RAH » Topics » Long-Term Compensation

This excerpt taken from the RAH DEF 14A filed Nov 30, 2009.
Long-Term Compensation
 
Ralcorp’s long-term compensation program is comprised of long-term equity compensation and long-term cash compensation. Long-term equity compensation currently consists of stock options, restricted stock awards and stock appreciation rights.
 
  •  Stock options entitle the recipient to purchase a specified number of shares of the Company’s common stock after a specified period of time at an option price, which is equal to the fair market value of the common stock at the time of grant. The Committee ceased granting stock options to corporate officers in 2004.


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  •  Restricted stock awards were granted in 2004 and 2007 and provide the awardee with a long-term incentive. The restricted stock awards provide for a one-third vesting in years seven, eight and nine from the date of grant. Since vesting of these restricted awards are over a period of seven to nine years from the grant date, the 2007 awards were not considered when reviewing total compensation compared to a peer or published survey data. In 2009, the corporate officers received a one time award of restricted stock or restricted stock units, the terms of which are described below.
 
  •  Stock appreciation rights are based on a set number of shares, and upon exercise, grantees receive the number of shares equal in value to the difference between the exercise price and the fair market value at the date of exercise, less all applicable taxes. The 2009 stock appreciation rights vest at the rate of one-third of each grant in years 2012, 2013 and 2014.
 
The previous stock option grants and current practice of granting stock appreciation rights ensure a corporate officer’s compensation is linked directly to shareholder value since the officer receives no benefit from the option or appreciation right unless shareholders have benefited from an appreciation in the value of the common stock. In addition, since stock options and stock appreciation rights vest serially over a period of time after the date of grant (usually three to five years), they enhance the ability of the Company to retain the corporate officer while encouraging the corporate officer to take a longer-term view on decisions impacting the Company. All stock-based compensation will vest upon a change in control, normal retirement at age 62 or age 64 (depending on awardee’s age at the time of grant), death, disability, or an involuntary termination as defined in the relevant award agreement.
 
On October 9, 2009, the Company granted restricted stock units (“Units”) to the Co-CEOs based on the Company’s strong performance since they took over the position of Co-CEOs in September 2003. Since 2003, the Company’s stock price has increased by 119.7% compared to 0.7% for the S&P 500 Index and 22.3% for the S&P Food Index. The Units were also granted to incent further positive performance until retirement age. The Units are subject to a performance target and continued employment. In order to receive the Units, the Company must achieve 10% compound annual growth rate (CAGR) in EPS, as determined by the Committee, over fiscal years 2010 and 2011 and each Co-CEO must still be employed by the Company at his retirement age. As part of the grant, both CEOs entered into a non-compete, non-solicit and no-hire agreement which goes into effect for a two year period after they leave the Company.
 
Awards of restricted stock or Units (based on the officers’ election) were also granted to corporate officers due to strong Company performance as detailed above, as well as the need to retain the officers. The awards are subject to the same 10% CAGR target. In addition, each officer must remain employed with the Company until December 31, 2013. As a condition of the award, each officer also entered into a no-hire and non-solicit agreement effective for one year upon the officer’s voluntarily ceasing employment with the Company or his termination for cause.
 
As in previous years, stock appreciation rights were also awarded on October 9, 2009. The amount of shares has remained relatively consistent over the last several years but the current award represented fewer shares than historical grants since it was supplemented by the grant of restricted stock/unit awards. The stock appreciation rights and restricted stock/units grants, when combined amounted to approximately the same value of stock appreciation rights granted over the past few years. Generally, the Committee does not adjust award amounts when the associated compensation expense of an award changes each year. Instead, the Committee tries to maintain a constant number of awards year over year. Maintaining the level of awards rather than decreasing the award level when compensation expense increases along with the Company’s share price, ensures that total direct compensation remains competitive, in line with the Committee’s philosophies, while encouraging recipients to drive long-term increases in our share price. The exercise price of stock appreciation rights is set at the New York Stock Exchange composite closing price for the Company’s stock on the grant date. No stock appreciation rights (or stock options) have been granted below the closing price of the Company’s stock price on the grant date. All such awards are priced only on the grant date.
 
In fiscal 2008, the Board approved a long-term cash incentive award for corporate officers to be paid in fiscal 2010 upon the satisfaction of certain performance objectives. The incentive provides a cash-based incentive tied to stock price improvements driven by the successful integration of the Post Foods acquisition and continued


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improvement of existing business units. The award is designed to link management’s performance with share price targets during a two-year period. The award provides potential cash payments of $2.4 million for each Co-CEO and $1.2 million for each corporate officer. The award would be paid on December 30, 2010 if the Company’s stock price maintained an average closing price of $85 for twenty consecutive trading days between June 1 and December 30, 2010. If the stock’s highest 20-day average price is below $85 but above $80, there would be a graduated payout between 50% of the incentive at an $80 average stock price to 100% at $85.
 
In addition, if the officer defers at least 50% of the incentive payout into Company common stock, they can receive a 331/3% match. To encourage retention and further share price improvements, the Company match does not vest until after five years.
 
This excerpt taken from the RAH DEF 14A filed Nov 26, 2008.

Long-Term Compensation

Ralcorp’s long-term compensation program is comprised of long-term equity compensation and long-term cash compensation. Long-term equity compensation currently consists of stock options, restricted stock awards and stock appreciation rights.

 

   

Stock options entitle the recipient to purchase a specified number of shares of the Company’s common stock after a specified period of time at an option price, which is equal to the fair market value of the common stock at the time of grant. The Committee ceased granting stock options to officers in 2004.

