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SEC Filing Excerpt
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NOTICE OF THE
2007 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON April 10, 2007
To The Shareholders:
The 2007 Annual Meeting of Shareholders of The Goodyear Tire & Rubber Company, an Ohio corporation, will be held at the Goodyear Theater (in the Companys Principal Office Complex), 1201 East Market Street, Akron, Ohio, on Tuesday, April 10, 2007 at 9:00 A.M., Akron Time, for the following purposes:
| 1. | To elect eleven members of the Board of Directors to serve one-year terms expiring at the 2008 Annual Meeting of Shareholders (Proxy Item 1); and | |
| 2. | To consider and vote upon a proposal to ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm for Goodyear for 2007 (Proxy Item 2); and | |
| 3. | To consider and vote upon three Shareholder Proposals (Proxy Items 3, 4, and 5), if properly presented at the Annual Meeting; and | |
| 4. | To act upon such other matters and to transact such other business as may properly come before the meeting or any adjournments thereof. |
The Board of Directors fixed the close of business on February 16, 2007 as the record date for determining shareholders entitled to notice of, and to vote at, the 2007 Annual Meeting. Only holders of record of Goodyear Common Stock at the close of business on February 16, 2007 will be entitled to vote at the 2007 Annual Meeting and adjournments, if any, thereof.
March 9, 2007
By order of the Board of Directors:
[logo]
C. Thomas Harvie, Secretary
Please complete, date and sign your Proxy and return it promptly in the
enclosed envelope, or vote via the Internet or by telephone.
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SEC Filing Excerpt
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COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Compensation Discussion and Analysis
Compensation Philosophy
The key objectives of our executive compensation program are to:
attract and retain qualified and experienced executive officers and other key personnel,motivate executives and other key personnel to attain appropriate short-term and long-term performance goals and manage the company for sustained long-term growth, and
align executives interests with those of our stockholders.To help us achieve these objectives, we strive to offer our executive officers compensation and benefits that are attractive and competitive in the marketplace for talent. The key components of compensation provided to our executive officers are:
annual salaries,annual cash bonuses based on performance measured against specific goals and individual performance,
long-term compensation in the form ofstock options tied to the growth in the Companys stock price from the date of grant,
performance shares tied to the achievement of specific financial objectives during a three-year performance period and the growth in the Companys stock price, andcash awards under a long-term incentive plan tied to achieving the same financial objectives used to determine performance share awards,
retirement benefits, andperquisites.
Over the past two years, the market value of our common stock has risen and made stock-based compensation a more viable alternative than in prior years. As a result, our mix of compensation has evolved and reflects a greater emphasis on grants of performance shares and a corresponding decrease in long-term cash-based incentives and stock options. Consistent with general market practice, the Compensation Committee believes that base salary should comprise approximately 20% of the aggregate compensation represented by salary, annual cash bonus, and long-term compensation (such elements referred to collectively herein as primary compensation). The remaining approximately 80% of primary compensation is a mix of annual cash bonus, stock options, performance shares (paid half in cash and half in stock), and long-term cash-based incentive awards.
We generally target base salaries below median market rates, as required by our master labor agreement (the USW Agreement) with the United Steelworkers (the USW), and we target performance-based and equity compensation at rates that are either at the median market rate or somewhat above such rate. We generally emphasize compensation that can vary based on annual, long-term and stock price performance, over fixed compensation elements. As a result, the total amount of primary compensation is targeted either at median market rate or somewhat above such rate for comparable companies. This approach provides an opportunity for compensation in excess of market median rates through superior performance. At the same time, executives can earn less than market median rates for performance that is less than acceptable and/or due to declines in our stock price.
We are guided by the following core principles in establishing compensation for our executives, including the Chairman, President and Chief Executive Officer (CEO) and the other executive officers named in the Summary Compensation Table (the named executive officers):
First, compensation programs should motivate our executives to take actions that are best for our long-term performance while delivering positive annual results.
Second, as executives move to a greater level of responsibility, the percentage of their pay based on performance should increase.
Third, performance pay should offer an opportunity for above average compensation for above average performance balanced by the risk of below average compensation when our performance does not meet our goals.
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Fourth, the percentage of total compensation paid in the form of equity should also increase as executives have increasing responsibility for corporate performance, thereby more completely aligning their interests directly with those of our stockholders.
Compensation Decision-Making
Our Board of Directors (the Board) has delegated to the Compensation Committee of the Board (the Compensation Committee) primary responsibility for establishing and administering our compensation programs for executive officers and other key personnel. The Compensation Committee is composed entirely of independent directors. The Compensation Committee oversees our compensation and benefit plans and policies, administers our stock plans (including reviewing and recommending equity grants to executive officers), and reviews and approves annually all compensation decisions relating to executive officers, including those for the CEO and the other named executive officers.
In performing its duties, the Compensation Committee meets periodically with the CEO to review compensation policies and specific levels of compensation paid to executive officers and other key personnel, and reports and makes recommendations to the Board regarding executive compensation policies and programs. The Compensation Committee informs the other independent directors of the Board regarding its decisions regarding compensation for the CEO and other elected officers.
At least annually, the Compensation Committee reviews our executive compensation practices to determine whether they meet, and are consistent with, the key objectives of our compensation program. In addition, in 2006 members of our Executive Compensation group in our Corporate Human Resources Department made a comprehensive presentation to the full Board on compensation matters, including compensation philosophy, elements and mix of compensation, and our various compensation programs.
Compensation Committee Charter
The Compensation Committee has a charter that it follows in carrying out its responsibilities. It has also developed a set of policies and guidelines that it follows in considering and making decisions. The Compensation Committee reviews its charter and its policies each year, modifying them as it believes desirable. The Compensation Committees charter is available to stockholders on our website at www.goodyear.com. The Compensation Committee generally adheres to the guidelines and philosophy described above under Compensation Philosophy. However, significant changes in our business or the markets in general, may cause the Compensation Committee to deviate from these guidelines as it deems appropriate. This allows the Compensation Committee to meet its primary objective of attracting, motivating and retaining talented executives and to serve the best interests of the Company and our stockholders.
Role of Employees and Compensation Consultant
Employees within the Executive Compensation group in our Corporate Human Resources Department support the Compensation Committee in its work. Among other things, this support includes providing reports, data and analyses with respect to current and proposed compensation, answering inquiries from members of the Compensation Committee, and preparing documentation with respect to compensation plans and programs.
The CEO meets periodically with the Compensation Committee to review compensation policy and specific levels of compensation paid to executive officers and other key personnel. In addition, the CEO annually makes recommendations to the Compensation Committee regarding salary adjustments and the setting of annual bonus targets and long-term compensation awards for executive officers, including the other named executive officers.
The Compensation Committee has the authority to retain and terminate outside advisors, including compensation consultants, to assist it in evaluating actual and proposed compensation for our executive officers. The Compensation Committee also has the authority to approve any such consultants fees and the other terms of such retention. From time to time, the Compensation Committee solicits advice from an outside compensation consultant, Towers Perrin, on executive compensation matters relating to the CEO and other executive officers. This advice has consisted primarily of assistance with benchmarking compensation for senior executives and directors, and advice on current and evolving market practices in the areas of perquisites, change in control benefits, and retiree medical benefits. In 2006, we paid Towers Perrin approximately $100,000 for these services provided to the Compensation Committee. Towers Perrin did not attend any meetings of the Compensation Committee in 2006, but did meet with the Chairman of the Compensation Committee.
