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Company intends to maintain the flexibility to take
actions that it deems to be in the best interests of the
Company and its shareholders. Accordingly, although
the Company intends to preserve the deductibility of
annual compensation to the extent consistent with the
intent and spirit of the overall compensation policy, it
reserves the authority to award non-deductible
compensation as it deems appropriate.
Accounting and Other Tax Implications of Executive Compensation
The Company has considered the accounting and other
tax implications of all aspects of the compensation
program for its employees, including the NEOs and
other officers. While accounting and other tax
considerations do not dictate compensation decisions,
the compensation program is designed to achieve the
most favorable accounting and other tax treatment
consistent with the intent and spirit of the compensation
plan design.
Long-term Incentive Fair Value Determinations
A challenging issue for publicly traded companies is
how to value long-term incentive awards for grant
purposes. Like many companies, we target and express
such awards as a percent of salary. We also seek to
balance the value of stock options with those of PBRS
awarded to executive officers. Of particular concern to
the Company is how to calculate the value of a stock
option.
The predominant valuation model used to value stock
options is the Black-Scholes-Merton valuation model.
This model considers various assumptions for duration
prior to exercise, risk-free interest rate, stock volatility
and employment termination rates. We segregate
groups of option holders within the model by exercise
patterns to better estimate the value of an option. For
example, NEOs and executive officers typically hold
their options much longer before exercising them than
do non-officer employees.
However, this value changes each year in direct relation
to fluctuations in the current market value of the
Company’s Common Stock and changes in pricing
assumptions. Therefore, when the share price goes up,
so do the option grants’ fair value and their strike price,
and the number of awarded shares equal to a
designated dollar value would decrease. Conversely, if
the share price goes down, both the option’s fair value
and its strike price go down, and the number of
awarded shares would increase. This result seems
counterintuitive from a pay-for-performance perspective
in that a lower stock price would lead to more options
being granted at a lower price and a higher stock price
would lead to fewer options being granted at a higher
price.
Our solution, for grant purposes only, is to stabilize the
deemed present value of a stock option for a three-year
period. We think the use of such a value is more in line
with creating long-term shareholder value and pay-for-
performance, and allows us to better manage our burn
rate (number of shares granted each year divided by
the number of Common Stock outstanding) and budget
the number of awarded shares over the life of the share
authorization approved by shareholders.
For grants made in the three-year period of 2013 to
2015, our deemed fair value of a stock option was
$13.73.
However, the actual per share exercise price
under each option in any event is the closing price of a
common share on the day it is granted.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the preceding CD&A with management and, based on that
review and discussion, has recommended to the Board of Directors to include the CD&A in this Proxy Statement.
Compensation Committee
Robert B. Johnson, Chairman
Douglas W. Johnson
Joseph L. Moskowitz
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