Contents Executive Summary Pay for performance remains an important driver for any organization which is ambitious and competitive. For this report the proxy statements of Compass(2012), Verizon(2012) and At&T(2013) were studied and salient similarities and differences were observed. I observed that the proxy statements of the telecoms/technology companies have stressed on creating shareholder value. In achieving this all the three have emphasized on high proportion of performance based pay. Clearly defined goals, grids and qualifying criteria have been illustrated with detail.
This is how the company sends positive signals to the shareholders and the employees simultaneously. In all the three cases the compensation objective was around “long- term goals and the interests of the company’s shareholders”, “emphasis on managing the sustainability of the business” and “Align executives’ and shareholders’ interests”. These objectives are supposed to be met by a compensation structure which has a “balance between short and long term goal achievement” (AT&T), “without incepting inappropriate risk taking” (Compass).
The compensation committee plays an important role in deciding compensation in terms of total compensation opportunity and the break-up of components of compensation. It also helps the board to recommends qualifying criteria and measures on which executives will be evaluated. Also some conclusion regarding the instrumentality of specific measures were reached. For example Compass compensation committee concluded that operating cash flow had the highest overall meaningful correlation to shareholder value over the long term. Also there are many metrics which help the company in aligning executives’ goals to its compensation policies.
Metrics such as earnings per share, free cash flow, revenue, and return on invested capital connect compensation to company performance while total stockholder returns align executive pay with performance relative to key company peers. In deciding total compensation, the grouping of peers is an important activity of the compensation committee. The peers can be classified into these categories: Industry competitors in the same business (egg. For Compass – Media and entertainment industry along with telecoms industry) Companies having comparable revenue and total market capitalization.
Companies competing for same talent. Compass for example has recently acquired the entertainment company NBC Universal. This changed the peer group used for its compensation. The entertainment industry as well as the telecoms industry is now used in determining market position in compensation. For Verizon the competitors are 29 companies in based on market capitalization, net income, revenue and total employees) plus Verizon’s four largest industry competitors that are not included in the DOD Jones Industrial Average.
For AT&T companies are selected based on similarity to AT&T in terms of size and/or industry, ability of the company to compete with AT&T for talent, ND similarity to Jobs at AT&T in terms of complexity and scope of officer positions. Compass has stressed more on in hand cash based incentive, and has not tied a large proportion of compensation to the stock based awards (compared to Verizon/AT&T). But the cash based yearly bonus can be achieved only after a minimum performance threshold is achieved.
This can be attributed to the higher risk involved in the recent times following their merger with Universal. In terms of total compensation they want to target a higher percentile than AT&T and Verizon, sending a signal that Geiger risk should be seen as bigger opportunity. Some correction was also done after the compensation committee decided to include Media and Entertainment Industry in the peer comparison after this merger. Also, there is a unique way Compass analyses its peer’s compensation data.
They view compensation expenses as “The portion of the company’s operating cash flow, free cash flow and operating income that we use to pay this compensation. ” This shows that they compare the relative proportion of compensation spending, not the absolute value while determining percentile position with respect to peers. Keeping long term hardheaded interest in mind the companies have set performance targets and provide compensation elements that closely align executives’ interests with those of stockholders.
For example, at AT performance shares, which make up nearly 33% of target compensation for the CEO and the Named Executive Officers, are tied to multi-year Company performance and the company’s stock price. In addition, AT&T has executive stock ownership guidelines and retention requirements. Each of the Named Executive Officers meets or exceeds the minimum stock ownership guidelines. 1. 1 The following table gives a comparative description of the insemination information biblically available.
AT&T COMPASS VERIZON PEER GROUP USED TO DECIDE COMPENSATION 1) similarity to AT&T in terms of size and/or industry, 2)ability of the company to compete with AT&T for talent, 3) and similarity to Jobs at AT&T in terms of complexity and scope of officer positions 1) Companies in the entertainment/media industry (CBS Corporation, News Corporation, Time Warner Inc. , Fiasco Inc. And The Walt Disney Company) 2) companies in the transmission/distribution industry (AT&T Inc. , DIRECTIVE, Inc. , Quest Communications International Inc. , Sprint Next Corporation, Time Warner Cable, Inc. D Verizon Communications Inc. ) 3) general industry companies having comparable revenue and total market capitalization 1) 29 companies in the DOD Jones Industrial Average (similarly-sized companies other than Verizon, based on market capitalization, net income, revenue and total employees) 2) Plus Verizon’s four largest industry competitors that are not included in the DOD Jones Industrial 92% of the Chief Executive Officer’s compensation and, on average, 87% of other Named Executive Officer compensation is tied to Company performance, including stock price.
Total performance-based compensation in 2011 was 54% to 74% for arioso named executive officers. Base salary: 10% Short Term Incentive : 20% Long Term incentive : 70% COMPONENTS OF SALARY 1) Base Pay 2) Short Term award 3) Long term in the form of RSI and US l)cash base salary; 2) annual (short-term) cash bonus 3)long-term equity-based compensation in the form of stock options 4) and RSI (which generally are performance-based) 1) Base salary 2) Short term yearly award earned on achieving goals 3) long-term incentive awards consist of Us and RSI.
