Kodak 2006 Annual Report Download - page 189

34
Base Salaries
In setting base salaries, the Committee considers market data as well as the relative responsibilities of the roles of each Named Executive Offi cer.
Generally, our Named Executive Offi cers’ salaries are targeted near the median of the range of salaries for executives in similar positions at companies
with revenues similar to Kodak. Base salaries are reviewed annually by the Committee and do not automatically increase. As the analysis of market
data in 2006 conducted by the Committee’s consultant concluded that most of our Named Executive Offi cers’ base salaries are at or above the median
range paid to executives in similar positions at companies with revenues similar to Kodak, the Committee determined not to increase base salaries in
2006, except where warranted by promotion.
Annual Variable Pay Plan
The Company provides an annual cash bonus incentive opportunity to our executives, including our Named Executive Offi cers, through the EXCEL
plan. Three key principles underlie EXCEL: alignment; simplicity; and discretion. Alignment is achieved through the use of two primary performance
metrics to fund the plan. These performance metrics provide incentives to our executives to make decisions and achieve performance on a short-term
basis that are in line with the Company’s strategic business plan. In recent years the Company’s strategic business plan has been focused on the
digital transformation of the Company. Simplicity is accomplished through ease of plan administration, as participants’ goals are aligned to those of
their business units’ goals. Discretion, the third key principle, may be used to adjust the size of the EXCEL plan’s corporate funding pool, modify the
corporate funding pool’s allocation to the Company’s business units and determine the performance and rewards to the plan’s participants.
EXCEL participants, including our Named Executive Offi cers, are assigned target awards for the year based on a percentage of their base salaries as
of the end of that year. Since an executive’s EXCEL opportunity is a component of total direct compensation, the Committee reviews survey data to
determine each Named Executive Offi cer’s target opportunity under EXCEL. For 2006, the target EXCEL awards for our Named Executive Offi cers were
as follows: Mr. Perez, 155%; Mr. Sklarsky, 75%; Mr. Brust, 72%; and Mr. Langley, Mr. Faraci, Ms. Hellyar and Mr. Meek each had a target opportunity
of 62%. The actual cash bonus earned by our Named Executive Offi cers may be greater or less than these targets depending on actual performance
and the individual’s performance against certain leadership and diversity goals.
In the fi rst 90 days of each year, the Committee reviews and fi nalizes the performance metric targets and baseline metrics for the plan year. Using the
performance metric targets, a performance matrix is created that determines the percentage of the plan’s corporate funding pool that will be earned
for the year based on the Company’s actual performance. During this period, our CEO also sets performance goals for each of the Company’s business
units. These business unit goals are designed to establish a target performance level that each business unit must achieve in order for the Company to
reach the EXCEL performance metrics established by the Committee.
In 2006, the two primary EXCEL performance metrics selected by the Committee were digital revenue and investable cash fl ow. Digital revenue and
investable cash fl ow are non-GAAP fi nancial measures that the Company believes represent important internal measures of performance. These two
primary performance metrics are among the metrics our CEO periodically reports to the investment community. The Committee selected these perfor-
mance metrics because of their direct correlation with the Company’s digital transformation.
The following abbreviated matrix shows the threshold, target and stretch goals for 2006 and the resulting EXCEL corporate funding pool:
Investable Cash Flow Digital Revenues
(in millions) (in millions)
$7,765 $8,827 $9,244
(Threshold) (Target) (Stretch)
$200 (Threshold) 0% 50% 101%
500 (Target) 50% 100% 150%
695 (Stretch) 100% 150% 200%
The Committee may use its discretion to increase or decrease the size of the corporate funding pool for any year. To guide its exercise of discretion,
the Committee considers a set of baseline performance metrics that refl ect important elements of the Company’s annual business strategy. These
baseline metrics are annually established by the Committee at the same time it fi nalizes the EXCEL performance metrics and targets for the year.
In 2006, these baseline metrics were: execution against the Company’s new business model; advancement of our restructuring plan; performance
against cost reduction goals regarding selling, general and administrative costs; and performance against inventory and supply chain goals. In
exercising its discretion, the Committee is also guided by the principle of ensuring that incentive payments do not result in unearned windfalls or unfair
penalties.
If the Company achieves all of the target goals (investable cash fl ow and digital revenue in 2006), then the award pool funds at 100%. If either of the
threshold goals is not achieved, then, absent the Committee’s exercise of positive discretion, the award pool will not be funded and no bonus will be
earned under the EXCEL plan. Results that fall between the dollar amounts shown in the chart will be interpolated to derive a percentage payout. There