Windstream 2006 Annual Report Download - page 22

base salary during 2006. The employment agreement provides that Mr. Gardner’s base salary will be no less than
$700,000 per year. If Mr. Gardner experiences a separation from service following a change of control, the
severance benefits provided under the terms of the change-in-control agreements discussed below will govern,
and no severance is available under the employment agreement in such circumstance. The Compensation
Committee approved the foregoing severance benefit to Mr. Gardner to recognize the importance of his service
and contributions to Windstream, to recognize that it would be difficult for him to find comparable employment
during a short period of time following a separation, and to reflect market practice of providing similar severance
benefits to the CEO position. The Compensation Committee specifically engaged Watson Wyatt & Company, its
compensation consultant, to review Mr. Gardner’s severance benefits and other provisions of the employment
agreement, to compare such provisions against prevailing market practices, and to provide recommendations on
the final terms of the agreement.
Retirement Plans. Windstream maintains a defined benefit pension plan and a qualified 401(k) defined
contribution plan for its executive officers and employees. Prior to 2007, Windstream also maintained a separate
qualified profit sharing plan, but effective March 1, 2007 this plan was merged into and consolidated with the
401(k) plan. Under the terms of the Employee Benefits Agreement with Alltel, Windstream was required to
establish a pension plan, 401(k) plan and profit sharing plan that in each case was substantially similar to the
corresponding plan that had been maintained by Alltel for its employees. At the end of 2005, Alltel froze
participation in the pension plan except for a 5 year transition period for participants who were above the age of
40 with at least two years of service and bargaining unit employees, and the Windstream pension plan continued
this freeze. Except for Messrs. Frantz and Gardner, no Windstream named executive officer continued to accrue
benefits under the pension plan in 2006.
Prior to 2007, Windstream maintained a profit sharing plan pursuant to which Windstream would
contribute a minimum of 2% of a participant’s compensation and a separate 401(k) plan which provided for
potential matching employer contributions of up to 4% of a participant’s compensation. In response to recent
changes in law changes, the Compensation Committee approved the merger and consolidation of the profit
sharing plan with and into the 401(k) plan. As a result of the elimination of the profit sharing plan, the
Compensation Committee approved an increase commencing in 2007 of the potential employer matching
contribution under the 401(k) plan from 4% to 6% of a participant’s compensation. The Compensation
Committee maintains the 401(k) plan in order to provide employees with an opportunity to save for retirement
with pre-tax dollars. The 401(k) plan also allows Windstream to expense and fund its contributions to this plan in
a predictable, consistent manner.
Change-In-Control Agreements. During 2006, the Compensation Committee approved
change-in-control agreements for Mr. Gardner and each executive officer other than Mr. Frantz in order to
provide some protection to those individuals from the risk and uncertainty associated with a potential
change-in-control. The Compensation Committee also adopted the change-in-control agreements as part of its
efforts to provide a total compensation package that was competitive with the compensation arrangements of
other market participants. The Compensation Committee specifically engaged Watson Wyatt & Company, its
compensation consultant, to review the payment multiples and other terms of the change-in-control agreements,
to compare such provisions against prevailing market practices, and to provide recommendations on the final
terms of the agreements. When it approved the change-in-control agreements, the Compensation Committee
considered the total amount of compensation that Mr. Gardner and each other executive officer would receive in
a hypothetical termination under all of the change-in-control benefits described below.
Based on the foregoing, the Compensation Committee approved the payment of change-in-control
benefits to Mr. Gardner and the other executive officers on a “double-trigger” basis, which means that a
change-in-control of Windstream must occur and the officer must terminate employment with Windstream
through either a resignation for “good reason” or a termination without “cause” (as those terms are defined in the
change-in-control agreement). Upon a qualifying separation from service, the executive officers are eligible for a
cash, lump sum payment based upon a multiple of base salary and target bonus of three times for Mr. Gardner
and the other named executive officers and two times for all other executive officers.
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