The 2011 Us are payable in cash and the 2011 RSI are payable in Verizon shares. SHORT TERM INCENTIVE or AWARDS CRITERIA Revenue, Earnings per Share, and Free Cash Flow (Year on year targets) On achieving a 5% to 6. 9% year-over-year increase in consolidated operating cash flow, the named executive officer would receive 67% of the service vested portion of the award; and on achieving a 7% or greater increase, the named executive officer would receive 100% of the service vested portion of the award. CRITERIA Adjusted PEPS Revenue 25% Free cash Flow Diversity 5% TARGETS вЂўAn adjusted PEPS target range of $2. 8 to $2. 21; вЂўA consolidated total revenue target range of $112. 7 billion to $113. 4 billion; вЂўA unconsolidated free cash flow target range of $13. 8 billion to $15. 4 billion вЂўA diversity target of (I) having 50% of new hires and promotions at and above the manager level consist of minority and female candidates, and (it) directing at least 13% of the overall supplier spending at the corporate level to minority- and female-owned or operated firms. LONG TERM INCENTIVE or AWARDS COMPOSITION 50% performance shares and 50% restricted stock units.
CRITERIA: 75% on ROCCO 25% on TSR compared to the Standard and Poor’s 100 Index COMPOSED OF: both stock options and RSI, whereby each type of award presented approximately 50% of the total equity award by grant date value, as determined on a Black-Schools basis in the case of stock options and using the closing price of a share of the company’s Class A common stock in the case of RSI. TSR during the three-year performance cycle must rank at least 16th, or at the 55th percentile (above median), among the members of the Related DOD Peers in order to earn 100% of the target number of US.
TARGET PERCENTILE Executive officers’ base salaries are targeted to the market 50th percentile, total target cash compensation (base pay + short-term incentive) and long-term grants are regarded to the market 62nd percentile 1) Compensation to be competitive with the entertainment/media peer group and 2) at the 75th percentile for the communications and general industry peer groups. 50th percentile of compensation levels for similar positions at the Related DOD Peers AT 2 2. 1 Background During 2012, they continued to execute on their strategic goals, strengthened balance sheet, and expanded G network.
AT delivered record performance of $127. 4 billion in revenues and $19. 4 billion in free cash flow (as defined on page 38), which allowed it to meet or exceed all of its short-term incentive targets. They also exceeded the goals for long-term program, delivering 43. 0% in total stockholder return over the three-year period ending December 31 , 2012, outperforming the DOD Jones Industrial Average and the Standard & Poor’s 100 and 500 for that period. Company’s executives reflect this strong performance and closely aligned the interests of management with those of stockholders. . 2 Compensation Philosophy Competitive and Market Based: Evaluate all components to attract, retain, and provide appropriate incentives for officers in a highly competitive talent market. Pay- or-performance: Tie a significant portion of compensation to the achievement of Company and business unit goals Balanced Short- and Long-Term Focus: Ensure that compensation programs and packages provide an appropriate balance between the achievement of short- and long-term performance objectives, with a clear emphasis on managing the sustainability of the business.
Alignment with Stockholders: Set performance targets and provide compensation elements that closely align executives’ interests with those of stockholders. For example, performance shares, which make up nearly 33% of target compensation for the CEO and the Named Executive Officers, are tied to multi-year Company performance and the company’s stock price. In addition, AT has executive stock ownership guidelines and retention requirements. Each of the Named Executive Officers meets or exceeds the minimum stock ownership guidelines. Alignment with Generally Accepted Approaches 2. The achievements for 2012 Stockholder Returns 17. 5% total stockholder return – outperforming the DOD Jones Industrial Average and the Standard & Poor’s 100 and 500 Returned $23 billion in cash to stockholders, Increased the quarterly dividend for the 29th consecutive year Financial Performance & Strength Record $127. 4 billion in consolidated revenues Approximately 80% of revenues from ongoing operations in 2012 came from the company’s growth drivers – wireless, hireling data and managed IT services – growing nearly 6% Record $39. Billion in cash from operations, #1 in the industry Record $19. 4 billion in free cash flow (cash from operations of $39. 2 billion minus construction and capital expenditures of $19. 7 billion), which is one of the factors the company uses in determining the company’s short-term incentive awards for executive officers Invested approximately $20 billion in capital expenditures and picture purchases to expand and upgrade the company’s network capabilities for customers in the United States and around the globe Refinanced $12 billion in debt to take advantage of historically low interest rates 2. The highlights of 2012 compensation are: Pay for Performance – 92% of the Chief Executive Officer’s compensation and, on average, 87% of other Named Executive Officer compensation is tied to Company performance, including stock price. Stock Ownership Guidelines – All executive officers meet or exceed the guidelines, which count only vested shares. Mr… Stephenson holds shares and deferred shares valued in excess of 22 times his salary; well above his required 6 times multiple.
Hold Until Retirement – Executive officers must now hold 25% of the shares they receive from incentive, equity, and option awards, net of taxes, until one year after they leave the company. Mitigate Risk in Compensation Programs – The Committee reviews a risk analysis of the company’s incentive-based compensation programs annually and believes that the company’s programs do not create risks that are reasonably likely to have a material adverse impact on the company.
Dividend Equivalents Payable at the End of the Performance Period and Only on Earned Performance Shares. 2. 5 Target for 2015 is Expand G LET to 300 million people by end-of-year 2014 Bring fiber to 1 million additional business customer locations by end-of-year 201 5 Expand the availability of IP broadband, including I-I-verse, to approximately 75% of customer locations in the company’s hireling service area by end-of-year 201 5 2. Break Up of total compensation opportunity Base Salary: This is decided according to market value for his or her Job. In 2012 there was a correction of +2. 4%. This increment was based on performance and actual salary compared to market. Short term target: Based on individual performance; contribution to overall Company results; and attainment of business unit goals, including financial, customer service, and growth targets.