Kodak 2004 Annual Report Download - page 124

Proposals
15
E A S T M A N฀ K OD A K ฀ C O M PA N Y
Background
EXCEL฀is฀the฀Company’s฀short-term฀variable฀pay฀plan฀for฀its฀executives.฀The฀Plan,฀which฀was฀formerly฀called฀the฀“Management฀Variable฀Compensation฀
Plan”฀(MVCP),฀was฀restated฀and฀renamed฀“EXCEL”฀effective฀January฀1,฀2002฀by฀the฀Executive฀Compensation฀and฀Development฀Committee฀(the฀Compen-
sation฀Committee).฀The฀Compensation฀Committee฀took฀this฀action฀because฀it฀found฀that฀MVCP฀was฀unnecessarily฀complex,฀consumed฀too฀much฀time,฀
was฀too฀rigid,฀measured฀too฀many฀metrics฀and฀did฀not฀drive฀enough฀differentiation฀in฀rewards.฀EXCEL฀places฀more฀focus฀on฀revenue฀growth,฀provides฀a฀
stronger฀tie฀to฀current฀year฀performance,฀allows฀for฀rewards฀at฀an฀accelerated฀rate฀for฀performance฀above฀expectations,฀involves฀fewer฀key฀goals,฀retains฀
an฀assessment฀of฀people฀leadership฀and฀allows฀more฀discretion฀in฀assessing฀performance฀and฀rewards.฀฀
The฀Plan฀is฀being฀amended฀to฀modify฀its฀performance฀metrics฀so฀that฀the฀performance฀metrics฀available฀for฀use฀will฀be฀the฀same฀as฀those฀under฀the฀new฀
2005฀Omnibus฀Plan.฀For฀the฀2005฀performance฀year,฀the฀Compensation฀Committee฀is฀using฀investable฀cash฀flow฀and฀digital฀revenue฀growth฀in฀setting฀
EXCEL’s฀annual฀performance฀goals.฀While฀the฀Compensation฀Committee฀has฀no฀present฀intention฀of฀changing฀its฀use฀of฀these฀performance฀metrics,฀to฀the฀
extent฀it฀decides฀to฀do฀so฀in฀the฀future,฀the฀amendment฀will฀provide฀the฀Compensation฀Committee฀the฀flexibility฀to฀select฀from฀the฀same฀list฀of฀performance฀
metrics฀that฀are฀used฀under฀the฀new฀2005฀Omnibus฀Plan.฀฀
As฀a฀result฀of฀the฀amendment,฀the฀following฀performance฀metrics฀will฀be฀available฀for฀use฀under฀the฀Plan฀for฀the฀Company฀on฀a฀consolidated฀basis฀and/or฀
for฀any฀subsidiary,฀division,฀business฀unit฀or฀one฀or฀more฀business฀segments:฀return฀on฀net฀assets฀(RONA);฀return฀on฀shareholders’฀equity;฀return฀on฀as-
sets;฀return฀on฀capital;฀shareholder฀returns;฀total฀shareholder฀return;฀return฀on฀invested฀capital;฀profit฀margin;฀earnings฀per฀share;฀net฀earnings;฀operating฀
earnings;฀common฀stock฀price฀per฀share;฀sales฀or฀market฀share;฀unit฀manufacturing฀cost;฀working฀capital;฀productivity;฀days฀sales฀in฀inventory;฀days฀sales฀
outstanding;฀revenue;฀revenue฀growth;฀cash฀flow;฀and฀investable฀cash฀flow.฀The฀text฀of฀the฀amendment฀appears฀as฀Exhibit฀II฀on฀page฀69.
Prior฀to฀its฀amendment,฀the฀Plan฀provided฀for฀the฀following฀performance฀metrics฀on฀a฀company-specific฀basis,฀business-unit฀basis฀or฀in฀comparison฀with฀
peer฀group฀performance:฀Economic฀Profit/EVA,฀RONA;฀return฀on฀shareholders’฀equity;฀return฀on฀assets;฀return฀on฀capital;฀return฀on฀sales;฀shareholder฀
returns;฀total฀shareholder฀return;฀profit฀margin;฀earnings฀per฀share;฀net฀earnings;฀operating฀earnings;฀earnings฀before฀interest฀and฀taxes;฀common฀stock฀
price฀per฀share;฀cash฀flow;฀cost฀reduction;฀revenue;฀revenue฀growth;฀and฀sales฀or฀market฀share.