 

   

Restricted stock awards were granted in 2004 and 2007 and provide the awardee with a long-term incentive. The restricted stock awards provide for a one-third vesting in years seven, eight and nine from the date of grant. Since vesting of these restricted awards are over a period of seven to ten years from the grant date, the awards were not considered when reviewing total compensation compared to a peer or published survey data.

 

   

Stock appreciation rights are based on a set number of shares, and upon exercise, grantees receive the number of shares equal in value to the difference between the exercise price and the fair market value at the date of exercise, less all applicable taxes. The 2008 stock appreciation rights vest at the rate of one-third of each grant in years 2011, 2012 and 2013.

Long-term cash compensation consists of one long-term cash incentive award. The award provides potential cash payments of $2.4 million for each Co-CEO and $1.2 million for each corporate officer. The award would be paid on December 30, 2010 if the Company’s stock price maintained an average closing price of $85 for twenty consecutive trading days between June 1 and December 31, 2010. If the stock’s average price is below $85 but above $80, there would be a graduated payout between 50% of the incentive at an $80 stock price to 100% at $85. For further details see the Grants of Plan Based Awards Table.

The previous stock option grants and current practice of granting stock appreciation rights ensure a corporate officer’s compensation is linked directly to shareholder value since the officer receives no benefit from the option or appreciation right unless all shareholders have benefited from an appreciation in the value of the common stock. In addition, since all stock-based incentive awards vest serially over a period of time after the date of grant (usually three to six years), they enhance the ability of the Company to retain the corporate officer while encouraging the corporate officer to take a longer-term view on decisions impacting the Company. All stock-based compensation will vest upon a change in control, normal retirement at age 62 or age 64 (depending on awardee’s age at the time of grant), death, disability, or an involuntary termination as defined in the relevant award agreement.

Stock appreciation rights were awarded on September 25, 2008. The amount of shares has remained relatively consistent over the last several years. The Committee does not adjust award amounts when the associated compensation expense of an award changes each year. Instead, the Committee maintains a constant number of awards year to year. Maintaining the level of awards rather than decreasing the award level when compensation expense increases along with the Company’s share price, ensures recipients are incented to drive long-term increases in our share price.

The exercise price of stock appreciation rights is set at the New York Stock Exchange composite closing price for the Company’s stock on the grant date. No stock appreciation rights (or stock options) have been granted below the closing price of the Company’s stock price on the grant date. All such awards are priced only on the grant date. Typically, stock appreciation awards are granted annually on the last Board of Director meeting of the fiscal year, usually in September in connection with a review of the Company’s annual performance.

The successful transition and performance of Post Foods and the continued positive performance of the remaining Ralcorp business units have the potential to create significant value for the Company. Therefore, in fiscal 2008, the Board also approved a long-term cash incentive award for corporate officers to be awarded in fiscal 2010. The incentive provides a cash-based incentive tied to stock price improvements driven by the successful integration of the Post Foods acquisition and continued improvement of existing business units. The

 

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award is designed to link management’s performance with share price targets during a two-year period. In addition, if the officer defers at least 50% of the incentive payout into Company common stock, they can receive a 33 1/3% match. To encourage retention and further share price improvements, the Company match does not vest until after five years.

For details on award grants to each Named Executive Officer, see the Grants of Plan-Based Awards Table below and the Outstanding Equity Awards at Fiscal Year-End Table below.

This excerpt taken from the RAH DEF 14A filed Dec 13, 2006.

Long-Term Compensation

      Long-term compensation currently consists of stock options, restricted stock awards and stock appreciation rights.

      •  Stock options entitle the recipient to purchase a specified number of shares of the Company’s Common Stock after a specified period of time at an option price, which is ordinarily equal to the fair market value of the Common Stock at the time of grant. The Committee ceased granting stock options to officers in 2004.
 
      •  Restricted stock awards were granted in 2004 (2005 and 2006 for Mr. Scalise) and provide the awardee with a long-term incentive. The restricted stock awards provide for a one-third vesting in years 2011, 2012 and 2013. Both of Mr. Scalise’s restricted stock awards provide for a one-third vesting in years 2012, 2013 and 2014.
 
      •  Stock appreciation rights are based on a set number of shares, and upon exercise, they will receive the number of shares equal in value to the difference between the exercise price and the fair market value at the date of exercise, less all applicable taxes.

      All stock-based compensation provides executives with an opportunity to buy and maintain an equity interest in the Company while linking the executive’s compensation directly to shareholder value since the

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executive receives no benefit from the option unless all shareholders have benefited from an appreciation in the value of the Common Stock. In addition, since all stock-based incentive awards “vest” serially over a period of time after the date of grant (usually three to six years), they enhance the ability of the Company to retain the executive while encouraging the executive to take a longer-term view on decisions impacting the Company. All stock-based compensation will vest upon a change-in-control, normal retirement, death, disability, or an involuntary termination.

      Stock appreciation rights were awarded in September 2006. The amount awarded to each Company officer was recommended by Messrs. Hunt and Skarie after consultation with the Committee’s Chairman. With respect to each of Messrs. Hunt and Skarie, the Committee authorized 75,000 stock appreciation rights. Messrs. Hunt and Skarie recommended the amounts awarded to all other officers after consultation with the Committee’s Chairman. The awards were designed to link compensation to long-term share price performance. Consequently, the awards do not begin vesting until 2009.

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