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Towers Perrin provides other advice and consulting services to us from time to time, consisting mainly of consulting services regarding expensing methodologies under Statement of Financial Standards No. 123(R) (SFAS 123(R)). In 2006 we paid Towers Perrin approximately $18,000 in respect of such services, which services were provided in 2005. Towers Perrin did not provide any such services to us in 2006.
Benchmarking of Primary Compensation
As noted above, the Compensation Committee generally targets primary compensation levels for named executive officers at median market rates. For these purposes, the Compensation Committee has determined market rates by considering three sources:
a group of companies ranked between 60th and 180th on the Fortune 500 rankings (in the most recent ranking, this represented a range of annual revenues from $11.9 billion to $29.3 billion, with Goodyears annual projected revenues representing the median of such group);18 peer companies with annual revenues ranging from $9 billion to $37 billion and median revenues of $14 billion; and
compensation surveys published by five national human resources consulting firms.The 18-member peer group noted above consists of: United Technologies, Caterpillar, Johnson Controls, Honeywell, 3M, Deere & Co, Visteon, Lear, Emerson Electric, Whirlpool, Illinois Tool Works, Paccar, Dana, Delphi, Textron, Inc., Eaton, PPG Industries, and Arvinmeritor. This peer group has been used because its membership reflects alignment with the nature of our business, workforce and global complexity. The Compensation Committee intends to review the composition of this peer group in 2007 with a view toward considering the inclusion of consumer products companies as Goodyear continues to execute on its strategy of positioning itself as a market-driven, consumer-focused company rather than a typical auto supplier. The Compensation Committee may also make changes in the peer group from time to time based on the criteria described above or other relevant factors.
Data with respect to comparable elements of primary compensation is compiled for the groups of companies described above from available sources, including, in most cases, the most recently available annual proxy statements containing executive compensation data.
Tax Deductibility of Pay
Section 162(m) of the Internal Revenue Code (the Code) provides that compensation paid to a public companys chief executive officer and its four other highest paid executive officers in excess of $1 million is not deductible unless certain procedural requirements have been satisfied. The Compensation Committee believes that awards under our 2002 and 2005 Performance Plans qualify for full deductibility under Section 162(m).
Although compensation paid under two of our plans, the Executive Performance Plan and the Performance Recognition Plan is performance-based, it does not qualify for the deductibility exception for performance-based compensation and is subject to the Section 162(m) limitation on deductibility. As discussed in greater detail below, in light of our financial condition and capital structure in recent years, the Compensation Committee believes it is in our best interests and our stockholders best interests to retain flexibility in awarding incentive compensation under the Executive Performance Plan and the Performance Recognition Plan that does not qualify for the exception for performance-based compensation. The Compensation Committee will continue to review and evaluate, as necessary, the impact of Section 162(m) on our executive compensation programs.
Stockholding Guidelines
To better link the interests of management and stockholders, the Board, upon the recommendation of the Compensation Committee, adopted stockholding guidelines for our executive officers effective January 1, 2006. These guidelines specify a number of shares that our executive officers must accumulate and hold within five years of the later of the effective date of the program or the date of appointment as an officer. The specific share requirements are based on a multiple of annual base salary ranging from one to five times, with the higher multiples applicable to executive officers having the highest levels of responsibility. Amounts invested in the Goodyear stock fund of the Goodyear Employee Savings Plan, share equivalent units in the companys deferred compensation plan, restricted stock, and stock owned outright by executive officers (or their spouses) are counted as ownership in assessing compliance with the guidelines. Unexercised stock options and unearned performance shares are not counted toward compliance with the guidelines. We do not have any policies or strategies to hedge any economic risk associated with these stockholding guidelines.
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Elements of Compensation
In addition to primary compensation (base salary, annual cash bonuses, stock option, performance shares, and cash-based long-term incentive awards), we provide executive officers with certain other compensation and benefits. These other arrangements include pension and post-termination benefits, deferred compensation arrangements, and a limited amount of perquisites, as well as other employee benefits generally available to all employees on a non-discriminatory basis. Each of these elements is described in more detail in the sections that follow. For more information regarding the Committees 2006 compensation decisions please see 2006 Salary Decisions, 2006 Bonus Payouts Under Performance Recognition Plan, 2006 Grants and Payouts under the Executive Performance Plan, 2006 Performance Share Grants, and 2006 Stock Option Grants elsewhere in this Proxy Statement.
Annual Compensation
Base Salaries
We provide base salaries to recognize the skills, competencies, experience, and individual performance each named executive officer brings to his position. We target base salaries below median market rates, as required by the USW Agreement, and place correspondingly greater emphasis on performance-based incentive and equity compensation. Salary guidelines for each named executive officers position are based primarily on market data that we derive through our benchmarking practices, as described above. We also develop salary guidelines from compensation surveys using regression analysis based on revenues of the surveyed companies. In addition to data derived from such surveys, the Compensation Committee reviews general surveys prepared by national human resource consulting firms indicating past, present and projected salary structures and annual increases for executive positions. The Compensation Committee also considers the CEOs recommendations, which are based in substantial part on the guidelines described above as well as on certain subjective factors, including the CEOs evaluation of the performance of each named executive officer against objectives established at the start of each year, their current and future responsibilities, our recent financial performance, retention considerations and general economic and competitive conditions.
Annual Cash Bonuses Performance Recognition Plan
The Performance Recognition Plan provides annual cash-based incentives for approximately 700 participants, including all named executive officers. Awards under the Performance Recognition Plan are designed to emphasize important short-term operating and tactical objectives that executives can influence and which help create long-term value as well as providing balance to the long-term elements of our compensation program. Awards generally have the following characteristics:
an individuals target bonus level for the award is set annually, as a percentage of base salary, at rates slightly above market median levels to make up for the shortfall in targeted base salaries and to provide the opportunity to earn overall annual compensation at market median levels;the level of funding of the annual bonus pool is based on the level of achievement of two financial performance criteria (linked to overall company and/or operating unit results), adjusted for extraordinary items and other relevant factors as recommended by the CEO and approved by the Compensation Committee;
the amount of individual payouts for executives can range from 0% to 200% of the executives target bonus, based on the executives performance during the year against individual objectives; andthe total payout for all participants may not exceed the bonus pool.
Annual bonus target levels for each position, as a percentage of annual salary, are based primarily on market data which we derive by benchmarking against a subset of Fortune 500 companies and a smaller peer group, as described above. In addition to data derived from such studies, the Compensation Committee reviews general surveys prepared by national human resource consulting firms indicating past, present and projected bonus structures for executive positions. The Compensation Committee also considers the CEOs recommendations, which are based on substantially the same considerations described above under Base Salaries.