In฀addition฀to฀the฀Plan’s฀performance฀metrics,฀we฀are฀also฀taking฀this฀opportunity฀to฀ask฀for฀your฀re-approval฀of฀the฀other฀material฀terms฀of฀EXCEL฀for฀pur-
poses฀of฀Section฀162(m)฀of฀the฀Internal฀Revenue฀Code.฀As฀discussed฀in฀the฀Report฀of฀the฀Executive฀Compensation฀and฀Development฀Committee,฀the฀Com-
pany฀generally฀seeks฀to฀preserve฀the฀ability฀to฀claim฀tax฀deductions฀for฀compensation฀paid฀to฀executives฀to฀the฀greatest฀extent฀practicable.฀Section฀162(m)฀
of฀the฀Internal฀Revenue฀Code฀sets฀limits฀on฀the฀Company’s฀federal฀income฀tax฀deduction฀for฀compensation฀paid฀in฀a฀taxable฀year฀to฀an฀individual฀who,฀on฀
the฀last฀day฀of฀the฀taxable฀year,฀was:฀1)฀the฀CEO฀or฀2)฀among฀the฀four฀other฀highest-compensated฀executive฀officers฀whose฀compensation฀is฀reported฀in฀
the฀Summary฀Compensation฀Table.฀“Qualified฀performance-based฀compensation,”฀which฀can฀include฀compensation฀paid฀under฀a฀short-term฀variable฀pay฀
plan฀like฀EXCEL,฀is฀not฀subject฀to฀this฀deduction฀limit,฀and฀therefore฀is฀fully฀deductible,฀if฀certain฀conditions฀are฀met.฀One฀of฀the฀conditions฀is฀shareholder฀
approval฀of฀the฀material฀terms฀of฀the฀plan฀under฀which฀the฀compensation฀is฀paid.฀The฀other฀material฀terms฀that฀require฀your฀approval฀under฀Section฀162(m)฀
are:฀1)฀the฀class฀of฀employees฀eligible฀to฀receive฀awards฀under฀the฀Plan฀and฀2)฀the฀maximum฀payout฀that฀can฀be฀provided฀to฀an฀employee฀under฀the฀Plan.฀
Both฀of฀these฀material฀terms฀are฀described฀in฀the฀summary฀of฀the฀Plan฀that฀appears฀below.฀
A฀company฀is฀generally฀required฀by฀Internal฀Revenue฀Service฀rules฀to฀obtain฀re-approval฀of฀the฀material฀terms฀of฀its฀plan฀from฀its฀shareholders฀every฀five฀
years.฀Thus,฀by฀seeking฀your฀approval฀now฀of฀EXCEL’s฀material฀terms,฀the฀next฀time฀the฀Company฀will฀be฀required฀to฀obtain฀your฀approval฀of฀EXCEL’s฀mate-
rial฀terms฀is฀at฀the฀2010฀annual฀meeting.
Summary฀of฀Plan
This฀summary฀of฀EXCEL฀is฀qualified฀in฀its฀entirety฀by฀reference฀to฀the฀text฀of฀the฀Plan.฀The฀Company฀will฀send,฀without฀charge,฀a฀copy฀of฀the฀Plan฀to฀any฀
shareholder฀who฀requests฀one.
Purpose
The฀purpose฀of฀EXCEL฀is฀to฀provide฀an฀industry-competitive฀short-term฀variable฀pay฀incentive฀to฀the฀Company’s฀executives.
Administration
The฀Compensation฀Committee฀administers฀the฀Plan.฀
Eligibility
Plan฀eligibility฀is฀generally฀limited฀to฀the฀Company’s฀executives,฀currently฀approximately฀800฀in฀number.฀The฀Compensation฀Committee฀annually฀determines฀
which฀executives฀will฀be฀participants฀of฀the฀Plan฀for฀the฀following฀calendar฀year.฀
Award฀Limits
The฀maximum฀award฀payable฀to฀any฀employee฀who฀is฀a฀“covered฀employee”฀under฀Section฀162(m)฀of฀the฀Internal฀Revenue฀Code฀for฀a฀performance฀period฀
is฀$5,000,000.฀A฀covered฀employee฀may฀not฀receive฀an฀award฀for฀a฀performance฀period฀unless฀the฀performance฀goals฀for฀the฀period฀are฀attained.฀