This excerpt taken from the NAL DEF 14A filed Mar 16, 2007.
COMPENSATION DISCUSSION AND ANALYSIS
The Compensation Committee of our Board of Directors determines salaries, incentives and all other compensation awarded to, earned by or paid to our named executive officers, as well as all other executive officers (other than payments or benefits that are generally available to all other employees of NewAlliance). The Compensation Committee of the Board of Directors consists of four non-employee directors. The members of the Compensation Committee currently are John F. Croweak (Chairman), Eric A. Marziali, Nathaniel D. Woodson and Joseph A. Zaccagnino. All of the Committee members are independent as defined by New York Stock Exchange rules. Among other things, the Compensation Committees Charter requires that the Committee review and approve all disclosures related to executive compensation contained in this proxy statement, including the following disclosure.
Objectives of NewAlliances Compensation Programs
NewAlliance seeks to attract and retain talented and committed employees. In furtherance of this objective, the Compensation Committee seeks to develop and maintain compensation programs that are designed to
Identification of and Reward Objectives for Each Compensation Program
Compensation paid to NewAlliances executive officers in 2006 consisted of the following components: Base Salary, short-term cash bonuses paid pursuant to the Executive Short-Term Incentive Plan, long-term equity awards paid pursuant to the Companys shareholder-approved 2005 Long-Term Compensation Plan, and participation in our employee benefit plans. The Base Salary, Executive Short-Term Incentive Plan and 2005 Long-Term Compensation Plan are described in detail below. Although each of these components has a separate purpose and may have a different relative value to the total, a significant portion of the total compensation package is equity-based and dependent on future stock price appreciation.
Generally, base salaries for executive officers are targeted to approximate the median of salaries paid for comparable positions at other peer financial institutions. Short-term and long-term incentive compensation plans are designed to provide significant compensation opportunities based on achieving annual performance targets and stock price appreciation, respectively. The compensation of our executive officers is tied to our corporate objectives and their short-term incentive compensation may be higher or lower than the average or median short-term incentive compensation for similar positions at comparable financial institutions depending on whether we meet, exceed or fail to achieve the objectives we determine annually for the Executive Short-Term Incentive Plan. Consistent with typical practices at institutions recently converted from mutual to stock ownership, our executive officers have been granted stock options and shares of restricted stock, vesting over time, that constitute a substantial portion of their potential compensation. The magnitude of our conversion, and the leverage from increased capital we have deployed and potentially will be able to deploy in the future, have
influenced the size of our stock awards relative to many other converted institutions. Additionally, the Committee considers the fact that recently converted banks such as NewAlliance and mature banks that have operated as public institutions for extended periods of time necessarily evidence different performance characteristics, particularly with regard to returns on assets and equity.
NewAlliances Reasons for Choosing to Pay Each Compensation Element
The Compensation Committee believes that it is necessary to offer executives Base Salary, Executive Short-Term Incentive Plan bonuses and 2005 Long-Term Compensation Plan awards in order to attract and retain talented executives committed to creating long-term shareholder value. NewAlliance received approval of the 2005 Long-Term Compensation Plan from its shareholders in 2005. The Committee has engaged and is advised by an independent compensation consulting firm, Mercer Consulting. The Committee has constructed a public peer group of 13 institutions. Those institutions are predominantly state chartered savings institutions with asset sizes within the range of ½ to 2 times NewAlliances asset size, and are headquartered primarily in metropolitan markets in the northeast United States. NewAlliance considers information developed by Mercer from the public peer group, published survey data and other information from Mercer. The Compensation Committee believes that the three part compensation program it has developed is both consistent with those developed at its peer institutions and with NewAlliances compensation program objectives.
NewAlliances Determinations of Amounts of Compensation Paid to Executives
The Compensation Committee considers, determines and approves the mix of Base Salary, short term and long term incentives payable to executive officers. The Committee determines and approves corporate goals and objectives for incentives consistent with business and/or strategic plans approved by the Board of Directors. The Committee evaluates the performance of the executives against these goals. The Committee additionally takes into account the CEOs evaluation of the performance of executive officers and her compensation recommendations. The Compensation Committee reviews public peer data and published survey data in making these determinations.
Descriptions of Each Element of Compensation