Each financial performance criteria has a target level as well as a minimum and maximum level, which are determined based on the perceived difficulty of the established targets and actual results for those financial measures in prior years. For corporate officers, funding of the bonus pool available for payouts is based on overall company results with respect to the two financial performance criteria. Funding of the bonus pool for officers of our six operating units is based 60% on that operating units results and 40% on overall company results. In this
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manner, we believe our executives are held most accountable for financial results in the areas where they have the most control and influence.
In determining the funding of the bonus pool available for payouts, the Compensation Committee first compares actual results with the target performance level for the two financial performance criteria. This comparison is done for the company overall, and for each operating unit. These results are referred to as the actual results. Then, the Committee considers and takes into account the following three factors to determine whether the actual results should be adjusted:
non-recurring restructuring charges are considered for exclusion, consistent with past practice, because the Committee believes senior managers should be encouraged to make decisions with long-term benefits to the Company without being concerned about the impact on their incentive compensation;the effects of significant one-time, unanticipated, non-operating or extraordinary events are considered for exclusion, consistent with past practice, because the effect of such events would generally not have been reflected in the performance targets; and
qualitative factors that might call for adjustment of the actual results are considered upon the recommendation of the CEO based on his overall assessment of our business and performance.The size of the overall bonus pool thus depends on the actual results and the extent to which the company-wide and operating unit performance criteria are achieved, as adjusted to reflect the factors described above. In 2002, 2003, 2004, and 2005, the Compensation Committee established bonus payment pools of 46%, 72%, 188%, and 162%, respectively, of the aggregate target bonus level for such years.
After the size of the bonus pool has been determined as described above, the amount of the payout for each named executive officer is determined. In this process, the officers target bonus amount is first multiplied by the same fraction used to determine the aggregate bonus amount to fund the bonus pool applicable to such officer. (For example, if the bonus pool applicable to such officer is funded at 150% of the aggregate target bonus amount, the officers individual payout would initially be set at 150% of his individual bonus target.) Then, the CEO assesses the officers individual performance and contributions towards company goals and makes his recommendations with respect to individual payout amounts to the Compensation Committee, which reviews and approves the final payouts. The Compensation Committee undertakes the same process for the CEO and makes the determination as to final payout amount for the CEO. Participants can earn between 0% and 200% of their target bonus, but the total payout for all participants may not exceed the aggregate bonus pool.
To illustrate how the Performance Recognition Plan works, assume an award with a target level of $50,000. If the company-wide and operating unit performance criteria are attained in an amount equal to 150% of their target amounts, the amount contributed to the overall bonus pool in respect of this award is $75,000 (i.e. 150% of $50,000). However, the individual having this award would be eligible to receive a payout between $0 and $100,000 (i.e. 200% of the target level), depending on the individuals own performance and contribution to company goals.
Awards are generally paid in cash. However, named executive officers may elect to defer all or a portion of their award in the form of cash or stock units. If deferred in the form of stock units, we will match 20% of the deferred amount with additional stock units. The stock units are converted to shares of Goodyear common stock and paid to the participant on the first business day of the third year following the end of the plan year under which the award was earned. See Executive Deferred Compensation Plan below.
Long-Term Compensation
A significant portion of primary compensation for each named executive officer is comprised of long-term compensation, which encompasses grants of stock options and performance shares under our 2002 and 2005 Performance Plans (collectively, the Performance Plans) and long-term cash-based incentive awards under our Executive Performance Plan. Long-term performance-based compensation is generally designed to represent approximately 60% of the annual primary compensation of named executive officers, assuming achievement of target levels. This is consistent with our emphasis on long-term compensation which better ties the executives compensation to changes over time in the price of our common stock. The mix of long-term compensation between stock option grants, performance share grants, and cash-based long-term incentives was based, in part, on the number of shares available for grant under the Performance Plans, as well as considerations relating to managing the dilutive effect of share-based awards.
The amount and terms of grants to named executive officers under the Performance Plans and the Executive Performance Plan are based on criteria established by the Compensation Committee and typically include
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responsibility level, base salary level, current market price, officer performance, recent Goodyear performance, and, with respect to the Performance Plans, the number of shares available under the plan. As discussed above under Compensation Philosophy, the Compensation Committee makes grants under these plans with the objective of providing a target primary compensation opportunity equal to the median market rates.
Cash-Based Awards Under the Executive Performance Plan
The Executive Performance Plan provides long-term incentive compensation opportunities in order to attract, retain and reward key personnel and to motivate key personnel to achieve our long-term business objectives. This plan was originally established, in 2003, to address the limitations of providing compensation through our Performance Plans resulting from the relatively low market price of our common stock at the time, such as the potentially dilutive impact of stock grants in the quantity that would have been necessary to provide meaningful incentive compensation (which would have required more shares than were then available under the 2002 Performance Plan). As a result, the Compensation Committee determined that a cash-based plan was the most appropriate tool for providing retention and performance incentives.
The Compensation Committee generally makes Executive Performance Plan grants at its first meeting following completion of the prior fiscal year (typically in February). Awards of units under the Executive Performance Plan generally have the following characteristics:
the target value is $100 per unit;the payout amount is based on results over a three-year period as compared with performance goals set at the start of the three-year period; and
the payout amount can range from $0 per unit to $200 per unit based on actual results (and assuming the recipient remains continuously employed by us through the performance period).The number of target units awarded annually to each named executive officer is based on a number of considerations, including market data about competitive long-term compensation and the CEOs recommendations. In determining target awards, the CEO takes into consideration certain subjective factors, including the CEOs evaluation of the performance of each named executive officer, our recent performance, retention considerations and general economic and competitive conditions.
Performance criteria for grants made for the 2004-2006 performance period were cumulative net income and cumulative cash flow, each weighted equally. Results were based entirely on our consolidated performance, with no award tied to an executives business unit or individual performance. In this manner, the plan emphasizes long-term consolidated financial results, balances measurement under our annual bonus plan and reinforces the need for teamwork among executives. Net income was used as a measure to focus on bottom line improvement. Cash flow focused on our efforts to manage the cash requirements associated with our business, including our debt, pension and OPEB obligations and our efforts improve our capital structure.
The performance criteria for grants made for the 2005-2007 and 2006-2008 performance periods were cumulative net income and cumulative cash flow, net of debt, each weighted equally. While the cash flow target focuses on our efforts to manage our cash requirements as described above, adjusting for net debt provides incentive for reduction of our obligations, including our debt and pension obligations. As a result, the amount of debt that is netted out is equal to the amount of total debt on the consolidated balance sheet plus expected domestic pension funding for the next three fiscal years, less cash on the consolidated balance sheet.
172,900 units were granted under the Executive Performance Plan for the performance period 2004-2006. All of these grants included a guaranteed minimum payment of either $25 or $50 per unit. This guaranteed minimum payment feature was included as a retention tool to help keep the senior executive team together during the anticipated turnaround period for the company. 180,500 units were granted in respect of the 2005-2007 performance period and 167,590 units were granted in respect of the 2006-2008 performance period. Grants for the performance periods 2005-2007 and 2006-2008 do not carry any guaranteed minimum payment.
In 2006, in order to more closely align executive compensation to the performance of our common stock and to better manage concerns about stockholder dilution, and in response to new accounting rules with respect to stock options under SFAS 123(R), we introduced performance shares as a new component of long-term compensation for named executive officers and other key personnel.
