| SEC Filing Excerpt
For complete filing click here |
KRONOS INCORPORATED
297 Billerica Road
Chelmsford, Massachusetts 01824
NOTICE OF 2007 ANNUAL MEETING OF STOCKHOLDERS
February 16, 2007
Dear Stockholder:
The annual meeting of stockholders of Kronos Incorporated will be held at 10:00 a.m. on Friday, February 16, 2007, at our corporate headquarters located at 297 Billerica Road, Chelmsford, Massachusetts 01824. The purpose of the annual meeting is to:
1. Elect three class III directors to hold office for the next three years.
2. Approve an amendment to our 2002 stock incentive plan, as amended and restated, to allow for the granting of restricted stock unit awards to non-employee directors in amounts equal to the number of stock options that may be granted to such non-employee directors under such plan.
3. Approve an amendment to our 2003 employee stock purchase plan, as amended, to increase the number of shares of common stock available for issuance thereunder from 1,125,000 to 2,125,000 shares.
4. Ratify the selection of Ernst & Young LLP as our independent registered public accounting firm for the 2007 fiscal year.
Only stockholders of record at the close of business on December 19, 2006 will be entitled to vote at the annual meeting and any and all adjourned sessions thereof. Our stock transfer books will remain open.
To ensure that your vote is recorded promptly, please vote as soon as possible. Most stockholders have three options for submitting their vote. If you are a stockholder of record, you may vote by telephone if you reside in the United States, Canada or the U.S. territories, via the Internet (see the instructions on the proxy card), or by completing, signing and mailing the proxy card in the enclosed postage-paid envelope. If you have Internet access, we encourage you to record your vote on the Internet. It is convenient and it saves Kronos significant postage and processing costs. If your shares are held in street name, that is held for your account by a broker or other nominee, you will receive instructions from the holder of record that you must follow for your shares to be voted.
By Order of the Board of Directors,
PAUL A. LACY
Secretary
Chelmsford, Massachusetts
January 19, 2007
| SEC Filing Excerpt
For complete filing click here |
COMPENSATION DISCUSSION AND ANALYSIS
Philosophy
All of our compensation programs are designed to attract and retain key employees, motivating them to achieve and rewarding them for superior performance. Different programs are geared to short and longer-term performance with the goal of increasing stockholder value over the long term. Executive compensation programs impact all employees by setting general levels of compensation and helping to create an environment of goals, rewards and expectations. Because we believe the performance of every employee is important to our success, we are mindful of the effect of executive compensation and incentive programs on all of our employees.
We believe that the compensation of our executives should reflect their success as a management team, rather than individuals, in attaining key operating objectives, such as growth of sales, growth of operating earnings and earnings per share and growth or maintenance of market share and long-term competitive advantage, and ultimately, in attaining an increased market price for our stock. We believe that the performance of the executives in managing our company, considered in light of general economic and specific company, industry and competitive conditions, should be the basis for determining their overall compensation. We also believe that their compensation should not be based on the short-term performance of our stock, whether favorable or unfavorable, but rather that the price of our stock will, in the long-term, reflect our operating performance, and ultimately, the management of the company by our executives. We seek to have the long-term performance of our stock reflected in executive compensation through our stock option and other equity incentive programs.
Overview of Compensation and Process
Elements of compensation for our executives include: salary, bonus, stock incentive awards, health, disability and life insurance, and perquisites. Base salaries are set for our executive officers at the regularly scheduled fall meeting of our compensation committee. At this meeting, our compensation committee also approves and adopts the management incentive plan for the new fiscal year and typically grants stock awards to all of our executive officers and certain other eligible employees.
At the beginning of each fiscal year, it has been the practice of our compensation committee to review the history of all the elements of each executive officers total compensation over each of the past five years and compare the compensation of the executive officers with that of the executive officers in an appropriate market comparison group. Typically, the chief executive officer makes compensation recommendations to the compensation committee with respect to the executive officers who report to him. Such executive officers are not present at the time of these deliberations. The executive chairman then makes compensation recommendations to the compensation committee with respect to the chief executive officer, who is absent from that meeting. The compensation committee may accept or adjust such recommendations and also makes the sole determination of the executive chairmans compensation.
