Windstream 2010 Annual Report Download - page 27

and Restated 2006 Equity Incentive Plan (“Equity Plan”). Windstream has not issued any stock options or other
forms of equity compensation to its directors, executive officers or other employees. The Compensation
Committee believes that restricted stock or performance-based restricted stock or unit awards are a preferred
mechanism of equity compensation compared to stock options or other devices that derive value from future
stock price appreciation due to the high-dividend,low-growth profile of Windstream.
For grants of restricted stock made in 2009 and prior years, executive officers have received the rights of
a stockholder to vote the restricted stock and to receive any cash dividends paid with respect to the restricted
shares during the vesting period. Beginning with equity compensation granted in 2010, the dividends on
performance-based restricted stock are accrued and paid out only when and if the performance conditions are
satisfied. Windstream places performance targets on 100% of the grants of restricted stock to Mr. Gardner and
50% for all other executive officers.
The Windstream Board of Directors has delegated responsibility for administration of the Equity Plan,
including the authority to approve awards, to the Compensation Committee. It is the Compensation Committee’s
policy to review and approve all equity compensation awards to directors, executive officers and all other eligible
employees at its first regularly scheduled meeting of each year, which is expected to occur each February. In
determining the number of shares of restricted stock or performance-based restricted stock to award to any
individual under the Equity Plan, the Compensation Committee divides the approved grant value for such
individual by the closing stock price of Windstream Common Stock on the date that the Compensation
Committee approves the award (rounded down to the nearest whole share). As a matter of policy, the
Compensation Committee does not approve awards of equity compensation through the adoption of a unanimous
written consent in lieu of a meeting. The following discussion addresses our annual equity compensation
program during 2010 and does not address the special equity grants made in August 2010 that have been
previously discussed above.
During 2010, the Compensation Committee approved the following categories of annual equity
compensation awards to executive officers:
• Time-Based Vesting Awards — For each executive officer other than Mr. Gardner, fifty percent
(50%) of each 2010 stock award vests ratably over three years.
• Performance-Based Vesting Awards — Mr. Gardner received one hundred percent (100%), and each
other executive officer received fifty percent (50%), of his or her stock grants in the form of
performance-based restricted stock. The stock vests ratably over a three-year period with each year set
as a separate performance period. The stock vests only if the performance threshold is met and the
executive is still employed on the date of vesting. For 2010, the performance criteria was set at 90% of
the Adjusted OIBDA goal of $1,899 million, and this goal was achieved.
For the performance period from January 1 to December 31, 2011, the Compensation Committee has set
the performance measure at 95% of the Adjusted OIBDA goal established by the Company for the internal
forecast.
Retention is a key driver of the decision to grant time-based vesting restricted stock. In addition,
performance-based vesting restricted stock is also granted to align executives with key long-term Company
objectives and to preserve the deductibility of compensation related to awards under Section 162(m) of the
Internal Revenue Code.
As discussed above, Windstream has adopted minimum share ownership guidelines that apply to
Mr. Gardner and all other executive officers. The minimum share ownership guidelines are intended in part to
ensure that executive officers retain a sufficient number of shares of Windstream Common Stock such that they
continue to have a material financial interest in Windstream which is aligned with the shareholders. In addition,
under Windstream’s insider trading compliance policy, directors and executive officers are prohibited from
engaging in any transaction involving derivative securities intended to hedge the market risk in equity securities of
Windstream other than purchases of long call options or the sale of short put options that are not closed prior to their
exercise or expiration date. The policy also prohibits the purchase of shares on loan or margin and short sales.
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