This excerpt taken from the WWE DEF 14A filed Mar 31, 2008.
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
The Summary Compensation Table and Grants of Plan-Based Awards Table above provide certain information regarding compensation of our named executive officers. This narrative provides additional and explanatory information regarding compensation of our named executive officers and should be read in conjunction with those tables.
Employment Agreements. Certain of our named executive officers have employment agreements that affect the compensation reported for them. We currently have employment agreements with each of Vincent K. McMahon and Linda E. McMahon having terms ending on October 14, 2009. Mr. and Mrs. McMahon also have booking contracts that are coterminous with their employment agreements. From November 2004 through January 1, 2007, Mr. and Mrs. McMahon waived all compensation, consisting of salary, bonuses and booking fees, under the agreements. Since the beginning of 2007, they began receiving salary in the amount of $850,000, in the case of
Mr. McMahon, and $500,000, in the case of Mrs. McMahon. They continue to waive all other compensation. Each of these employment agreements automatically extend for successive one-year periods unless either party gives notice of non-extension at least 12 months, but no more than 18 months, prior to the expiration date.
Under their employment agreements, in the event we terminate either Mr. and Mrs. McMahons employment other than for cause, death or disability, or if the executive terminates his or her employment for good reason, or if the executive terminates his or her employment for any reason within the 90-day period beginning six months after the occurrence of a change in control, we are obligated to pay to the executive compensation and benefits that are accrued but unpaid at the date of termination, plus a lump sum cash amount equal to the executives base salary and bonus for the greater of the balance of the contract term or two years and to continue his or her benefit plan participation for such period. If Mr. or Mrs. McMahon dies during the term of his or her agreement, we are obligated to pay to the executives estate compensation and benefits that are accrued but unpaid as of the date of the executives death, plus a lump sum amount equal to the executives base salary and bonus for two years. If we terminate Mr. or Mrs. McMahons employment for cause, if either executive resigns without good reason, or if either executives employment is terminated due the executives disability, we are obligated to pay the executive compensation and benefits accrued but unpaid as of the date of termination. Amounts that have been waived by the McMahons will not be deemed accrued but unpaid for the foregoing purposes. If either Mr. or Mrs. McMahon becomes subject to any change in control excise taxes, we will be obligated to provide such executive a gross-up bonus sufficient, on an after-tax basis, to cover any such excise taxes. The employment agreements also contain confidentiality covenants and covenants that, among other things, prohibit each executive from competing with us in professional wrestling and our other core businesses during employment and for one year after termination, unless the termination follows a change in control. The employment agreements for Mr. and Mrs. McMahon allow personal travel on the Companys aircraft when it is not being used for business purposes. For periods prior to July 1, 2006, income related to such travel was imputed to the McMahons at the higher of applicable IRS regulations or 120% of the Companys estimate of first class airfare for the flights, and the Companys incremental cost of such use is reported in our Summary Compensation Table. Since July 1, 2006, personal use has been paid for by the McMahons so that no incremental cost is incurred by the Company.
We have an agreement with Michael Sileck pursuant to which, if he is terminated without cause, as defined in the agreement, he will be entitled to vesting of the 100,000 restricted stock units granted to him on his hiring in June 2005 and a portion of the 50,000 restricted stock units granted to him at his promotion to Chief Operating Officer in February 2007. He would also be entitled to severance pay of one years base salary.
The Company has a three-year employment agreement with Frank G. Serpe under which he served for one year as the Companys Chief Financial Officer and thereafter will act as a Senior Advisor to the Company. He is entitled to an annual salary of $325,000 and is entitled to participate in the Companys Management Bonus Plan at the Executive Vice President level in 2007. He was granted 15,000 restricted stock units under the Companys Long-Term Incentive Plan, which units vest in three equal annual installments. In the event Mr. Serpes employment is terminated by the Company without cause, he would be entitled to his base salary through the end of the term of the agreement and the immediate vesting of the unvested portion of any options and restricted stock units then outstanding.
Performance and Restricted Stock Units. Under the terms of our Restricted Stock Unit Agreements, dividends accrue at the same rate as are paid on our shares of Common Stock, which is currently $0.36 per share per quarter. In the case of performance stock units, dividends begin to accrue after the performance test is met. Dividend accruals vest at the same time as the vesting of the restricted or performance stock units on which they accrue. Stock units generally vest over three years (assuming, in the case of performance units, that the performance test has been met), however, in the event that following a change of control, as defined in the agreement, an employee is terminated without cause or terminates his or her employment as a result of a decrease in base salary, a change in responsibility or reporting structure or a change in employment location of more than twenty-five miles, such vesting is accelerated. One grant, made in 2004, provides for seven-year vesting with acceleration if the Company achieves EBITDA of $100 million in any year.
Management Incentive Plan. Our Management Incentive Plan provides for incentive cash bonuses to be made annually based upon Company-wide and individual performance. The plan provides guidelines for the calculation of bonuses subject to Compensation Committee oversight and approval. For 2007, participants bonuses were based on two components, individual performance and Company performance. The participant had to meet threshold targets for both components in order to receive any bonus. Individual performance is based on many factors, such as competency, creativity, leadership and communication, with scores in each area and a final score, summarizing such factors, of between 0 and 5. An executive had to receive at least a 3.0 rating to receive a bonus. At the beginning of 2007, the Compensation Committee set a Company-wide performance target of $84 million of EBITDA, of which the Company had to achieve 85% in order for any bonus to be paid. Bonuses were established based on percentages of salary, with such targets ranging from 25% (for those at the Vice President level) to 60% (for the Chief Operating Officer and Executive Vice President, Television Production). The Company had EBITDA for these purposes of $77.9 million and accordingly paid bonuses. Payments of these bonuses to the named executive officers are set forth in column (g) of the Summary Compensation Table.
Similar to 2007, in respect of 2008, the Company must reach 85% of its EBITDA target of $93.5 million in order for bonuses to be paid. If this target is met, and the individuals performance rating is at or above 3.0, the executive is entitled to participate, with the Company-wide performance portion paid based upon the individuals contribution to such success and other subjective factors as senior management recommends and the Compensation Committee approves. Assuming the Company achieves 100 percent of its target, the maximum payment of this component is 100% of the individuals overall target. The component relating to personal performance was left unchanged insofar as it increases linearly from a performance rating of 3.0 to a maximum level of 5.0. For the individual performance component, a score of 5.0 would result in a payment in the amount of 150% of the individual component target. Assuming the Company achieves 100 percent of its target, the combination of the Company performance and individual performance ratings will translate into bonuses equal to a percentage of annual salary ranging as follows:
For the named executives, this would result in the following payouts in respect of 2008:
In the event that the Companys performance exceeds 100% of EBITDA target, the allocation of the pool arising as a result of such excess shall be allocated through the exercise of negative discretion by the Compensation Committee, on the recommendation of the Companys Chairman and Chief Executive Officer, below maximums allowed under the Plan.