Definitions
General Definitions
Pay-for-Performance
"Executive pay-for-performance is the ability to measure improvements in 'true'
corporate performance and to link this performance directly to variable
compensation of the executive within the executive pay plan.
True corporate performance should include improvements in shareholder returns
and improvements in short-term operational performance."
Performance-based compensation
Many Boards talk about having a performance-based compensation system though
very few have one. Performance-based compensation is becoming a significant
issue to Boards. Boards must ensure they know how their CEO is receiving
remuneration and that it should be tied directly to corporate performance.
Sarbanes Oxley Act
The Sarbanes Oxley Act of 2002, sometimes referred to as SOX, was a legislative
attempt to respond to the accounting scandal caused by the recent fall of some
publicly held companies and the perceived excesses of the management of some
other companies. Sarbanes Oxley requires compliance with a comprehensive reform
of basic corporate accounting procedures. The aim is to promote and improve
public confidence in the quality and transparency of financial reporting. The
reforms apply to both internal and external auditors. Software for compliance
is available in several useful forms.
http://www.legal-term.com/sarbanesoxleyact-definition.htm
Compensation Definitions
Base Salary
In a 3XCD
study, most executive compensation packages are comprised of five components, Base
Salary, Short-term incentive (STI - Bonus), Mid-term Incentive (MTIP).
Long-term Incentive (LTI), and Pension/SERP.
Base Salary - is the current base salary paid to a person in the
relevant position. Base salary may move during a fiscal period however 3XCD
chooses the close of the fiscal year as the point where compensation and
relative financial, operating, market and performance metrics are used. This
detail is shown in four locations:
Base Salary Comparison Chart - Details the statistical range of base
salary of a specific company versus the entire peer group.
This chart indicates 25th percentile, Median, 75th percentile
and average base salary. It clearly indicates the position of the company
incumbent versus the peer group within the chart.
Compensation Mix Chart - Compensation philosophy is a key element in
determining how the Board opts to deliver compensation to executives. It
explains the fixed and variable compensation delivery as well as the strategic
focus in short and long term compensation delivery.
Compensation mix explains the target and actual compensation delivery by
compensation component. The exchange between target compensation mix and actual
compensation mix should show the Board linkage between compensation component
and actual performance of the company compared to internal and external
performance metrics.
Compensation components are the pay vehicles by which compensation is
delivered. These typically include: base salary, short-term incentive (bonus),
mid-term incentive (3-year performance plans), long-term incentive,
perquisites, pension/SERP.
Detailed Compensation Table - details base salary for each company
position within the peer group. This information provides relative base salary
compensation amounts, and relative percentile positioning details compared to
peer group.
Short-term Incentive (Bonus) - Some studies state, "target STIP" and
compare it to STIP achieved. Most companies determine target based on market
data then payout STIP with performance compared to performance. These inputs
"drive" the "actual STIP" level, performance metrics and payout curve.
Consequently, 3XCD
looks at current and historical payout of STIP.
3XCD
then calculates actual STIP and three-year average STIP to current salary. This
gives a more meaningful and realistic STIP synopsis for an incumbent within a
company over the one and three-year pay-for-performance scenario.
For any specific company in a peer group, two STIP outputs are reported:
Compensation Summary Table -
A statistical summary of specific employee and where current STIP (most
recently completed fiscal STIP) and three-year average STIP are positioned
versus STIPes of the peer group. These are expressed as: Top Quartile, Above
Median, Below Median and Bottom Quartile.
Detailed Compensation Table -
States actual current STIP, current STIP as a percentage of base salary,
three-year average STIP, three-year average STIP as a percentage of base salary
for each incumbent versus each peer group incumbent in the peer group.
Bonus (STI)
Some studies state, "target bonus" and compare it to bonus achieved, At
3XCD,
we understand that many companies determine target based on desired payout
level, these inputs then "drive" the "target bonus" level, metrics and payout
curve. Consequently, 3XCD
look at current and historical payout of bonus.
3XCD
then calculates actual current bonus and three-year average bonus to current
salary. This gives a more meaningful and realistic bonus synopsis for an
incumbent within a company over the one and three-year pay-for-performance
scenario.
For any specific company in a peer group, two bonus outputs are reported:
Compensation Summary Table - states a statistical summary of specific
employee and where current bonus (most recently completed fiscal bonus) and
three-year average bonus are positioned versus bonuses of the peer group. These
are expressed as: Top Quartile, Above Median, Below Median and Bottom Quartile.
Detailed Compensation Table - states actual current bonus, current bonus
as a percentage of base salary, three-year average bonus, three-year average
bonus as a percentage of base salary for each incumbent versus each peer group
incumbent in the peer group.
