This excerpt taken from the ZBRA DEF 14A filed Apr 10, 2006.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee is comprised of two directors: Dr. Potter, Chair, and Mr. Knowles, each of whom is independent under current listing requirements of The NASDAQ Stock Market. The Compensation Committee establishes compensation policies and programs for the Companys executive officers. It operates under a written charter adopted by the Board.
Compensation Elements For 2005, the primary components of the Companys executive officer annual compensation program were base salaries and cash bonuses based on Company performance. Stock options also form a part of the compensation package for executive officers other than the Executive Vice President. The Company provides a 401(k) plan and a non-qualified deferred compensation plan to eligible employees, including its executive officers. Under the deferred compensation plan, eligible employees have an opportunity to defer, on a pre-tax basis, all or a portion of base salary, commissions and bonus earned each year. Deferred amounts are credited to the participants account, which also is credited with earnings on those amounts realized from hypothetical investments selected by the participant.
In establishing compensation, the Committee took into account that, as a general practice, the Company does not provide additional perquisites such as car allowances, club memberships and executive life insurance other than company-wide group policies. Additionally, except for the companys 401(k) plan, the deferred compensation plan and the stock option plan noted below, the Company does not provide other long-term compensation plans such as SERPs, pension plans or defined benefit plans.
Base Salaries The Committee determined compensation for the Companys executive officers, other than that of Mr. Kaplan, the Chief Executive Officer, in consultation with Mr. Kaplan based on the relative performance and responsibilities of each executive officer as well as various technology industry salary surveys. The Committee targeted salaries at levels competitive to those provided to executives with similar responsibilities in businesses viewed as comparable to the Company.
The Committee determined Mr. Kaplans 2005 annual base salary based upon the Committees evaluation of Mr. Kaplans contributions to the Company and his importance to its continued growth. In approving Mr. Kaplans 2005 annual base salary, the Committee also reviewed (i) survey data showing base salaries for chief executive officers in the technology sector in similarly sized companies, and those in similarly sized companies in the Chicago area, and (ii) the performance of the Company during 2004. Mr. Kaplan was not present during any discussions involving his compensation.
Bonuses Executive bonuses for 2005 were designed to reward management for achieving or exceeding predetermined financial goals for the Company, and in certain situations, predetermined financial goals for a particular business unit. No executive bonuses were paid for 2005 due to the performance goals not being attained.
Mr. Kaplan and each of the Companys other executive officers participated in the Companys 2005 Management Bonus Plan (the Bonus Plan). Each executive officer participated in one of three bonus programs. The first program provided for bonuses based on 2005 Company financial performance criteria, specifically, operating profit growth. The second program, for executive officers who have primary responsibilities within a particular business unit, provided for bonuses based on operating profit growth plus 2005 business unit financial performance criteria, specifically, business unit operating profit growth. The third program, for other executive officers who have primary responsibilities within a particular business unit, provided for bonuses based on 2005 business unit financial performance criteria, business unit operating profit growth and business unit revenue growth. Such bonuses were determined as a percentage of an executive officers actual base salary earnings during the calendar year. Generally, a target bonus under the Bonus Plan is determined for each executive ranging from 30% to 80% of base salary, depending upon relative position within the Company.
Stock Options The Company awards stock options under its stockholder-approved 1997 Stock Option Plan to executive officers to provide competitive compensation packages. The Company also believes it is important that all of its key executive officers have a meaningful equity stake in the Company so that they have an incentive to create stockholder value over a long-term investment horizon. Accordingly, options usually vest over five years on the anniversary date of the grant. The Committee approved the options granted to executive officers in 2005.
In 2005, the Compensation Committee awarded Mr. Kaplan his first option grant since the Company went public in 1991. Previously, the Company did not award Mr. Kaplan stock options because of his stock ownership position in the Company. However, after a review of competitive compensation practices and in recognition of his leadership role in the Company, the Compensation Committee determined that a significant option grant for Mr. Kaplan was appropriate.
Compliance With Section 162(m) The Board of Directors generally intends for all compensation paid to the Named Officers to be tax deductible to the Company pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended (Section 162(m)). Section 162(m) provides that compensation paid to the Named Officers in excess of $1,000,000 cannot be deducted by the Company for federal income tax purposes unless, in general, such compensation is performance based, is established by an independent committee of directors, is objective and the plan or agreement providing for such performance based compensation has been approved in advance by the Companys stockholders. However, if in the judgment of the Board, the benefits to the Company of a compensation program that does not satisfy the arbitrary and inflexible conditions of Section 162(m) outweigh the costs to the Company of the failure to satisfy these conditions, the Board may adopt such a program.