Kodak 2004 Annual Report Download - page 157

Reports
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2 0 0 5 ฀ N O T I C E ฀ O F ฀ A N N U A L ฀ M E E T I N G ฀ A N D ฀ P R O X Y ฀ S T A T E M E N T
BOARD฀COMPOSITION
Based฀on฀the฀Committee’s฀recommendation,฀the฀Board฀of฀Directors฀elected฀two฀new฀members฀to฀the฀Board฀in฀2004,฀Antonio฀M.฀Perez฀and฀Michael฀J.฀
Hawley.฀In฀accordance฀with฀the฀Board’s฀new฀Director฀Selection฀Process,฀the฀Committee฀oversaw฀the฀process฀of฀electing฀both฀Mr.฀Perez฀and฀Dr.฀Hawley฀to฀
the฀Board.฀In฀the฀case฀of฀Dr.฀Hawley,฀an฀independent฀non-employee฀director,฀the฀Committee฀used฀the฀new฀process฀to฀recruit,฀evaluate฀and฀select฀him฀with฀
the฀assistance฀of฀an฀outside฀search฀firm฀engaged฀by฀the฀Committee.฀A฀copy฀of฀the฀Board’s฀Director฀Selection฀Process฀and฀Director฀Qualification฀Standards฀
can฀be฀accessed฀in฀the฀“Corporate฀Governance”฀section฀of฀www.kodak.com/go/governance.฀฀฀
DIRECTOR฀COMPENSATION
In฀late฀2003,฀the฀Committee฀began฀a฀review฀of฀the฀Board’s฀Director฀Compensation฀Program.฀To฀assist฀in฀this฀effort,฀the฀Committee฀retained฀an฀external฀
independent฀compensation฀consultant.฀As฀a฀first฀step฀in฀this฀process,฀the฀Committee฀developed฀the฀following฀Director฀Compensation฀Principles:
฀ •฀Pay฀should฀represent฀a฀moderately฀important฀element฀of฀Kodak’s฀director฀value฀proposition.
฀ •฀฀Pay฀levels฀should฀generally฀target฀near฀the฀market฀median,฀and฀pay฀mix฀should฀be฀consistent฀with฀market฀consider-
ations.
฀ •฀฀Pay฀levels฀should฀be฀differentiated฀based฀on฀the฀time฀demands฀on฀some฀members’฀roles,฀and฀the฀Board฀will฀ensure฀
regular฀rotation฀of฀certain฀of฀these฀roles.
฀ •฀฀The฀program฀design฀should฀ensure฀that฀rewards฀are฀tied฀to฀the฀successful฀performance฀of฀Kodak฀stock,฀and฀the฀
mix฀of฀pay฀should฀allow฀flexibility฀and฀Board฀diversity.
฀ •฀฀To฀the฀extent฀practicable,฀Kodak’s฀Director฀Compensation฀Principles฀should฀parallel฀those฀of฀the฀Company’s฀execu-
tive฀compensation฀program.
These฀principles฀were฀then฀used฀by฀the฀Committee,฀with฀the฀assistance฀of฀its฀independent฀consultant,฀to:฀1)฀assess฀the฀appropriateness฀of฀the฀Board’s฀
current฀compensation฀program;฀2)฀conduct฀a฀competitive฀review฀of฀director฀pay฀levels฀and฀practices฀at฀peer฀companies;฀and฀3)฀recommend฀to฀the฀Board฀a฀
revised฀compensation฀program.฀Based฀on฀the฀Committee’s฀recommendations,฀the฀Board฀approved฀a฀revised฀Director฀Compensation฀Program฀in฀April฀2004.฀฀
The฀revised฀program,฀a฀description฀of฀which฀begins฀on฀page฀28,฀contains฀four฀fundamental฀changes.฀First,฀the฀Board’s฀annual฀retainer฀was฀increased฀from฀
$65,000฀to฀$80,000,฀one-half฀of฀which฀must฀be฀taken฀in฀the฀form฀of฀Kodak฀shares฀or฀stock฀units.฀In฀recommending฀this฀change฀to฀the฀Board,฀the฀Com-
mittee฀considered฀the฀following฀factors:฀overall฀pay฀positioning฀of฀the฀current฀program฀was฀below฀market฀median,฀the฀Company’s฀new฀strategic฀focus฀is฀
demanding฀more฀director฀effort฀and฀time฀and฀all฀directors฀are฀facing฀increased฀accountabilities฀and฀risk฀exposure฀in฀today’s฀environment.
