This excerpt taken from the SII DEF 14A filed Apr 13, 2009.
Other Executive Compensation Components
Perquisites. The Company has an interest in ensuring the physical and mental wellness of its employees and, therefore, provides for a reimbursement of up to $3,000 for an annual physical for each executive officer. In addition, in lieu of providing specific perquisites, the Company provides a set dollar amount of specifically identified perquisites. This dollar amount is consistent within each grade level and is paid annually in 26 equal bi-weekly payments, as identified in the footnotes to the Summary Compensation Table. The executive officers do not need to spend their allowance on the specified items, but are free to use the allowance at their discretion. We believe that providing a set dollar amount allows our executive officers more flexibility and is more efficient to administer
than reimbursing for each individual expense. The amount provided is reviewed periodically and is consistent with perquisites provided by the benchmarking group. In addition, our executive officers may receive personal administrative assistant services at no incremental cost to the Company. Perquisite amounts are not considered annual salary for bonus purposes or 401(k) contributions.
401(k) Plan. The Company believes that financial security during retirement is an important benefit to provide to our executive management. For this reason, the Company and various subsidiaries offer 401(k) plans to their employees, including their executive officers. Because the Company and subsidiary plans operate and are administered in a similar fashion, for purposes of this discussion, the 401(k) plans will be referred to in the singular. Participants may contribute up to the federal limit in the 401(k) plan. The Company makes various levels of contributions to the 401(k) plan, including age-weighted contributions and performance-based matching contributions as defined in the 401(k) plan. Although the majority of the Companys peers have both defined benefit and defined contribution plans, the Compensation Committee elected to implement a defined contribution plan (the 401(k) plan) to control Company costs. The Companys 401(k) plan is consistent with similar plans available generally in the energy industry. Executive officers participate in the 401(k) plan on the same basis as other employees.
Supplemental Executive Retirement Plan. In addition to the 401(k) plan described above, Company officers, including all of the executive officers, and other key employees are eligible to participate in the Companys Post-2004 Supplemental Executive Retirement Plan (Post-2004 SERP). In connection with the adoption of the Post-2004 SERP, the Company suspended contributions to its previous SERP (SERP), except for guaranteed interest contributions discussed in the narrative disclosure following the Nonqualified Deferred Compensation Table. The SERP and Post-2004 SERP were implemented to allow Company officers to defer additional pre-tax compensation for retirement without regard to the limits placed on 401(k) plans under the Internal Revenue Code. We believe that the Post-2004 SERP is an important tool for the retirement planning efforts of our officers. Moreover, after reviewing data from the benchmarking group, our Compensation Committee determined that the Post-2004 SERP is important to remain competitive in the compensation arena. Additional information regarding the operation of the SERP and Post-2004 SERP may be found in the footnotes and narrative disclosure following the Nonqualified Deferred Compensation Table.
Change of Control and Employment Agreements
Change of Control Agreements. The Company has entered into Change of Control Agreements with nine executive officers, including all of the named executive officers and any executive officers who also serve as directors. After reviewing benchmarking studies performed by outside legal counsel at the request of the Compensation Committee in 1999, the Compensation Committee adopted a form of Change of Control Agreement. In 2005 and again in 2008, the Compensation Committee retained outside legal counsel to perform an update of the benchmarking study to determine whether the Change of Control Agreements remained competitive in the Companys industry. Because of this analysis, the Compensation Committee revised the form of Change of Control Agreement to reduce the termination multiple for future agreements, as discussed in the section titled Executive Compensation Change of Control and Employment Agreements.
The Compensation Committee has determined that the Change of Control Agreements are a necessary component of our compensation package in order for us to provide competitive compensation arrangements, particularly because such agreements are standard in our industry. In addition, they make executives neutral to change of control transactions that are in the best interests of the company and its stockholders, and thereby help create, rather than diminish, stockholder value. Moreover, we believe that the Change of Control Agreements help us to attract and retain our executive officers by reducing the personal uncertainty and anxiety that arises from the possibility of a future business combination. We selected objective criteria to determine whether a change of control has occurred for purposes of the Change of Control Agreements in order to reduce the likelihood of a dispute in the event of a change of control and to help ensure that the agreements are triggered only under circumstances when a true transfer of control or ownership has occurred. While the Change of Control Agreements do not influence decisions regarding compensation elements, the Compensation Committee periodically reviews the terms of the Change of Control Agreements so that they remain generally consistent with those of the benchmarking group. Additional information regarding the Change of Control Agreements may be found in the section titled Executive Compensation Change of Control and Employment Agreements.
Employment Agreements. When the Company emerged from bankruptcy in 1987, it offered employment agreements to certain key officers. The only executive officers with the 1987 employment agreements are Messrs. Rock and Dudman. The Company entered into these agreements primarily as a retention tool, but also because the Board of Directors felt that Messrs. Rock and Dudman could provide extraordinary and unique management and strategy skills to maintain and grow the Company. The Compensation Committee has reviewed these contracts and has concluded that they should remain in place, but no longer offers these types of employment agreements to executive officers. As discussed below, effective January 1, 2009, Mr. Rock entered into a new employment agreement with the Company, which terminated and replaced his 1987 employment agreement and his Change of Control Agreement. Mr. Dudmans 1987 agreement contains severance provisions that would entitle him to receive a lump sum payment in cash equal to his current annual base salary, bonus and benefits through the end of the employment period (three years) in the event that he were to be terminated by the Company (other than for cause, death or disability) or if for any reason his position is eliminated or otherwise becomes redundant, except in the event of a change of control, in which case severance would be paid pursuant to his Change of Control Agreement as explained in the section titled Executive Compensation Change of Control and Employment Agreements.
In December 2008, Mr. Rock executed an employment agreement with the Company wherein he will serve as a Special Executive Advisor to the Chief Executive Officer for a period of approximately one and a half years, commencing January 1, 2009, and ending on the first day following the conclusion of the Companys annual meeting of stockholders for the calendar year 2010. The agreement provides for an annual base salary of $1.3 million, a target bonus of 120% of base salary with respect to the Companys 2009 fiscal year and eligibility to participate in all Company benefit and perquisite plans during the employment period other than the Companys Long-Term Incentive Compensation Plan.
In addition, Mr. McKenzie entered into an Employment Agreement with the Company to serve as an advisor for a period of two years, commencing January 1, 2009. Mr. McKenzies Agreement provides for an annual base salary of $200,000, subject to adjustment, eligibility to participate in all Company benefit plans and a perquisite payment of $1,958 per month.
Pension Plan. The Company has a defined benefit pension plan, which is currently frozen. The benefit accruals were frozen effective March 1, 1987, and the amount of the pension benefit was fixed for all eligible employees based only upon benefit accruals from September 1, 1985 to March 1, 1987. Any benefits under the pension plan are offset by benefits paid under a previous pension plan of the Company. Mr. Rock is the only named executive officer with any benefit accruals under the plan. Additional information regarding the plan may be found in the narrative discussion following the Pension Benefits Table.