Performance shares are granted under the Performance Plans and generally have the following terms:
vesting is based on results over a three-year period as compared with performance goals set at the start of the three-year period; and
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once vested, shares are paid 50% in cash (based on the market value of our common stock on the vesting date) and 50% in stock.
The number of performance shares awarded annually to each named executive officer, measured by the percentage of total long-term compensation represented by such shares, is based on a number of considerations, including market data about comparable long-term cash-based incentive compensation and the CEOs recommendations, which are based in part on certain subjective factors, including the CEOs evaluation of the performance of each named executive officer, our recent performance, retention considerations and general economic and competitive conditions. Historically, each named executive officer has received performance shares equivalent in value to approximately 10% of the value of his grant that year under the Executive Performance Plan.
Stock Options
The Compensation Committee annually grants stock options to named executive officers and other key employees to link executives to results earned by shareholders and build executive ownership. Through 2005, we made annual grants at the end of our fourth fiscal quarter. In February 2006, we moved the grant date, beginning with the 2007 annual grant, to the first Compensation Committee meeting following the end of the fiscal year (usually in February) to better match the grant to annual fiscal year performance. As a result, there was no annual grant during 2006. The Compensation Committee believes that annual grants of stock options provide additional long-term incentives to improve our future performance. In addition to annual grants, we make stock option grants to new hires and for special employee recognition throughout the year.
Stock options are granted under the Performance Plans and generally have the following terms:
options vest in equal, annual installments over a 4-year period; andthe exercise price is equal to the market value of our common stock on the date of grant, with the market value determined by averaging the high and low prices of our common stock on that date.
In addition, each non-qualified stock option includes the right to the automatic grant of a new option (a reinvestment option) for that number of shares tendered in the exercise of the original stock option. The reinvestment option will be granted on, and will have an exercise price equal to the market value of our common stock on the date of exercise. Reinvestment options are generally subject to the same terms and conditions as the original stock option but do not include the right for a further reinvestment option. All reinvestment options vest one year from the date of grant.
The amount of stock options to be awarded each year is determined based on the number of available options under the Performance Plans, as well as market data on long term-compensation. We use a Black-Scholes valuation model to determine the number of stock options needed to provide the desired value consistent with median market compensation.
Pension Benefits
We provide named executive officers with pension benefits pursuant to both a qualified pension plan, the Goodyear Salaried Pension Plan (the Salaried Plan), and a partially funded, non-qualified plan, the Goodyear Supplementary Pension Plan (the Supplementary Plan). For more information regarding the terms of these plans and the named executive officers accrued benefits under these plans, see the table captioned Pension Benefits and the accompanying narrative elsewhere in this Proxy Statement.
The Salaried Plan is designed to provide tax-qualified pension benefits for most Goodyear employees. All of the named executive officers participate in the Salaried Plan along with other Goodyear employees. The Supplementary Plan provides additional pension benefits to executive officers and certain other key individuals identified by the Compensation Committee. The Supplementary Plan provides pension benefits to participants who retire with at least 30 years of service or retire after age 55 with ten years of service. However, benefits payable under the Supplementary Plan are offset by the amount of any benefits payable under the Salaried Plan and certain prior employer pension plans. The Committee believes supplemental executive retirement plans such as the Supplementary Plan are an important part of executive compensation and are utilized by most large companies, many of which compete with the Company for executive talent. Retirement benefits, including those provided through a supplemental executive retirement plan, are a critical component of an executives overall compensation program and are essential to attracting, motivating and retaining talented executives with a history of leadership. Retirement benefits are an important factor in an executives decision to accept or reject a new position.
We also maintain a non-qualified unfunded Excess Benefit Plan that pays an additional pension benefit over that paid under the Salaried Plan if a participant does not meet the eligibility requirements of the Supplementary Plan.
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The additional benefit is equal to the amount a participant would have received from the Salaried Plan but does not because of the limitations imposed by the Code on pension benefits under qualified plans. This plan is provided to allow the continuation of benefits from the qualified plan to individuals whose income exceeds the Code guidelines for qualified plans.
Severance and Change-in-Control Benefits
We provide for the payment of severance benefits to our named executive officers upon certain types of terminations of employment. The Goodyear Employee Severance Plan (the Severance Plan) provides certain severance benefits to our employees and employees of our domestic subsidiaries who participate in the Salaried Plan. For additional information regarding the terms of the Severance Plan and benefits payable under such plan, see Potential Payments Upon Termination or Change-in-Control.
In addition to benefits provided under the Severance Plan, under appropriate circumstances, such as reductions in force or elimination of positions, we may provide severance benefits to executive officers, including the named executive officers, whose employment terminates prior to retirement. In determining whether to provide such benefits and in what amount, we consider all relevant facts and circumstances, including length of service, circumstances of the termination, the executive officers contributions to company objectives, and other relevant factors. When we provide such benefits, typically the amount of severance is the equivalent of six to 18 months of base salary plus an amount based on the individuals target bonus then in effect over an equivalent period. The severance payment may be paid in a lump sum or in installments. We also may provide limited outplacement and personal financial planning services to eligible executive officers following their termination at the employees choice. The Compensation Committee reviews and approves any such severance benefits.
In addition, Mr. Keegans employment agreement provides for the payment of severance compensation if we terminate his employment without cause or if Mr. Keegan terminates his employment for good reason, as such terms are defined in such agreement. For additional information regarding the terms of Mr. Keegans employment agreement and the severance benefits payable under such agreement, see Potential Payments Upon Termination or Change-in-Control elsewhere in this Proxy Statement. Among other things, Mr. Keegans employment agreement provides that if Mr. Keegan is subject to any excise taxes resulting from a severance payment in connection with a change in control, he is entitled to receive an additional amount sufficient to cover the amount of any such excise or related taxes.
Perquisites
We provide certain executive officers with certain personal benefits and perquisites, as described below. The Compensation Committee has reviewed and approved the perquisites described below. While the Committee does not consider these perquisites to be a significant component of executive compensation, it recognizes that such perquisites are an important factor in attracting and retaining talented executives.
Home Security Systems. In order to enhance their safety, we pay for the cost of home security systems for a limited number of executive officers. We cover the cost of installation, monitoring and maintenance for these systems.
Use of Company Aircraft. In appropriate circumstances, and only if approved by the CEO, executive officers are permitted to use our company aircraft for personal travel. In these limited circumstances, the executive is also required to reimburse us for such use in an amount determined using the Standard Industry Fare Level.
Tire Program. We offer our executive officers and Board members the opportunity to receive up to two sets of tires per year at our expense. Expenses covered include the cost of tires, mounting, balancing and disposal fees. We also provide reimbursement for the taxes on the income associated with this benefit.
Financial Planning and Tax Preparation Services. We offer financial assistance to our executive officers to help them cover the cost of financial planning and tax preparation services. In providing this benefit, we seek to alleviate our executives concern regarding personal financial planning so that they may devote their full attention to company business. The maximum annual cost to the company under this program is $9,000 per officer.
Club Memberships. We pay the annual dues for one club membership for a limited number of executive officers. The membership is intended to be used primarily for business purposes, although executive officers may use the club for personal purposes. Executive officers are required to pay all costs related to their personal use of the club.
