September 1, 2006

As the chair of the compensation committee walked into the room for the committee meeting, she felt confident that the right decisions were being made with respect to the two key compensation issues on the agenda.

Back in May, she had wondered whether the committee would ever reach agreement on changes to the stock incentive plan. At the time, senior management recommended moving away from options, which they argued had low perceived value relative to the expense and dilution they incurred. The concern of the chair was that a shift to restricted stock vesting based solely on time would subvert the committee's payfor-performance philosophy.

She also struggled to reconcile the desire to have vertical alignment throughout the organization with the recognition that employees have various risk profiles that could warrant assorted long-term incentivevehicle strategies. On top of that, market trends were showing that many companies were reducing participation in equity plans at lower employee levels. This was counter to the desire of the committee and senior management to promote broad-based ownership.

The other challenging issue was the new employment agreement for the CEO. The CEO was instrumental to the company's turnaround and current success, which in turn led to outside offers, so something had to be done to lock him in for the long term. But his initial suggestions – enhanced SERP benefits and restricted stock – were inconsistent with the committee's desire to align pay with performance.