through the annual performance appraisal process. An eligible employee must achieve at least a minimum overall individual performance rating in order to be eligible for an award under our TIP. Additionally, a TIP award may be increased or decreased by the Committee in their discretion as necessary to support our business needs.
The purpose of the TIP is to focus corporate and individual efforts on the accomplishment of specific financial objectives and to motivate individual participants to achieve or contribute to these objectives. It also serves to assign an at-risk element to each of our NEOs total compensation based directly on the achievement of desired results. The targeted bonus percentages as a percentage of base salary for our NEOs for 2006 were set forth in each NEOs employment agreement as follows: 60% for Mr. Quarforth, 55% for Messrs. Moneymaker, Rosberg and Maccarelli and 50% for Ms. McDermott. If our performance is less than 100% of target, as described below, then the targeted bonus percentage for each of the NEOs is decreased by 15%.
With respect to the performance measure mentioned above, our performance was measured and weighted based on the following three factors in 2006, as determined by management and approved by the Board of Directors: (i) net income before interest, income taxes, depreciation and amortization, accretion of asset retirement obligations, capital restructuring fees, gain on sale of assets, advisory termination fees, other income and expenses, minority interests, reorganization items and non-cash compensation charges, which we refer to as Adjusted EBITDA, 50%, (ii) revenue, which measures total consolidated operating revenues from wireless, wireline and other communication services, net of inter-company eliminations, 25% and (iii) free cash flow (Adjusted EBITDA minus capital expenditures), 25%. We selected these three factors after considering our recently completed initial public offering, the focus on these factors by the investment community and the appropriateness and significance of growth in each of these factors in 2006. We will annually reassess the use and weighting of these and other factors. We believe Adjusted EBITDA is a meaningful indicator of our performance that provides useful information to investors regarding our financial condition and results of its operations. Adjusted EBITDA is a non-GAAP measure commonly used in the communications industry, and by financial analysts and others who follow the industry, to measure operating performance. Additionally, Adjusted EBITDA is a primary financial covenant measure in our Senior Credit Facility. Adjusted EBITDA should not be construed as an alternative to operating income or cash flows from operating activities (both of which are determined in accordance with generally accepted accounting principles) or as a measure of liquidity.
The Committee established the 100% target achievement level for each performance factor based on the upcoming years business plan influenced by expected market growth rates, expected market conditions and other external factors. We set the minimum TIP award at 50% of the targeted achievement level to reflect the minimum acceptable performance and the appropriateness of a potential payout based on achieving the minimum growth percentages. We set the maximum TIP award at 200% of the targeted achievement level in order that the relationship between base pay and the TIP award remained comparable to our peers.
The following table details the minimum, target and maximum levels that had to be achieved in order for a 50%, 100% or 200% payout, respectively, for 2006:
Each of the three performance factors above may be adjusted for mergers, acquisitions and sales of subsidiaries and other discretionary items in the judgment of the Committee. There were no such adjustments made in 2006.