Executive Compensation

A. 3.1 Structure and Components of Total Compensation

a. Board Designed, Implemented, and Disclosed to Shareowners: To ensure the alignment of

interest with long-term shareowners, executive compensation programs are to be designed,

implemented, and disclosed to shareowners by the board, through an independent compensation

committee. Executive compensation programs should not restrict the company’s ability to attract and retain competent executives.

b. Mix of Cash and Equity: Executive compensation be comprised of a combination of cash and

equity based compensation.

c. Shareowner Advisory Vote on Executive Compensation: Companies submit executive

compensation policies to shareowners for non-binding approval on an annual basis.

d. Executive Contract Disclosure: Executive contracts be fully disclosed, with adequate information to judge the “drivers” of incentive components of compensation packages.

e. Targeting Total Compensation Components: Overall target ranges of total compensation and components therein including base salary, short-term incentive and long-term incentive components should be disclosed.

f. Peer Relative Analysis: Disclosure should include how much of total compensation is based on peer relative analysis and how much is based on other criteria.

A. 3.2 Incentive Compensation

a. Performance Link: A significant portion of executive compensation should be comprised of “at

risk” pay linked to optimizing the company’s operating performance and profitability that results in

sustainable long-term shareowner value creation.

b. Types of Incentive Compensation: The types of incentive compensation to be awarded should be disclosed such as the company’s use of options, restricted stock, performance shares or other types.

c. Establishing Performance Metrics: Performance metrics such as total stock return, return on

capital, return on equity and return on assets, should be set before the start of a compensation

period while the previous years’ metrics which triggered incentive payouts should be disclosed.

d. Multiple Performance Metrics: Plan design should utilize multiple performance metrics when

linking pay to performance.

e. Performance Hurdles: Performance hurdlesthat align the interests of management with longterm shareowners should be established with incentive compensation being directly tied to the attainment and/or out-performance of such hurdles. Provisions by which compensation will not be paid if performance hurdles are not obtained should be disclosed to shareowners.

f. Retesting Incentive Compensation: Provisions for the resetting of performance hurdles in the

event that incentive compensation is retested8 should be disclosed.

g. Clawback Policy: Companies should recapture incentive payments that were made to executives on the basis of having met or exceeded performance targets during a period of fraudulent activity or a material negative restatement of financial results for which executives are found personally responsible.

3.3 Equity Compensation

a. Equity Ownership: Executive equity ownership should be required through the attainment and

continuous ownership of a significant equity investment in the company. Executive stock ownership

guidelines and holding requirements should be disclosed to shareowners on an annual basis. In

addition to equity ownership, the company should make full disclosure of its hedging policies.

b. Equity Grants Linked to Performance: Equity based compensation plans should incorporate

performance based equity grant vesting requirements tied to achieving performance metrics. The

issuance of discounted equity grants or accelerated vesting are not desirable performance based

methodologies.

c. Unvested Equity Acceleration upon a Change-in-Control: In the event of a merger, acquisition,

or change-in-control, unvested equity should not accelerate but should instead convert into the

equity of the newly formed company.

d. Recapturing Dividend Equivalent Payouts: Companies should develop and disclose a policy for

recapturing dividend equivalent payouts on equity that does not vest. In addition, companies should

ensure voting rights are not permitted on unvested equity.

e. Equity Grant Vesting Period: Equity grants should vest over a period of at least three years.

f. Board Approval of Stock Options: The board’s methodology and corresponding details for

approving stock options for both company directors and employees should be highly transparent

and include disclosure of: 1) quantity, 2) grant date, 3) strike price, and 4) the underlying stock’s

market price as of grant date. The approval and granting of stock options for both directors and

employees should preferably occur on a date when all corporate actions are taken by the board.

The board should also require a report from the CEO stating specifically how the board’s delegated

authority to issue stock options to employees was used during the prior year.

g. Equity Grant Repricing: Equity grant repricing without shareowner approval should be prohibited.

h. Evergreen or Reload Provisions: “Evergreen”9 or “Reload”10 provisions should be prohibited.

i. Distribution of Equity Compensation: How equity-based compensation will be distributed within

various levels of the company should be disclosed.

j. Equity Dilution and Run Rate Provisions: Provisions for addressing the issue of equity dilution,

the intended life of an equity plan, and the expected yearly run rate of the equity plan should be

disclosed.

k. Equity Repurchase Plans: If the company intends to repurchase equity in response to the issue

of dilution, the equity plan should clearly articulate how the repurchase decision is made in relation

to other capital allocation alternatives.

l. Shareowner Approval: All equity based compensation plans or material changes to existing equity

based compensation plans should be shareowner approved.

m. Cost of Equity Based Compensation: Reasonable ranges which the board will target the total

cost of new or material changes to existing equity based compensation plans should be disclosed.

The cost of new or material changes to existing equity based compensation plans should not exceed

that of the company’s peers unless the company has demonstrated consistent long-term economic

out performance on a peer relative basis.

9 Evergreen provisions provide a feature that automatically increases the shares available for grant on an annual basis. Evergreen provisions include provisions for a set number of shares to be added to the plan each year, or a set percentage of outstanding shares.

10 Reload provisions allow an optionee who exercises a stock option using stock already owned to receive a new option for the number of shares used to exercise. The intent of reload options is to make the optionee whole in cases where they use existing shares they own to pay the cost of exercising options.

3.4 Use and Disclosure of Severance Agreements

a. Severance Agreement Disclosure: In cases where the company will consider severance

agreements11, the policy should contain the overall parameters of how such agreements will be used

including the specific detail regarding the positions within the company that may receive severance

agreements; the maximum periods covered by the agreements; provisions by which the agreements

will be reviewed and renewed; any hurdles or triggers that will affect the agreements; a clear

description of what would and would not constitute termination for cause; and disclosure of where

investors can view the entire text of severance agreements.

b. Severance Agreement Amendments: Material amendments to severance agreements should be

disclosed to shareowners.

c. Shareowner Approval of Severance Payments: Severance payments that provide benefits12 with

a total present value exceeding market standards13 should be ratified by shareowners.

11 Severance agreement means any agreement that dictates what an executive will be compensated when the company terminates employment without cause or when there is a termination of employment following a finally approved and implemented change in control.

12 Severance benefits mean the value of all cash and non-cash benefits, including, but not limited to, the following: (i) cash benefits; (ii) perquisites; (iii) consulting fees; (iv) equity and the accelerated vesting of equity, (v) the value of “gross-up” payments; and (vi) the value of additional service credit or other special additional benefits under the company’s retirement system. Severance benefits do not include already accrued pension benefits.

13 The disclosed threshold in the United States should not exceed 2.99 times the sum of the executive’s base salary plus target bonus.

3.5 Use of “Other” Forms of Compensation

a. Alternative Forms of Compensation: Compensation policies should include guidelines by which

the company will use alternative forms14 of compensation (“perquisites”), and the relative weight in

relation to total compensation if perquisites will be utilized. To the degree that the company will

provide perquisites, it should clearly articulate how shareowners should expect to realize value from

these other forms of compensation.

3.6 Use of Retirement Plans

a. Defined Contribution/Benefit Plans: Defined contribution and defined benefit retirement plans

should be clearly disclosed in tabular format showing all benefits available whether from qualified or

non-qualified plans and net of any offsets.

Director Compensation

3.7 Director Compensation

a. Combination of Cash and Equity: Director compensation should be a combination of cash and

stock in the company.

b. Equity Ownership: Director equity ownership should be required through the attainment and

continuous ownership of an equity investment in the company. Director stock ownership guidelines

and holding requirements should be disclosed to shareowners on an annual basis.