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This excerpt taken from the SMG DEF 14A filed Dec 19, 2008. Guidelines
with Respect to Tax Deductibility and Accounting
Treatment
The Company’s ability to deduct certain elements of
compensation paid to each of the NEOs is generally limited to
$1 million annually, under IRC § 162(m). This
non-deductibility is generally limited to amounts that do not
meet certain technical requirements to be classified as
“performance-based” compensation. To ensure the
maximum tax deduction allowable, the Company attempts to
structure its cash-based incentive programs to qualify as
performance-based compensation under IRC § 162(m). For
the 2008 fiscal year, none of the NEOs, other than the CEO, had
non-performance-based compensation in excess of $1 million.
The Company accounts for stock-based compensation, including
option awards and stock awards, in accordance with
SFAS 123(R). Prior to making decisions to grant
equity-based awards, the Compensation Committee reviews pro
forma expense estimates, as well as an analysis of the potential
dilutive effect such awards could have on existing shareholders.
Where appropriate, the proposed level of the equity-based awards
may be adjusted to balance these objectives.
Decisions regarding the design, structure and operation of the
Company’s incentive plans, including the EMIP, the SIP and
the equity-based incentive plans, contemplate an appropriate
balance between the underlying objectives of each plan and the
resulting accounting and tax implications to the Company. While
we view preserving the tax deductibility of executive
compensation as an important objective, there are instances
where the Compensation Committee has approved design elements
that may not be fully tax-deductible, but are accepted as
trade-offs that support the achievement of other compensation
objectives. For example, based on the desire to add a level of
individual accountability to the team oriented measurements in
the EMIP, a 25% discretionary element was included in the design
for the 2008 fiscal year, even though the use of such discretion
had the potential to limit the Company’s tax deduction with
respect to such payment.
Due to the timing of the establishment of the SIP within the
2008 fiscal year, the payouts made under the SIP did not qualify
as performance-based compensation for purposes of IRC
§ 162(m). However, when it established the SIP in May
2008, the Compensation Committee concluded that the best
interests of the Company and its stakeholders would be served by
ensuring that meaningful incentives were maintained for eligible
employees to deliver financial results within the revised range
of the Company’s guidance, as described in the
Company’s May 5, 2008 earnings release.
For the 2008 fiscal year, the Company granted approximately 60%
of the target equity award value in the form of NSOs, with the
remaining 40% granted in the form of restricted stock. While the
restricted stock does not qualify as performance-based
compensation for purposes of IRC § 162(m), the
decision to use a combination of NSOs and restricted stock
reflected competitive pay practices and allowed the Company to
deliver the intended equity award value with fewer Common Shares
underlying the awards granted and to balance the overall market
risk associated with the equity-based compensation for each NEO.
This excerpt taken from the SMG DEF 14A filed Dec 20, 2007. Guidelines
with Respect to Tax Deductibility and Accounting
Treatment
The Company’s ability to deduct certain elements of
compensation paid to each of the NEOs is generally limited to
$1 million annually, under Internal Revenue Code
Section 162(m). This non-deductibility is generally limited
to amounts that do not meet certain technical requirements to be
classified as “performance-based” compensation. To
ensure the maximum tax deduction allowable, the Company attempts
to structure its cash-based incentive programs to qualify as
performance-based compensation under Internal Revenue Code
Section 162(m).
The Company accounts for stock-based compensation, including
Option Awards and Stock Awards, in accordance with
SFAS 123(R). Prior to making decisions to grant
equity-based awards, the Compensation and Organization Committee
reviews pro forma expense estimates, as well as an analysis of
the potential dilutive effect such awards could have on existing
shareholders. Where deemed appropriate, the proposed level of
the equity-based awards may be adjusted to balance these
objectives.
Decisions regarding the design, structure and operation of the
Company’s incentive plans, including the EMIP and the
equity-based incentive plans, contemplate an appropriate balance
between the underlying objectives of each plan and the resulting
accounting and tax implications to the Company. While we view
preserving the tax deductibility as an important objective,
there are instances where the Compensation and Organization
Committee has approved design elements that may not be fully
tax-deductible, but are accepted as trade-offs that support the
achievement of other corporate objectives. For example, based on
the desire to add a level of individual accountability to the
team oriented measurements in the EMIP, a 25% discretionary
element was added to the design for the 2007 fiscal year. The
Company has made a trade-off between the potential tax due to
non-deductibility and the desire to achieve higher level
corporate objectives such as individual accountability.
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