|
|
 | | | |
- close
- close
- close
- close
This excerpt taken from the CHUX DEF 14A filed Apr 19, 2007. Answers
to particular questions regarding the plan
Management
level employees of the company typically have received annual
cash bonuses. What is different about the plan?
Nothing. The plan merely puts into a written document precisely
what the company has been doing for many years; namely, linking
pay with performance by awarding cash bonuses to certain
employees based on the achievement by the company
and/or its
operating units of certain performance targets which are
established each year. We do not currently anticipate that
amounts paid under the plan in the foreseeable future will be
materially different than amounts paid historically.
If
nothing has changed, why does the company need the plan at
all?
The substantive reason for the plan (and asking shareholders to
approve it) is to allow the company to deduct amounts over
$1,000,000 (if any) that it pays to certain company employees as
an expense in calculating the company’s Federal income
taxes pursuant to Section 162(m) of the Internal Revenue
Code; i.e., to lower the company’s taxes. In addition,
having a written document which clearly defines certain
“ground rules” for determining bonuses is good
corporate practice.
What
is Section 162(m) of the Internal Revenue
Code?
Generally speaking, Section 162(m) limits the ability of a
company to deduct compensation in excess of $1,000,000 paid to
named executive officers of public companies (i.e., the CEO and
the next four highest paid individuals). Compensation that is
“performance-based” is excluded from this calculation
and does not count against this $1,000,000 threshold.
Stock options and stock appreciation rights which are issued at
market price at the time of grant are considered to be
“performance based” and are therefore excluded from
the relevant calculation. On the other hand, cash bonuses and
restricted stock awards are only considered to be
“performance-based” when they are (i) paid
pursuant to a plan that has been approved by the company’s
shareholders (and re-approved every five years), and
(ii) based on objective measures established at the outset
of the relevant period by a board or committee consisting solely
of “outside” directors. It is the first of these
criteria that the company is now trying to satisfy. The company
has typically satisfied the second criteria with respect to its
cash bonus plan.
What
happens if the plan is not approved by the
shareholders?
The only thing that will happen is that the company may lose the
ability to deduct amounts over $1,000,000 (if any) that it pays
to certain company employees as an expense in calculating its
Federal income taxes. This would increase the taxes the company
pays and reduce earnings per share.
Table of Contents
We believe that at least a part of a management-level
employee’s annual cash compensation should be tied to
achieving measurable results, and that a cash incentive plan is
needed to attract and retain highly qualified management
personnel. Therefore, even if the plan is not approved, the
company will continue to establish performance targets for its
management-level employees and pay them a cash bonus as part of
their annual compensation if those targets are achieved.
Do all
employees participate in the plan?
No. Although the committee has the discretion to include or
exclude employees from the plan, the plan only applies to
officers of the company and its operating units, although the
company does award performance based cash awards to many of its
employees, including restaurant level management.
The
plan contemplates a maximum award of $3,000,000 to any covered
officer. Does the company plan on awarding this much money to
anyone?
Not in the foreseeable future. Pursuant to the Internal Revenue
Code, the plan has to specify a maximum limit, and $3,000,000
was chosen as a maximum payout because it represents a level
that the company reasonably believes, based on current facts and
circumstances, will not be realized in practice. It is possible
that in order to satisfy Section 162(m) the committee may
establish targets that, if met, would grant a covered officer
the ability to earn an award of $3,000,000, but the committee
may then exercise its “negative discretion” to
substantially scale back the award to amounts more in line with
historical practice.
All of that said, because awards are typically based on an
individual’s base salary as well as company performance, it
is possible that awards under the plan could one day approach
the maximum limit of $3,000,000, and you should vote on the plan
assuming that a $3,000,000 maximum award is possible.
|
| |||||||
