Windstream 2011 Annual Report Download - page 23

MANAGEMENT COMPENSATION
Compensation Discussion and Analysis
Executive Summary
Compensation Philosophy. Windstream’s executive compensation program is designed to achieve the
following objectives:
• Provide a high correlation between pay and performance;
• Align management’s interests with the long-term interests of Windstream’s stockholders; and
• Provide competitive compensation and incentives to attract and retain key executives.
Our core program consists of base salary, annual cash incentives and long-term equity incentives.
The following is a summary of key considerations that stockholders should take into account when
assessing our executive compensation program:
• Our strategy has been and continues to be the transformation of our business into a next-generation
communications company while creating value for shareholders. Since Windstream was formed in
2006, we have executed a focused strategy to transform our business from a rural, consumer-focused
voice and broadband provider into a national provider of advanced communications and technology
solutions to businesses. From our formation in 2006 through December 31, 2011, this strategy has
resulted in total cumulative shareholder returns (assuming reinvestment of dividends) for Windstream
common stock of approximately 63%, which exceeded the returns of both the S&P 500 and S&P
Telecom Indexes for this period.
• In order to create value for shareholders, our strategy is focused on maintaining and increasing our free
cash flow, which in turn hinges on our ability to grow revenues while managing cash expenditures. We
believe that Adjusted Operating Income Before Depreciation and Amortization (Adjusted OIBDA) is
the performance metric best aligned with the goal of maintaining and increasing the cash flows of our
business, and we have included Adjusted OIBDA as a key component of our short-term and long-term
incentive plans since our formation in 2006.
• 2011 was an incredibly successful year for Windstream. Throughout the year, we integrated several
key acquisitions made in 2010, which expanded our suite of business offerings. In December 2011,
Windstream added another key business to our portfolio with the acquisition of PAETEC. We also
made many success-based capital investments that we believe will enhance future growth, and we
made significant improvements to our balance sheet and debt maturity profile. Our 2011 pro forma
financial results reflect this transformation. For 2011, pro forma revenue was $6.2 billion, or a decline
of just 0.03% on a year-over-year basis, and pro forma adjusted OIBDA increased by 1.2% on a year
over year basis.
• For 2011, our annual (short-term) incentive plan recognized these results with a payout of 140% of
target levels and our performance-based equity awards were earned at target level. These payouts
demonstrate our desired correlation between pay and performance. We also took actions to increase
management’s alignment with the long-term interests of our shareholders by incorporating
performance-based restricted stock units (PBRSUs) into our long-term incentive program and adding
an opportunity for an enhanced level of payout of the PBRSUs based on achievement of a three-year
revenue goal. These compensation design features, along with our robust stock ownership guidelines,
including ten times base salary for the CEO, and clawback policy that allows Windstream to recover
both incentive and non-incentive based compensation in certain situations, strengthen our executive
compensation program without creating incentives for excessive risk taking.
Compensation Committee. Windstream’s Compensation Committee is presently comprised of William
A. Montgomery, Chair, Dennis E. Foster and Samuel E. Beall, III. To provide for rotation of the Committee
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