Kodak 2006 Annual Report Download - page 188

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The following principles adopted by the Committee provide a framework for the Company’s executive compensation program:
• Interests of executives are aligned with the Company’s shareholders by providing long-term variable equity incentives and requiring our Named
Executive Offi cers to maintain a requisite level of stock ownership.
• Aggregate total direct compensation, consisting of base salary, annual variable pay and long-term variable equity incentives, should be at a
competitive median level.
• A signifi cant portion of each executive’s compensation should be at risk, with a positive correlation between the degree of risk and the level of
the executive’s responsibility.
• Compensation is linked to key operational and strategic metrics of the Company’s business plan, along with qualitative and behavioral expecta-
tions.
• Executive compensation is differentiated on the following bases:
– base salaries — on relative responsibility;
– annual variable pay — on Company performance, individual performance as it relates to leadership and diversity and, if applicable, on
business unit performance; and
– long-term variable equity incentives — on Company performance and individual execution/leadership.
Our Committee annually reviews the Company’s executive compensation strategy, including our goals and principles. In the course of the Committee’s
review in 2006, the Committee sought the advice and input of its independent compensation consultant, as well as Company management. For ad-
ditional information regarding the role of management and consultants, see page 18 of this Proxy Statement.
TOTAL DIRECT COMPENSATION
The three components of the Company’s total direct compensation in 2006 are:
• base salary;
• annual variable pay under the Company’s annual bonus plan, known as the EXCEL plan; and
• long-term variable equity incentives comprised of awards under the Company’s stock option program, Leadership Stock Program (LSP), 2006
Executive Performance Share Plan (EPSP) and individual equity awards.
In connection with the Committee’s annual review of our Named Executive Offi cers’ compensation in 2006, the Committee’s independent compensa-
tion consultant reviewed the market competitiveness of the aggregate value of total direct compensation provided to each of our Named Executive
Offi cers. The Committee’s consultant also provided information regarding the market competitiveness of each element of total direct compensation for
each Named Executive Offi cer.
In determining the size of our Named Executive Offi cers’ total direct compensation, the Committee seeks to set the aggregate target for each Named
Executive Offi cer at the median of total direct compensation paid to executives in similar positions with similar responsibilities, as identifi ed by two
national non-industry specifi c surveys recommended by the Committee’s independent consultant, using companies with gross revenues similar to
Kodak. The Committee also reviews each component of total direct compensation for each Named Executive Offi cer to assess how each component
compares to the market median. Actual realized compensation may be more or less than the aggregate target opportunity provided to our Named
Executive Offi cers depending upon individual and company performance under the EXCEL plan and our long-term variable equity incentive plans, as
well as performance of Kodak stock relative to the stock performance of other survey companies.
Kodak’s comparison data was based on each executive’s current salary level in 2006, his or her 2006 target award under the EXCEL plan and his or
her target share allocation under both our 2006 stock option award program and our Leadership Stock Program for the 2007 performance cycle. In
determining the value of our target equity awards, the Committee’s consultant used a Black-Scholes pricing model for stock options and an assumed
stock price of $25 per share for Leadership Stock. The review indicated that target cash compensation, which includes base salary plus target
annual bonuses under EXCEL, was slightly above median for most of our Named Executive Offi cers. This is due to the challenges of attracting
high-quality executive talent during the Company’s transformation period. In contrast, both the long-term equity incentive component and aggregate
ongoing total direct compensation for all our Named Executive Offi cers fell below the market median.
The Committee has no fi xed target for allocating amongst the components of total direct compensation. In 2005 and 2006, the Committee implemented a
policy to increase the long-term variable equity incentive component of our Named Executive Offi cers’ total direct compensation, in line with the objectives
to meet the median target for aggregate total direct compensation and to align our Named Executive Offi cers’ interests with those of our shareholders.