Annual Physical Exams. Our executive officers may undergo an annual comprehensive physical examination for which we pay any amount that is not covered by insurance.
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Executive Deferred Compensation Plan
The Goodyear Executive Deferred Compensation Plan (the Deferred Compensation Plan) is a non-qualified deferred compensation plan that provides named executive officers and other highly compensated employees the opportunity to defer various forms of compensation. The plan provides several deferral period options. For 2006, Mr. Rich is the only named executive officer who made deferrals under the plan. In 2006, Mr. Rich deferred his 2005 Performance Recognition Plan bonus into Goodyear stock units, and received a 20% premium in stock units as provided in the Deferred Compensation Plan. This premium recognizes the greater risks associated with receiving his bonus payout in stock instead of cash. For participants, this is an investment decision made with dollars earned in the annual bonus program and offers an additional means to save for retirement. There is no premium or guaranteed return associated with the deferral. The stock units will be converted to shares of Goodyear common stock and paid to Mr. Rich on the first business day of the third year following the end of the plan year under which the award was earned.
For additional information regarding the terms of the deferred compensation plan, see Nonqualified Deferred Compensation elsewhere in this Proxy Statement.
Other Benefits
Payments to Overseas Executives. Where warranted, we provide tax equalization payments, housing allowances, and other similar benefits to our executives living overseas to compensate them for the additional costs of their overseas assignments.
Goodyear Employee Savings Plan. The Savings Plan permits eligible employees, including named executive officers, to contribute 1% to 50% of their compensation to their Savings Plan account, subject to an annual contribution ceiling ($15,000 in 2006). Savings Plan participants who are age 50 or older and contributing at the maximum plan limits or at the annual contribution ceiling are entitled to make catch-up contributions annually up to a specified amount ($5,000 in 2006). Contributions to the Savings Plan are not included in the current taxable income of the employee pursuant to Section 401(k) of the Code. Employee contributions are invested, at the direction of the participant, in any one or more of the fifteen available funds and/or in mutual funds under a self directed account.
COMPENSATION COMMITTEE REPORT
We have reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on our review and discussion with management, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and in Goodyears Annual Report on Form 10-K for the year ended December 31, 2006.
The Compensation Committee
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John G. Breen, Chairman |
Gary D. Forsee |
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William J. Hudson, Jr. |
Denise M. Morrison |
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G. Craig Sullivan |
Notwithstanding anything to the contrary set forth in any of our previous filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, that incorporate future filings, including this Proxy Statement, in whole or in part, the foregoing Compensation Committee Report shall not be incorporated by reference into any such filings.
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The table below sets forth information regarding the compensation of the CEO and the Chief Financial Officer of Goodyear (the CFO) and the persons who were, at December 31, 2006, the other three most highly compensated executive officers of Goodyear (collectively, the named executive officers) for services in all capacities to Goodyear and its subsidiaries during 2006.
|
Name and |
Year |
Salary |
Bonus |
Stock |
Option |
Non-Equity |
Change in |
All Other |
|
|
Robert J. Keegan |
|
|
|
|
|
|
|
|
|
|
Chairman of the Board, |
|
|
|
|
|
|
|
|
|
|
Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
and President |
2006 |
$1,133,333 |
$2,244,000 |
$91,191 |
$1,949,118 |
$8,000,000 |
$3,802,099 |
$93,377 |
$17,313,118 |
|
Richard J. Kramer |
|
|
|
|
|
|
|
|
|
|
Executive Vice President and Chief Financial Officer |
2006 |
507,033 |
667,400 |
59,274 |
379,517 |
2,000,000 |
260,948 |
18,006 |
3,892,178 |
|
Jonathan D. Rich |
|
|
|
|
|
|
|
|
|
|
President, North American Tire |
2006 |
451,733 |
200,000 |
163,933 |
367,894 |
2,000,000 |
216,409 |
20,629 |
3,420,598 |
|
C. Thomas Harvie |
|
|
|
|
|
|
|
|
|
|
Senior Vice President, General Counsel and Secretary |
2006 |
453,367 |
411,800 |
33,741 |
349,033 |
1,600,000 |
547,983 |
11,969 |
3,407,893 |
|
Joseph M. Gingo |
|
|
|
|
|
|
|
|
|
|
Executive Vice President Quality Systems and Chief Technical Officer |
2006 |
382,000 |
351,000 |
23,102 |
216,240 |
1,200,000 |
1,050,744 |
8,397 |
3,231,483 |
(1) Represents amounts awarded under the Performance Recognition Plan for performance during 2006. For additional information regarding amounts awarded to the named executive officers under the Performance Recognition Plan, see Compensation Discussion and Analysis Elements of Compensation Annual Compensation Annual Cash Bonuses Under the Performance Recognition Plan and 2006 Bonus Payouts Under the Performance Recognition Plan below.
(2) Represents the amount recognized for financial statement reporting purposes for 2006 in respect of outstanding stock awards in accordance with SFAS 123(R), excluding estimates of forfeitures in the case of awards with service-based vesting conditions. The assumptions made in valuing stock awards reported in this column are discussed in Note 1, Accounting Policies under Stock-Based Compensation and Note 12, Stock Compensation Plans to Goodyears consolidated financial statements included in its annual report for the year ended December 31, 2006. On February 22, 2006, performance share units were granted in the amount of 15,000, 9,750, 6,800, 5,550, 3,800 to Messrs. Keegan, Kramer, Rich, Harvie and Gingo, respectively, with a performance period of January 1, 2006, to December 31, 2008. For additional information regarding such grants, see Compensation Discussion and Analysis Elements of Compensation Long-Term Compensation Performance Shares and Grants of Plan-Based Awards 2006 Performance Share Grants below. For Mr. Rich, also includes 8,323 stock units issued pursuant to the Goodyear Executive Deferred Compensation Plan in an amount equal to 20% of the amount of Mr. Richs 2005 bonus, which Mr. Rich deferred. See Nonqualified Deferred Compensation.
(3) Represents the amount recognized for financial statement reporting purposes for 2006 in respect of outstanding option awards in accordance with SFAS 123(R), excluding estimates of forfeitures in the case of awards with service-based vesting conditions. The assumptions made in valuing option awards reported in this column are discussed in Note 1, Accounting Policies under Stock-Based Compensation and Note 12, Stock Compensation Plans to Goodyears consolidated financial statements included in its annual report for the year ended December 31, 2006. Includes option grants to those named executive officers who reloaded options during 2006. See Grants of Plan-Based Awards below.
(4) Represents amounts awarded under the Executive Performance Plan in respect of the performance period of January 1, 2004, through December 31, 2006. For additional information regarding such awards, see Compensation Discussion and Analysis Elements of Compensation Long-Term Compensation
25
Cash-Based Awards Under the Executive Performance Plan and Grants of Plan-Based Awards 2006 Grants and Payouts Under the Executive Performance Plan below.
(5) Represents change in pension value for each named executive officer. No nonqualified deferred compensation earnings are required to be reported.
