This excerpt taken from the SMG DEF 14A filed Dec 20, 2007.
Long-Term Equity-Based Incentive Plans (long-term compensation element)
The Compensation and Organization Committee targets the economic value (equity award value) for long-term equity-based incentive awards at the 50th percentile of the compensation peer group. The target level is expressed as a multiple of the base salary and may be delivered in any combination of options, stock appreciation rights (SARs), restricted stock and/or performance shares. Consistent with the Companys performance-based pay philosophy, the targeted economic value of individual equity grants may be adjusted upward or downward from the 50th percentile based on such factors as the overall performance level of the individual, years of service and the accumulated value of previous equity-based incentive awards.
For the 2007 fiscal year, the Company granted approximately 50% of the desired equity award value in the form of NSOs, with the remaining 50% granted in the form of restricted stock. The decision to use a combination of NSOs and restricted stock reflects competitive pay practices and allows the Company to deliver the intended equity award value with fewer common shares. The specific numbers of common shares subject to NSOs and restricted stock awarded were determined as follows:
Desired Option Award value / Black-Scholes value per option = # of common shares subject to NSOs awarded
Desired Stock Award value / FMV per share = # of common shares underlying Restricted Stock awarded
All NSOs and restricted stock awarded to the NEOs in the 2007 fiscal year are subject to a three-year time-based cliff vesting provision. The restricted stock grants do not qualify as performance-based compensation for purposes of Internal Revenue Code Section 162(m). As a result, the Companys ability to deduct the full value of these awards at the time of vesting may be limited. Information on our equity grant practices and the determination of exercise price are explained under the section captioned Other Executive Compensation Policies, Practices and Guidelines Practices Regarding Equity-Based Awards below.