This excerpt taken from the PKE DEF 14A filed Jun 21, 2007.
Compensation Discussion and Analysis
General. The Companys compensation of its executive officers is composed of annual base salary, annual discretionary cash bonus, annual stock option grant and the profit sharing portion of the Companys Employees Profit Sharing and 401(k) Retirement Savings Plan (the Profit Sharing Plan). The Company does not have employment agreements or employment termination or severance agreements or change-of-control agreements
with any of its executive officers or any of its other employees. The Compensation Committee of the Board fully supports and endorses this compensation structure, which is designed to provide fair current income to the Companys officers, a discretionary cash award for individual and enterprise performance, equity participation in the Companys long-term performance as assessed by the capital markets in which the Companys common stock is traded and participation in the Companys profits through discretionary awards to the Profit Sharing Plan.
The Companys compensation of its executive officers is intended to be competitive with the compensation of executive officers at comparable companies, except for the compensation of the Chief Executive Officer, who has declined to accept the Compensation Committees offer of a bonus and a salary increase each year since the Companys 2001 fiscal year. However, it is difficult for the Company to ascertain meaningful comparisons because the Company has few, if any, peer-group companies which disclose compensation information since most of its competitors are privately owned or are divisions or business units or subsidiaries of larger publicly owned companies which do not disclose compensation information about the officers of such divisions, business units or subsidiaries. The Companys compensation of its senior management is also intended to align managements incentives with the long-term interests of the Companys shareholders and to be fair and equitable to the individual and to the Companys employees and shareholders.
Base Salaries. Salaries of executive officers are determined based on the significance of the position to the Company, individual experience and expertise, individual performance and information gathered informally as to compensation levels of comparable companies in the same geographic location as the Company, except the salary of the Chief Executive Officer, who has declined to accept the Compensation Committees offer of a salary increase each year since the Companys 2001 fiscal year. The Compensation Committee reviews the salary of each executive officer annually and makes adjustments as appropriate, taking into account the recommendations of the Chief Executive Officer.
Bonuses. Decisions as to the award of annual cash bonuses to executive officers with respect to each fiscal year are made after the close of the fiscal year. The amount awarded to each executive officer is based on the Companys overall performance, individual performance, base salary level, bonuses paid in prior years and overall equity and fairness, except the Chief Executive Officer, who has declined to accept the Compensation Committees offer of a bonus each year since the Companys 2001 fiscal year.
Equity Compensation. The only form of equity compensation that the Company has awarded consists of incentive stock options and non-qualified stock options under the Companys Stock Option Plan. The Company selected this form because of the favorable accounting and tax treatments and the near universal expectation by employees in the Companys industry that they would receive stock options. However, beginning in 2006, the accounting treatment for stock options changed as a result of Statement of Financial Accounting Standards No. 123(R), making the accounting treatment of stock options less attractive. As a result, the Company is assessing the desirability of granting other forms of equity-based compensation to employees, particularly members of senior management, that would provide an equally motivating form of incentive compensation while permitting the Company to issue fewer shares, thereby reducing potential dilution.
The Stock Option Committee determines the number of options that it considers appropriate for each executive officer and other key employees of the Company. With the exception of significant promotions and significant new hires, the Stock Option Committee generally grants stock options under the Companys Stock Option Plan once each year following the availability to the Stock Option Committee of the financial results of operations of the Company and its subsidiaries for the prior year, the business plans of the Companys subsidiaries for the current fiscal year, the option grant recommendations of the presidents of the Companys subsidiaries and the evaluation of such recommendations by the senior management of the Company and the recommendations of the Chief Executive Officer of the Company. The Stock Option Committee bases its decisions on individual performance, base salary and bonus levels, recommendations from the Companys Chief Executive Officer and overall equity and fairness. In granting stock options, the Stock Option Committee generally does not consider the equity ownership levels of the recipients. The grants for the 2007 fiscal year were made on August 3, 2006. This timing was selected because it enabled the Committee to consider prior year performance by the Company and the potential recipients and the Companys expectations and plans for the 2007 fiscal year. The Stock Option Committee has the sole authority to grant stock options and has not delegated any authority to grant stock options.
