This excerpt taken from the ORB DEF 14A filed Mar 10, 2008.
Elements of Our Compensation Program
The elements of our compensation program are the following: base salary, annual cash incentive awards and special cash bonuses, equity-based compensation, severance benefits in the event of a change in control, and certain other benefits. We discuss below each element, including why we chose to pay each element and how we determined the amount to pay for each element for 2007.
We pay base salary to provide our executives with a level of assured cash compensation. The base salary of our Named Executive Officers reflects the individuals level of responsibilities, experience and expertise. As a retention tool, we believe it is important that base salary should be competitive with salaries paid at companies of similar size within the aerospace and defense industry.
In early 2007, Mr. Thompson presented to the Compensation Committee proposed 2007 salary increases for all the Named Executive Officers. The proposed increases for the Named Executive Officers who were general managers of our operating groups (Ronald J. Grabe, Antonio L. Elias and Carl A. Marchetto) were in the 4 - 5% range. In approving the proposed increases, the Compensation Committee took into consideration each individuals performance as a group leader, the solid financial and operational performance of the relevant operating group, as well as strong new order activity during 2006.
For the base salary levels of Mr. Thompson, Garrett E. Pierce and James R. Thompson, the Compensation Committee considered each individuals leadership role during 2006, which was a very successful year for the company in terms of overall financial results, operational successes and new business wins. The Compensation Committee also compared these officers salaries with the most current publicly available salaries for similarly situated executives within a peer group of 17 companies in the aerospace, defense and government information technology industries. The proposed increases for Messrs. Thompson, Pierce and J.R. Thompson were approximately 4%, reflecting a desire by the Compensation Committee to reward each individuals performance while keeping those particular executives salaries generally consistent with the mid-point of salaries of similarly situated executives at companies in a subset of the peer group companies, discussed below.
The above-mentioned peer group included companies with revenues ranging from $51 million to $55 billion. The Compensation Committee focused its review on the following subset of companies included in the group with revenues generally comparable to ours: EDO Corporation, GenCorp Inc., Loral Space & Communications Inc., Trimble Navigation Limited, ManTech International Corporation and SRA International, Inc. The remaining 11 companies in the peer group were DRS Technologies, Inc., CACI International Inc, Alliant Techsystems Inc., L-3 Communications Holdings, Inc., General Dynamics Corporation, Raytheon Company, SPACEHAB Incorporated, Northrop Grumman Corporation, Lockheed Martin Corporation, United Technologies Corporation and The Boeing Company. While these benchmarks were a useful tool in providing the Compensation Committee with perspective on certain executive salary levels, they were not material to the compensation decision.
Based on the recommendation of the Compensation Committee, the full Board (other than management directors) approved executive salaries for 2007. The base salary paid to each of the Named Executive Officers is set forth in the Summary Compensation Table on page 20.
Annual Cash Incentive Awards and Special Cash Bonuses.
Consistent with our overall compensation objectives of linking compensation to performance, aligning executive compensation with stockholder interests and attracting and retaining top level executive officers in our industry, we pay annual cash incentive awards pursuant to our Management Incentive Plan (MIP). Approximately 280 employees throughout the company are eligible to receive annual MIP awards. MIP award opportunities are established as a percentage of base salary and are capped at 125% of the target bonus amount.
Target Bonus Amounts
In 2007, the Compensation Committee asked our Human Resources Department to research how our executive target bonus amounts compared with comparable industry metrics. This request was initiated based on the consensus of the Compensation Committee that the existing target bonus amounts had been established a number of years ago and that the Compensation Committee should consider whether they were still at the appropriate levels. Our Human Resources Department did not retain a consultant but did rely on aerospace and durable goods manufacturing industry compensation surveys procured by such department in the ordinary course of business. Based on Mr. Thompsons recommendation, and upon review of this survey information, the Compensation Committee concluded that (1) Messrs. Thompsons, Pierces and J.R. Thompsons target bonus percentages should stay the same as in 2006 (90% of base salary for Mr. Thompson and 80% for Messrs. Pierce and J.R. Thompson), and (2) the target bonus percentage for the executive vice president and general manager of each operating group should be increased from 50% to 60% of base salary for 2007, which was more consistent with the average target bonuses in the aerospace and durable goods manufacturing industries and also acknowledged the overall growth in their respective business units.
MIP Award Formula
The amount of the award received by MIP participants, including the Named Executive Officers, is derived from a formula based on the achievement of (1) financial targets and (2) operational goals, discussed below. (Mr. Marchetto resigned in December 2007 and was not eligible to receive a MIP award for 2007.) The financial targets are established at the beginning of the year, and the operational goals are established for the first and second halves of the year at the beginning of the first and third quarters, respectively. The MIP targets and the subsequent assessments of whether the targets were attained are developed by Mr. Thompson in consultation with senior management, including the Named Executive Officers, and presented to the Compensation Committee for approval. The same targets and performance assessments apply to all MIP participants, including the Named Executive Officers. Once the Compensation Committee approves the MIP targets, any adjustments to the targets must be approved by the Compensation Committee.
The MIP award formula is weighted more heavily towards achievement of the financial targets, which are objective and therefore easily measurable. For the employees in the corporate group, including Messrs. Thompson, Pierce and J.R. Thompson, the MIP award calculation depends on our annual consolidated financial results (weighted 70%) and the corporate groups operational performance (weighted 30%). The relative weight given to these metrics is consistent with the Compensation Committees view that Messrs. Thompson, Pierce and J.R. Thompson have greater responsibility for managing the companys overall performance which is reflected in the companys consolidated financial results. For employees in the specific business units, including Messrs. Grabe and Elias, the MIP award calculation places more emphasis on the relevant business units performance (financial weighted at 40%; operational weighted at 30%) while also taking into account the companys annual consolidated financial results (weighted 30%). The relative weight given to these metrics is consistent with the Compensation Committees view that Messrs. Grabe and Elias have a greater degree of responsibility for their particular business units performance (the Launch Systems Group and the Advanced Programs Group, respectively), but also should be accountable for the companys financial performance as a whole.