(6) Includes amounts for home security system installation and monitoring expenses, personal financial planning services, personal use of company aircraft, annual dues for club memberships, the cost of annual physical exams, and provision of up to two sets of automobile tires per year. For Mr. Keegan, this includes $32,760 for home security system installation and monitoring expense, and also includes $38,162 for premiums on life insurance policies which will be used to cover Goodyears obligation to make a charitable donation recommended by Mr. Keegan following his death, pursuant to the Directors Charitable Award Program. For more information regarding such program, please see Director Compensation below. The aggregate incremental cost to the company of providing the home security system is equal to the invoice cost of such system and related services, and the aggregate incremental cost of the life insurance policies is the annual premium and related fees. Also includes $368, $302, $786, and $269 for Messrs. Keegan, Kramer, Rich and Gingo, respectively, which represents reimbursement of taxes in respect of income associated with the companys provision of up to two sets of automobile tires per year.
Employment Agreement
Mr. Keegans compensation is based, in part, on a written employment agreement entered into in 2000. The agreement provided for an initial salary of $800,000 and an option to purchase 250,000 shares of restricted stock, the restrictions on which lapsed in 2002. Additionally, the agreement credited Mr. Keegans previous service at Eastman Kodak Company towards his pension benefits payable by Goodyear. The agreement also established Mr. Keegans participation in the Performance Recognition Plan as well as our equity-based incentive compensation programs.
Mr. Keegans agreement was supplemented in 2004 to provide for the payment of severance compensation in the event of certain employment termination events. The severance compensation would consist of (i) two times the sum of Mr. Keegans annual base salary and target bonus in effect at the time of termination, plus (ii) the pro rata portion of Mr. Keegans target bonus for the then current fiscal year. The agreement restricts Mr. Keegan from participating in any business that competes with Goodyear for a period of two years after termination. The term of the supplemental agreement expires February 28, 2009.
2006 Salary Decisions
In addition to using the methodologies described above in Compensation Discussion and Analysis Elements of Compensation Annual Compensation Base Salary for setting salary guidelines, in 2006 we compared total compensation levels for our five most highly compensated officers and 17 additional executives against survey data provided by Towers Perrin for approximately 155 U.S. industrial companies with annual revenues of $10 billion or more. We concluded that the base salaries of our named executive officers who are direct reports to the CEO were, in the aggregate, below the market median, in accordance with the USW Agreement. However, the base salary of the CFO was found to be significantly below the median for his position. Based on the CFOs skills and experience, performance and significant contributions to the success of our operations in 2005, his base salary relative to the market median, and our desire to retain him in this position, in February 2006 the Compensation Committee increased his base salary 14.9% effective May 1, 2006, bringing his base salary within 10% of market median.
In 2006, the overall increase in base salaries for all executive officers, excluding the CEO, was 3.18%. Mr. Keegan, Mr. Rich, Mr. Harvie and Mr. Gingo received increases of 4.5%, 2.2%, 2.4% and 2.4%, respectively. Salaries of the named executive officers in 2006 were an average of 5% lower than the median indicated by the salary guidelines described above in Compensation Discussion and Analysis Elements of Compensation Annual Compensation Base Salary. Salaries in 2006 averaged approximately 33% of total annual cash compensation paid to the named executive officers.
26
2006 Bonus Payouts Under Performance Recognition Plan
In 2006, the performance criteria used for bonus awards under the Performance Recognition Plan were as follows:
for corporate officers (including Messrs. Keegan, Kramer, Harvie and Gingo): (i) Goodyears net sales, less cost of goods sold, selling, administrative and general expenses, and finance charges (adjusted EBIT) and (ii) Goodyears operating cash flow (primarily cash flow from operations and investing activities, each adjusted for exchange, less the change in restricted cash and dividends paid to minority interests in subsidiaries), both equally weighted at 50% and independent of each other; and
for officers of our six operating units (including Mr. Rich): (i) the operating units net sales, less cost of goods sold and selling, administrative and general expenses (EBIT) and (ii) the operating units operating cash flow (as defined above), both equally weighted at 50% and independent of each other.
Adjusted EBIT is derived from our audited financial statements by reducing net sales for cost of goods sold, selling, administrative and general expenses, and finance charges, and EBIT is derived from our audited financial statements by reducing net sales for cost of goods sold and selling, administrative and general expenses. The Compensation Committee used Adjusted EBIT for corporate officers, rather than EBIT, to provide an incentive to reduce finance charges, given existing debt levels. Overall, the Compensation Committee believed the financial targets reflected a significant stretch for the Company given the dynamic business environment, rapidly increasing costs of raw materials and the uncertainty with respect to the renewal of the predecessor to the USW Agreement, which expired in 2006.
As described above in Compensation Discussion and Analysis, the Compensation Committee uses a two-step process to determine the level of funding of the bonus pool available for payouts. First, the committee compares actual results with the target performance level for the two financial performance criteria. This comparison is done for the company overall, and for each operating unit. These results are referred to as the actual results. Second, the committee considers and takes into account extraordinary items and other relevant factors to determine whether the actual results should be adjusted.
In February 2007, the Compensation Committee reviewed actual results for 2006 with respect to achievement of the company-wide and operating unit financial performance criteria. In addition, the Compensation Committee considered several extraordinary items and other relevant factors to adjust those actual results, including the following:
consistent with past practices, the committee excluded cash restructuring charges and accelerated depreciation expense (including asset impairment charges related to restructuring activities) related to plant closures announced during 2006;
the committee made certain adjustments related to the impact of the USW strike; and
certain adjustments were made to the operating cash flow results for the Company based on the CEOs and Compensation Committees overall assessment of the Companys performance and circumstances during 2006.
For overall company results (the performance of which is relevant for determining bonus amounts for Messrs. Keegan, Kramer, Harvie and Gingo), target Adjusted EBIT was $674 million and actual Adjusted EBIT (adjusted as described above) was $574 million, or approximately 15% below target, and target operating cash flow was $0 and actual operating cash flow (adjusted as described above) was $106 million, or significantly in excess of the target. In reviewing these results, the Compensation Committee also considered the challenges we faced during 2006, including the significant operating challenges posed by the USW strike. In light of the companys Adjusted EBIT and operating cash flow results and the other factors described above, the Compensation Committee determined to fund the corporate portion of the bonus pool in an amount equal to 132% of the target amount.
The North American Tire unit (the performance of which is relevant for determining Mr. Richs bonus) failed to meet its EBIT and cash flow targets, even after adjustments were taken into consideration. Nevertheless, the CEO recommended to the Compensation Committee, and the Compensation Committee agreed, that the bonus pool for the North American Tire unit be funded in an amount equal to 50% of the target amount. As noted in the Compensation Discussion and Analysis, funding of the bonus pool for officers of our six operating units is based 60% on that operating units results and 40% on overall company results. Funding of the North American Tire units bonus pool at the 50% level is equal to approximately 40% of the company-wide bonus pool of 132%. In addition,
27
the decision to fund the bonus pool at this level was based on the CEOs assessment that the North American Tire unit and its employees should be rewarded for their strong efforts during an extremely challenging year and for creating solid business platforms for future growth. During 2006, the North American Tire unit faced severe operating challenges, including a 12-week strike and a decline in overall demand for tire products. The CEO also considered that, despite these challenges, management of the North American Tire unit continued consistently to push its team for strong performance and achieved a number of significant accomplishments, including: (i) retention of customers during the USW strike, (ii) reaching agreement with the USW on the terms of a new master labor agreement that we estimate will result in savings of more than $600 million through 2009, (iii) taking significant restructuring actions such as announcing the closure of two factories, (iv) improving the market share of the Goodyear brand in the face of an overall decline in the consumer tire market in North America, and (v) maintaining strong dealer relationships and distribution networks during the market slowdown and strike.