Total Cash Compensation (Base Salary plus Bonus)
Total cash compensation for the most recently completed fiscal period STIP and
base salary summed and compared to the peer group. This detail is shown in four
locations:
Compensation Mix Chart - Compensation philosophy is a key element in
determining how the Board opts to deliver compensation to executives. It
explains the fixed and variable compensation delivery as well as the strategic
focus in short and long term compensation delivery.
Compensation mix explains the target and actual compensation delivery by
compensation component. The exchange between target compensation mix and actual
compensation mix should show the Board linkage between compensation component
and actual performance of the company compared to internal and external
performance metrics.
Compensation components are the pay vehicles by which compensation is
delivered. These typically include: base salary, short-term incentive (bonus),
mid-term incentive (3-year performance plans), long-term incentive,
perquisites, pension/SERP.
Compensation Summary Table - states the sum of current base salary and
current STIP for a specific employee and where total cash compensation is
positioned versus the peer group of companies. These are expressed as: Top
Quartile, Above Median, Below Median and Bottom Quartile.
Detailed Compensation Table - details total cash compensation for each
company position within the peer group. This information provides relative
total cash compensation amounts, and relative percentile positioning details
compared to peer group.
Total Cash Compensation Comparison Chart - Details the statistical range
of total cash compensation of a specific company versus the entire peer group.
This chart indicates 25th percentile, Median, 75th percentile
and most recent year total cash compensation. It clearly indicates the position
of the company incumbent versus the peer group within the chart.
Long Term Incentive (LTI)
3XCD
values the market value of LTI and attributes it to the current year where
appropriate. In addition, 3XCD
goes back historically (3 years) and identifies historical plans that remain
positive in terms of compensation and attaches these to current year
performance. (E.g. Performance stock grants).
Performance based long-term incentives have traditionally been in existence in
many companies. With recent market changes, performance based long-term
incentives are being implemented in more North American companies. As
performance based long-term incentives ensure minimum performance standards are
met, we have applied an immediate discount to any LTIP that has performance
hurdles associated with the long-term incentive (even if the plan does not pay
out if performance hurdles are not met). We have made the assumption that
performance hurdles should be met approximately 75% of the time and thus a 25%
discount is applied to compensation value. If the company would like this
percentage changed, please advise us directly at contact
us so that this can be modified.
LTI is valued versus peer group then applied within the
3XCD
website in two locations. For any specific company in a peer group, two LTI
outputs are reported
Compensation Summary Table - states a statistical summary of specific
employee and where LTI is calculated and positioned versus LTI of the peer
group. These are expressed as: Top Quartile, Above Median, Below Median and
Bottom Quartile.
Detailed Compensation Table - states actual LTI value and LTI as a
percentage of base salary compared to the peer group.
Total Direct Compensation (Base Salary + Bonus +
LTI)
Total direct compensation for the most recent fiscal period is assessed and
combined with other LTI plans. This data is completed for the fiscal period and
compared to the peer group. This detail is shown in four locations:
Compensation Summary Table - states total direct compensation as a total
and where total direct compensation is positioned versus the peer group of
companies. These are expressed as: Top Quartile, Above Median, Below Median and
Bottom Quartile.
Detailed Compensation Table - details total direct compensation for each
company position within the peer group. This information provides relative
total direct compensation amounts, and relative percentile positioning details
compared to peer group.
Total Direct Compensation Comparison Chart - Details the statistical
range of total direct compensation for an incumbent from a specific company
versus the entire peer group.
This chart indicates 25th percentile, Median, 75th percentile
and average total direct compensation. It clearly indicates the position of the
company incumbent versus the peer group within the chart.
Compensation Mix Chart
Compensation philosophy is a key element in determining how the Board opts to
deliver compensation to executives. It explains the fixed and variable
compensation delivery as well as the strategic focus in short and long term
compensation delivery.
Compensation mix explains the target and actual compensation delivery by
compensation component. The exchange between target compensation mix and actual
compensation mix should show the Board linkage between compensation component
and actual performance of the company compared to internal and external
performance metrics.
Compensation components are the pay vehicles by which compensation is
delivered. These typically include: base salary, short-term incentive (bonus),
mid-term incentive (3-year performance plans), long-term incentive,
perquisites, pension/SERP.
Data Acquisition
All data used in our evaluation of executive compensation and executive
pay-for-performance analysis has been acquired through data submitted to the
local securities exchange. This information was prepared by the company,
approved for submission by the Chief Executive Officer and submitted to the
exchange. This data is digitally extracted and has undergone extensive
normalization to be used in comparative assessments.
We trust you find this data accurate and supportive in executive compensation
discussions and corporate governance issues. While we are confident on its
reporting accuracy and confident on the analytical process, it is presented on
an "as is basis". We do not warrant all report data as completely accurate nor
do we accept responsibility or accept liability for any damages the use of this
data may cause. If you have questions or comments on our definitions and
process, please contact us immediately.
November 2003