Kodak 2009 Annual Report Download - page 158

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Limitation on Income Tax Deduction
Section 162(m) limits to $1 million the Company’s annual federal income tax deduction for compensation in a taxable year to each
“covered employee;” i.e., an individual who, on the last day of the taxable year, was: 1) the Chief Executive Officer or 2) among the three
other highest-compensated executive officers whose compensation is reported in the Summary Compensation Table other than the Chief
Financial Officer. “Performance-based compensation” is not subject to this deduction limit, and therefore is fully deductible. The Plan has
been designed to enable performance awards, stock options and SARs granted by the Committee to a covered employee to qualify as
performance-based compensation under Section 162(m). Approval of the amendments to the Plan and the other material terms of the Plan
required under Section 162(m), is necessary for the Plan’s continued compliance with Section 162(m).
Other Information
Approval of the amendment to, and re-approval of the material terms of, the 2005 Omnibus Plan requires the affirmative vote of a majority
of the votes cast by the holders of shares entitled to vote.
The Board of Directors recommends a vote FOR the approval of the amendment to the 2005 Omnibus Long-Term Compensation
Plan and re-approval of the Plan’s other material terms for purposes of Section 162(m) of the Internal Revenue Code.
ITEM 4 — Approval of Amendment to, and Re-Approval of the Material Terms of,
the Executive Compensation for Excellence and Leadership (EXCEL) Plan
Introduction
You are being asked to approve an amendment to the Executive Compensation for Excellence and Leadership Plan (EXCEL Plan) to
modify the performance metrics of the EXCEL Plan. We also are asking you to re-approve the other material terms of the EXCEL Plan for
purposes of Section 162(m). This amendment along with re-approval will enable the Company to continue to structure payments under the
EXCEL Plan to certain executive officers in a manner intended to preserve the Company’s federal income deduction for such payments.
Background
The EXCEL Plan is the Company’s annual performance-based variable pay plan for its executives. The EXCEL Plan is intended to provide
incentive to executives to foster profitable growth of the Company in a manner that is directly tied to actual performance. The EXCEL Plan
includes a list of metrics that measure performance of the Company on a consolidated basis and/or for any subsidiary, division, strategic
product group, segment, business unit or one or more product lines. On an annual basis, and drawing from the performance metrics that
are listed in the EXCEL Plan, the Compensation Committee decides upon the specific metrics that will be used to measure performance
and thereby determine the payment of awards under the EXCEL Plan.
Amendment
As with the 2005 Omnibus Plan, we are amending the EXCEL Plan to modify its list of performance metrics available for use thereunder to
include additional measures that the Company believes are relevant to driving the profitable growth of the Company. The list of former
criteria under the EXCEL Plan, as well as the proposed amended list of new criteria, are identical to each as set forth on page 10 of this
Proxy Statement with regard to the 2005 Omnibus Plan.
Re-Approval of Material Terms
We are also taking this opportunity to ask for your re-approval of the other material terms of the EXCEL Plan for purposes of Section
162(m). As discussed in the Report of the Compensation Committee, the Company generally seeks to preserve its ability to claim tax
deductions for compensation paid to executives to the greatest extent practicable. Section 162(m) imposes a limit on the Company’s
federal income tax deduction for compensation in excess of $1 million paid in a taxable year to an individual who, on the last day of the
taxable year, was: (i) the chief executive officer or (ii) among the three other highest-compensated executive officers (other than the chief
financial officer) whose compensation is reported in the Summary Compensation Table (“covered employees”). “Qualified performance-
based compensation,” which can include compensation paid under a short-term variable pay plan like the EXCEL Plan, 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.
For purposes of Section 162(m), the material terms include: (i) the EXCEL Plan’s performance metrics; (ii) the class of employees eligible
to receive awards under the EXCEL Plan; and (iii) the maximum payout that can be provided to an employee under the EXCEL Plan. Each
of these material terms is described above and/or in the summary below.
As a result of the structure of the EXCEL Plan, Section 162(m) requires approval by shareholders of the performance criteria and other
material terms of the Plan every five years. The last time the Plan was submitted to shareholders for approval was at the 2005 annual
meeting.