The bonus pools for the other operating units were funded, based on those units performance compared with targeted performance, in amounts that ranged from 50% to 173% of the target amounts for such units. Overall , the aggregate bonus pool was funded in the amount of $30,845,100, or 102% of the overall target bonus amount.
The Compensation Committee then reviewed the CEOs assessment of each named executive officers performance during 2006 and his contribution to the companys results in 2006. With respect to the CEO, the Compensation Committee also considered its own assessment of the CEOs performance during 2006 and his contribution to the companys results in 2006. In particular, the CEO and Compensation Committee considered the extraordinary efforts of a number of the named executive officers during the USW strike as well as their substantial contributions in furthering the Companys strategic initiatives. As a result of these considerations, and in light of the aggregate amount available in the bonus pool, the Compensation Committee approved the following 2006 payout amounts for named executive officers under the Performance Recognition Plan:
|
Target Payout |
Payout Range |
Actual Award |
||||||||||||||||||||||
|
as a % of |
as a % of |
Target Award |
Maximum Award |
Actual Award |
as a % of |
|||||||||||||||||||
|
Name |
Salary | Salary | ($) | ($) | ($) | Salary | ||||||||||||||||||
|
Keegan |
148 | % | 0%-296% | $ | 1,700,000 | $ | 3,400,000 | $ | 2,244,000 | 195 | % | |||||||||||||
|
Kramer |
89 | % | 0%-178% | 470,000 | 940,000 | 667,400 | 126 | % | ||||||||||||||||
|
Rich |
88 | % | 0%-176% | 400,000 | 800,000 | 200,000 | 44 | % | ||||||||||||||||
|
Harvie |
63 | % | 0%-126% | 290,000 | 580,000 | 411,800 | 90 | % | ||||||||||||||||
|
Gingo |
68 | % | 0%-136% | 260,000 | 520,000 | 351,000 | 91 | % | ||||||||||||||||
As a group, the named executive officers received payouts at an average of 109% of their target amount. The Performance Recognition Plan payouts represent an average of approximately 132% of total 2006 cash compensation for the named executive officers.
The following table summarizes grants of plan-based awards made to the named executive officers during 2006.
|
Name |
Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) Grant Date |
Estimated Future Payouts Under Equity Incentive Plan Awards (2) Threshold |
of Shares |
Underlying |
Price of |
All Other |
All Other |
Exercise |
Grant |
Value of |
Grant |
Awards |
|
|
|
($) |
($) |
($) |
(#) |
(#) |
(#) |
(#)(3) |
(#)(4) |
($/Sh)(5) |
Date |
($) |
|
Keegan |
2/22/06 |
$2,300,000 |
$4,600,000 |
$9,200,000 |
7,500 |
15,000 |
30,000 |
|
|
|
|
$220,800 |
|
Kramer |
2/22/06 |
550,000 |
1,100,000 |
2,200,000 |
4,875 |
9,750 |
19,500 |
|
|
|
|
143,520 |
|
Rich |
2/22/06 |
505,000 |
1,010,000 |
2,020,000 |
3,400 |
6,800 |
13,600 |
|
|
|
|
100,096 |
|
Rich |
2/21/06 |
|
|
|
|
|
|
49,936 |
|
|
|
735,557 |
|
Rich |
3/13/06 |
|
|
|
|
|
|
|
17,240 |
$13.16 |
$12.99 |
99,302 |
|
Harvie |
2/22/06 |
385,000 |
770,000 |
1,540,000 |
2,775 |
5,550 |
11,100 |
|
|
|
|
81,696 |
|
Gingo |
2/22/06 |
285,000 |
570,000 |
1,140,000 |
1,900 |
3,800 |
7,600 |
|
|
|
|
55,936 |
|
Gingo |
5/11/06 |
|
|
|
|
|
|
|
13,390 |
14.81 |
14.65 |
77,126 |
(1) Represents grants of awards under the Executive Performance Plan. For additional information regarding such awards, see Compensation Discussion and Analysis Elements of Compensation Long-Term Compensation Cash-Based Awards Under the Executive Performance Plan and 2006 Grants and Payouts Under the Executive Performance Plan below.
28
(2) Grants of performance shares under the Performance Plans. For additional information regarding such grants, see Compensation Discussion and Analysis Elements of Compensation Long-Term Compensation Performance Shares and 2006 Performance Share Grants below.
(3) Represents Goodyear stock units issued to Mr. Rich pursuant to the Goodyear Executive Deferred Compensation Plan in respect of Mr. Richs deferral of his 2005 bonus awarded under the Performance Recognition Plan as well as additional stock units equal to 20% of the deferred bonus amount. See Nonqualified Deferred Compensation.
(4) Represents reload grants for Mr. Gingo and Mr. Rich during 2006. These options were granted pursuant to a reload feature in previously granted stock options. Under the reload feature, the optionee has the right to the automatic grant of a new option (a reinvestment option) for that number of shares tendered in the exercise of the original stock option plus any shares tendered to pay taxes upon such exercise. The reinvestment option is granted on, and has an exercise price equal to the fair market value of the Common Stock on, the date of the exercise of the original stock option and is subject to the same terms and conditions as the original stock option except for the exercise price and the reinvestment option feature. Such reinvestment options vest one year from the date of grant. On May 11, 2006, Mr. Gingo was granted 13,390 reload options, of which 9,254 expire on December 3, 2012, 3,802 expire on December 2, 2013, and 334 expire on December 9, 2014. On March 13, 2006, Mr. Rich was granted 17,240 options as a reload grant. The reload option vests one year from the date of grant. Of the 17,240 reload options, 3,530 options expire on December 2, 2013, and 13,710 expire on December 3, 2012. For additional information regarding such grants, see Compensation Discussion and Analysis Elements of Compensation Long-Term Compensation Stock Options and 2006 Stock Option Grants below.
(5) The exercise price of each stock option is equal to 100% of the per share fair market value of the common stock on the date granted (calculated as the average of the high and low stock price for such date). The option exercise price and/or withholding tax obligations may be paid by delivery of shares of common stock valued at the fair market value on the date of exercise.
2006 Grants and Payouts Under the Executive Performance Plan
2006 Grants
The Compensation Committee awarded an aggregate of 167,590 units in respect of the 2006-2008 performance period under the Executive Performance Plan. The performance criteria for the 2006 grants are cumulative net income and cumulative total cash flow, net of debt, each weighted equally. The performance targets for the 2006-2008 period generally require relatively greater improvement in performance than had been contemplated under prior years grants. The Compensation Committee determined that it was appropriate to make the 2006-2008 performance targets incrementally harder to achieve than those under prior grants to reflect the companys emergence from a challenging period of recovery that began in 2003. While the committee believes the 2006-2008 targets are achievable, the targets are premised on the company meaningfully growing both net income and cumulative total cash flow during the three-year performance period.