The Company has not had, and does not have, a program, plan or practice to select the dates of grants of stock options to executive officers or to any employee or director of the Company in coordination with the release of material non-public information. The Company does not plan to time, and it has not previously timed, its release of material non-public information for the purpose of affecting the value of executive compensation. In addition, the Company does not have a program, plan or practice of granting stock options and setting the exercise price or prices of such options based on the price of the Companys Common Stock on a date other than the grant date. Pursuant to the terms of the Companys 2002 Stock Option Plan, which was approved by shareholders of the Company at the Annual Meeting of Shareholders held on July 17, 2002, the purchase price of the Common Stock under each stock option granted by the Company is no less than the fair market value of the Common Stock at the time of grant, which, pursuant to the terms of such Plan, is the reported closing price of the Common Stock on the New York Stock Exchange on the date preceding the date the option is granted.
Severance Benefits. The Company does not provide employment termination or severance agreements or change-of-control agreements for its employees and does not have a policy to provide specified severance benefits to employees whose employment is terminated by the Company.
Pension Benefits. The Board decides annually the amount of the Companys contribution to the Profit Sharing Plan, which is described elsewhere in this Proxy Statement under the caption Executive Compensation2007 Fiscal Year Summary Compensation Table. The amount of such contribution is discretionary, but may not exceed 25% of the total remuneration paid to eligible employees or such other amount as is allowed under the Internal Revenue Code of 1986, as amended (the Code). Subject to this limit, the Board determines the amount to be contributed for each year based on the Companys overall performance, the amounts contributed in prior years, the amounts of prior contributions recently forfeited by eligible employees due to termination of employment prior to vesting and recommendations from the Companys Chief Executive Officer.
When the Company calculates overall compensation for its senior management, it considers the benefits expected to be received under the Profit Sharing Plan.
Perquisites and Other Benefits. The only perquisites for senior managers are the provision of automobiles leased or owned by the Company to certain executive officers and other members of management.
Senior management also participates in the Companys other employee benefit plans on the same terms as other employees. These plans include medical and dental insurance and life insurance.
Board Process. The Compensation Committee of the Board approves all salary and bonus compensation and the Stock Option Committee of the Board approves all grants of stock options for executive officers. Executive officers include the Chief Executive Officer, the Chief Financial Officer and each person acting in a similar capacity during the 2007 fiscal year and the three other executive officers named in the 2007 Fiscal Year Summary Compensation Table elsewhere in this Proxy Statement. The Compensation Committee and the Stock Option Committee review the performance and compensation of the Chief Executive Officer and, following discussions with him, establish his compensation level. As he has in the past since the Companys 2001 fiscal year, the Chief Executive Officer, Brian E. Shore, declined to accept the Compensation Committees offer of a bonus for the fiscal year ended February 26, 2006 and a salary increase for the fiscal year ended February 25, 2007. For the remaining executive officers, the Chief Executive Officer makes recommendations to the Compensation Committee and to the Stock Option Committee. The amount of discretionary contributions to the Profit Sharing Plan for each fiscal year is determined by the Board of Directors taking into account the recommendations of the Chief Executive Officer.
The Board, the Compensation Committee and the Stock Option Committee, as the case may be, use no set formulas in making their determinations and may afford different weight to different factors for each executive officer. Such weighting may vary from year to year.
Section 162(m) of the Internal Revenue Code. The Board and the Compensation Committee have reviewed the impact of Section 162(m) of the Code, which limits the deductibility of certain otherwise deductible compensation in excess of $1 million paid to the Chief Executive Officer and the other executive officers named in the 2007 Fiscal Year Summary Compensation Table elsewhere in this Proxy Statement. It is the Companys
policy to attempt to design its executive compensation plans and arrangements to be treated as tax deductible compensation wherever, in the judgment of the Board or the Compensation Committee, as the case may be, to do so would be consistent with the objectives of that compensation plan or arrangement. Accordingly, the Board and the Compensation Committee from time to time may consider whether changes in the Companys compensation plans and arrangements may be appropriate to continue to fulfill the requirements for treatment as tax deductible compensation under the Code.