The฀second฀adjustment฀changed฀the฀annual฀equity฀component฀of฀the฀Board’s฀retainer฀from฀2,000฀stock฀options฀to฀1,500฀options฀and฀1,500฀shares฀of฀
restricted฀stock.฀The฀Committee฀recommended฀this฀change฀for฀the฀following฀reasons:฀to฀strengthen฀the฀Board’s฀alignment฀with฀the฀Company’s฀sharehold-
ers,฀to฀encourage฀the฀Board’s฀long-term฀focus,฀to฀de-emphasize฀reliance฀on฀stock฀options฀in฀accordance฀with฀evolving฀governance฀practices฀and฀to฀place฀
the฀equity฀component฀of฀the฀Board’s฀compensation฀on฀par฀with฀market฀median.฀
The฀third฀change฀implemented฀an฀annual฀retainer฀for฀the฀chairs฀of฀the฀Board’s฀committees.฀In฀the฀course฀of฀developing฀this฀recommendation,฀the฀Commit-
tee฀found฀that฀the฀payment฀of฀an฀additional฀retainer฀in฀connection฀with฀committee฀leadership฀was฀a฀prevalent฀practice฀among฀the฀Company’s฀peers฀and฀
that฀current฀market฀practices฀suggest฀a฀trend฀of฀increasing฀pay฀to฀those฀directors฀with฀increased฀workload.฀With฀this฀in฀mind,฀the฀Committee฀felt฀that฀this฀
change฀was฀appropriate฀in฀order฀to฀acknowledge฀the฀expected/required฀level฀of฀contributions฀of฀the฀Board’s฀chairs฀and฀to฀reward฀them฀at฀peer฀levels.฀฀
The฀adoption฀of฀director฀ownership฀guidelines฀was฀the฀final฀change฀to฀the฀Board’s฀compensation฀program.฀As฀a฀result฀of฀this฀change,฀all฀directors฀are฀
required฀to฀retain฀100%฀of฀all฀shares฀acquired฀through฀vesting฀and฀option฀exercise฀(net฀of฀exercise฀price฀and฀taxes)฀until฀and฀unless฀an฀ownership฀level฀
equal฀to฀five฀times฀the฀cash฀portion฀of฀the฀annual฀retainer฀(currently฀$40,000)฀is฀achieved.฀The฀Committee฀concluded฀that฀commonality฀of฀Board฀interests฀
with฀shareholders’฀interests฀is฀essential฀and฀that฀an฀effective฀way฀to฀ensure฀this฀is฀to฀implement฀a฀meaningful฀share฀ownership฀requirement.฀The฀Commit-
tee฀chose฀to฀set฀the฀multiple฀of฀ownership฀at฀five฀times฀in฀order฀to฀parallel฀the฀Company’s฀existing฀ownership฀guidelines฀for฀its฀CEO,฀which฀is฀a฀developing฀
best฀practice.
The฀Committee฀feels฀these฀four฀changes,฀each฀of฀which฀is฀market฀competitive฀and฀in฀accord฀with฀emerging฀best฀practices,฀realigns฀the฀Board’s฀compen-
sation฀program฀consistent฀with฀its฀new฀Director฀Compensation฀Principles,฀while฀ensuring฀that฀the฀Board’s฀interests฀continue฀to฀be฀aligned฀with฀those฀of฀its฀
shareholders.
Director฀฀ ฀
Compensation฀฀
Principles