The value of the units granted for the 2006-2008 performance period (assuming payout at $100 per unit) represents approximately 63% of the value of total long-term compensation awarded to the named executive officers in 2006. Included in the grants for the 2006-2008 performance period were grants of 46,000, 11,000, 10,100, 7,700 and 5,700 units to Messrs. Keegan, Kramer, Rich, Harvie and Gingo, respectively. Payment on each unit may range between $0 and $200 depending upon the attainment of the performance criteria described above. The number of units granted for the 2006-2008 performance period is less than the number of units granted for the 2005-2007 performance period, in part due to the shift from cash-based long-term compensation to more equity-based long-term compensation, as discussed above. It is expected that an increasing portion of overall compensation previously represented by grants under the Executive Performance Plan will be replaced going forward by grants of performance shares under the Performance Plans, reflecting a trend in the mix of our overall compensation to executives over the past two years as the market value of our common stock has risen and made stock-based compensation a more viable alternative than in prior years.
29
Payouts for the 2004-2006 Performance Period
In February 2007, the Compensation Committee approved payouts in respect of awards granted for the 2004-2006 performance period. The table below shows the performance goals and corresponding payout amounts (per unit) for awards granted for the 2004-2006 performance period.
| Payout per Unit | ||||||||||||||||
| $0-$99(1) | $100 | $150 | $200 | |||||||||||||
|
Performance Measure |
||||||||||||||||
|
(2004-2006): |
||||||||||||||||
|
Cumulative net income |
$ | <(333)million | $ | (333)million | $93 million | $ | 307 million | |||||||||
|
% of target |
100 | % | 128 | % | 192 | % | ||||||||||
|
Cumulative total cash flow |
$ | <(158)million | $ | (158)million | $242 million | $ | 442 million | |||||||||
|
% of target |
100 | % | 253 | % | 380 | % | ||||||||||
(1) Payouts at less than the target level are made at the discretion of the CEO, with the approval of the Compensation Committee.
The Executive Performance Plan permits the Committee to make adjustments to actual company results for the performance measures for extraordinary items and other relevant factors. Over the three-year performance period for the grants shown above, such items include the USW strike and restructuring charges. The table below shows actual and adjusted results with respect to the performance measures over the 2004-2006 performance period.
|
Performance (as % |
||||||||||||||||
| Target | Actual Results | Adjusted Results | of target) | |||||||||||||
|
Performance Measure |
||||||||||||||||
|
(2004-2006): |
||||||||||||||||
|
Cumulative net income |
$ | (333)million | $13 million | $854 million | >200 | % | ||||||||||
|
Cumulative total cash flow |
(158)million | 2,353 million | 2,509 million | >200 | % | |||||||||||
Based on the adjusted results over the 2004-2006 performance period, the Compensation Committee approved payout of the Executive Performance Plan awards for such period in an amount equal to 200% of the target amount per unit.
As previously noted, some of the grants made in 2004 carried guaranteed minimum payouts of either $25 or $50 per unit. During the performance period of these grants, Goodyear faced a number of substantial challenges facing the tire industry generally, such as increasing competition from low-cost manufacturers, manufacturing overcapacity and rising raw material prices. Goodyear was also faced with several company-specific challenges, such as a significant negotiation with the United Steelworkers on the terms of a new master labor agreement, the implementation of a capital structure improvement plan, and the need to implement significant cost reductions. In the face of these challenges, the targets established for the 2004 grants were considered stretch targets, the achievement of which would mean the company was on its way to financial recovery and poised for future growth. Goodyears performance during the period reflects the substantial progress made on its cost reduction and other strategic initiatives, its turnaround plan for its North American Tire business as well as the exemplary performance of its international business units, many of which consistently achieved record results in sales and segment operating income. This performance resulted in cumulative net income and cash flow significantly in excess of the targets established in early 2004.
The table below shows payout amounts for each of the named executive officers in respect of their grants under the Executive Performance Plan for the performance period 2004-2006:
|
Target Payout as a |
Payout Range as a % |
Target Award |
Maximum Award |
Actual Award |
Actual Award as a % |
|||||||||||||||||||
|
Name |
% of Salary | of Salary | ($) | ($) | ($) | of Salary | ||||||||||||||||||
|
Keegan |
348 | % | 0% 696% | $ | 4,000,000 | $ | 8,000,000 | $ | 8,000,000 | 696 | % | |||||||||||||
|
Kramer |
188 | % | 0% 376% | 1,000,000 | 2,000,000 | 2,000,000 | 376 | % | ||||||||||||||||
|
Rich |
220 | % | 0% 440% | 1,000,000 | 2,000,000 | 2,000,000 | 440 | % | ||||||||||||||||
|
Harvie |
175 | % | 0% 350% | 800,000 | 1,600,000 | 1,600,000 | 350 | % | ||||||||||||||||
|
Gingo |
155 | % | 0% 310% | 600,000 | 1,200,000 | 1,200,000 | 310 | % | ||||||||||||||||
30
Compensation under the Executive Performance Plan is subject to Section 162(m) of the Code. In reviewing and considering payouts under the Executive Performance Plan for the 2004-2006 performance period, the Compensation Committee considered not only the impact of the lost tax deductions associated with such payouts, but also the significant tax loss carryforwards available to us from prior periods, as well as the benefits realized by our company and our stockholders from the successful efforts of our senior management team in leading the turnaround effort over the past several years. In balancing these considerations, the Compensation Committee concluded that it would be appropriate to approve payouts in respect of the grants for the 2004-2006 performance period, notwithstanding the loss of the associated tax deduction.
2006 Performance Share Grants
In February 2006, the Compensation Committee awarded an aggregate of 1,083,800 performance shares under the Performance Plans. The vesting period for these shares is 2006-2008 and the performance criteria over this period are cumulative net income and cumulative total cash flow, net of debt, each weighted equally. The aggregate value of the performance shares granted to the named executive officers in 2006 (measured at grant date fair value) was $714,932. This represented approximately 6% of total long-term compensation awarded to the named executive officers in 2006, which represented the 75th percentile of the market. In February 2006, target grants of 15,000, 9,750, 6,800, 5,550 and 3,800 performance shares were made to Messrs. Keegan, Kramer, Rich, Harvie and Gingo, respectively, having the terms described above.
2006 Stock Option Grants
During 2006, the only stock option grants to named executive officers were reload grants made to Mr. Gingo and Mr. Rich. See Note 4 to the Grants of Plan-Based Awards table above. All options granted to named executive officers during 2006 were non-qualified stock options. Each unexercised stock option terminates automatically if the optionee ceases to be an employee of Goodyear or one of its subsidiaries for any reason, except that (a) upon retirement or disability of the optionee more than six months after the grant date, the stock option will become immediately exercisable and remain exercisable until its expiration date, and (b) in the event of the death of the optionee more than six months after the grant thereof, each stock option will become exercisable and remain exercisable for up to three years after the date of death of the optionee.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information about outstanding equity awards held by the named executive officers as of December 31, 2006.
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