Kodak 2005 Annual Report Download - page 200

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• Compensation is linked to both qualitative and behavioral expectations, and key operational and strategic metrics.
• Interests of executives are linked with the Company’s owners through stock ownership.
• Executive compensation will be differentiated on the following bases:
n base salaries — on relative responsibility;
n short-term variable elements — on performance; and
n long-term variable elements — on Company performance and individual execution/leadership.
The Committee’s external consultant has confi rmed that the Company’s executive compensation goals and principles continue to be aligned with the
Company’s business strategy and best practices.
The Company is in the midst of an extraordinary digital transformation. 2005 marked the fi rst time in the Company’s history that digital revenue
exceeded revenue from the traditional business. The Company now has a substantial presence in the graphic communications market and has
strengthened its market position in consumer digital with several innovative, new product introductions. At the same time, the Company is
aggressively driving a substantial reduction in its traditional manufacturing footprint and managing signifi cant changes in its workforce necessitated
by the transformation. Management and the Committee will continue to assess the Company’s executive compensation philosophy to ensure that the
objectives, principles and strategies are aligned with the unique nature of its complex and time-constrained digital transformation strategy, and they
will make changes as deemed appropriate.
Executive Compensation Practices
In 2005, the Committee’s independent external consultant analyzed the market competitiveness of each element of compensation paid to the
Company’s executive offi cers. The consultant concluded that, in the aggregate, the total compensation for some executive offi cers is slightly below
the market median and that the overall mix of compensation was weighted more heavily to cash compensation. The Committee’s consultant
recommended continued emphasis by the Company on equity-based compensation, funded by constraints on cash compensation, in order to address
this issue and ensure balance over the long-term. During 2005, various steps were taken by the Company as part of a multi-year plan to close the
competitive defi cit in long-term incentive compensation for its senior executives, including one-time stock option grants to certain key members of
the Company’s senior management team who have played major roles in the Company’s digital transformation, and enhancements to the Company’s
long-term incentive compensation rate structure guidelines for senior executives.
The Committee utilizes a number of tools to determine the levels and types of compensation that should be paid to the Company’s executive offi cers.
These tools are described below.
Surveys
Each year, the Company participates in surveys conducted by external consultants. The companies included in these surveys are those the Company
competes with for executive talent. Due to the unique product mix of the Company’s business, during 2005 the Committee determined to utilize
on a going-forward basis national third-party survey data to assess the competitive positioning of the named executive offi cers and the other
executive offi cers. The survey data refl ects general industry companies of comparable size to the Company as measured primarily by revenue and
market capitalization.
Peer Group
Starting in 2002, the Company began measuring the competitiveness of its executive compensation program against a comparison group of
approximately 15 other leading companies, referred to in this Report as the “Peer Group.” The following criteria were used to select the Peer Group:
1) market capitalization; 2) revenue; 3) consumer/commercial/hi-tech mix; 4) mix of high growth and steady growth companies; and 5) similar
industry and data availability. The data received from the Peer Group is size-adjusted so proper comparisons may be drawn. During 2005, the
Committee modifi ed the Peer Group to eliminate certain companies that were determined to be less comparable to the Company based on size and
focus and to add certain other companies that were determined to be more comparable to the Company based on this criteria.
Aggregate Long-Term Incentive Costs
Each year the Committee asks its independent external consultant to assess the Company’s aggregate costs associated with long-term incentives
relative to market practice. The consultant’s analysis focuses on two areas: share dilution and total economic cost, referred to as market value
transfer (MVT). MVT measures the economic value of a company’s aggregate long-term incentive awards, at grant date, expressed as a percent of
market capitalization. In 2005, the consultant indicated that the Company’s MVT is appropriate in comparison to the Peer Group.