We choose to pay each element of compensation in order to attract and retain the necessary executive talent, reward annual performance and provide incentive for their balanced focus on long-term strategic goals as well as short-term performance. The amount of each element of compensation is determined by or under the direction of our compensation committee, which uses the following factors to determine the amount of salary and other benefits to pay each executive:
| performance against corporate and individual objectives for the previous year; |
| difficulty of achieving desired results in the coming year; |
| value of their unique skills and capabilities to support long-term performance of the company; |
| performance of their general management responsibilities; and |
| contribution as a member of the executive management team. |
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These elements fit into our overall compensation objectives by helping to secure the future potential of our operations, facilitating our entry into new markets, providing proper compliance and regulatory guidance, and helping to create a cohesive team.
Our policy for allocating between long-term and currently paid compensation is to ensure adequate base compensation to attract and retain personnel, while providing incentives to maximize long-term value for our company and our stockholders. Likewise, we provide cash compensation in the form of base salary to meet competitive salary norms and reward good performance on an annual basis and in the form of bonus compensation to reward superior performance against specific short-term goals. We provide non-cash compensation to reward superior performance against specific objectives and long-term strategic goals. Our compensation package for fiscal 2006 ranges from 31% to 39% in cash compensation and 61% to 69% in non-cash compensation, including benefits and equity-related awards, with the exception of the package held by our chief financial officer who was elected to that position in May, 2006. We believe that this formula is competitive within the marketplace and appropriate to fulfill our stated policies.
The following items of corporate performance are taken into account in setting compensation policies:
| corporate earnings per our financial plan; |
| customer satisfaction; and |
| achievement of our strategic objectives. |
Section 162(m) of the Internal Revenue Code of 1986, as amended, or the code, generally disallows a tax deduction to public companies for compensation in excess of $1 million paid to the corporations chief executive officer and four other most highly paid executive officers. Qualifying performance-based compensation will not be subject to the deduction limitation if certain requirements are met. We periodically review the potential consequences of Section 162(m) and may structure the performance-based portion of our executive compensation to comply with certain exemptions in Section 162(m). However, we reserve the right to use our judgment to authorize compensation payments that do not comply with the exemptions in Section 162(m) when we believe that such payments are appropriate and in the best interests of the stockholders, after taking into consideration changing business conditions or the officers performance.
Compensation Consultant
Because of discussions surrounding succession planning within our management group, our compensation committee decided to engage the services of a compensation consultant to advise them with respect to the compensation packages of the newly formulated management group.
In September 2005, our compensation committee solicited proposals from three separate compensation consultants and retained the services of Pearl Meyer, who had not before and has not since conducted any business directly with our company. Pearl Meyer was charged, among other things, with conducting a competitive assessment of our executive compensation. In addition to talking to members of our compensation committee, they also contacted certain of our executive officers and other employees in our human resources and legal department to obtain historical data and insight into previous compensation practices. In preparing its analysis, Pearl Meyer utilized two groups of peer companies: their recommended peer group consisting of firms comparable in size and industry to ours; and a peer group, that our company has typically used, consisting of geographically similar technology firms to ours. Their recommendations with respect to base salary, bonus and equity incentive compensation, however, were based on their recommended peer group because the firms included in that group were more similar in size to ours and were more consistent in industry focus. Our compensation committee took their recommendations into consideration when setting base salaries for fiscal 2006 and used them as a basis to making changes to the bonus and equity components of executive compensation for fiscal 2007.
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|
Name and Principal Position |
Year |
Salary ($) |
Bonus ($)(1)(2) |
Stock Awards ($) |
Option Awards ($)(3) |
Non-Equity Incentive Plan Compensation ($) |
Change in
Value and |
All Other Compensation ($)(4) |
Total ($) |
||||||||||||||
|
Aron J. Ain, CEO |
2006 | $ | 480,000 | 96,000 | $ | 873,671 | $ | 9,823 | $ | 1,459,494 | |||||||||||||
|
Mark V. Julien, CFO |
2006 | 203,018 | 31,875 | 235,700 | 3,697 | 474,290 | |||||||||||||||||
|
Mark S. Ain, Executive Chairman |
2006 | 425,000 | 85,000 | 1,063,956 | 55,006 | (5) | 1,628,962 | ||||||||||||||||
|
Paul A. Lacy, President |
2006 | 440,000 | 88,000 | 855,858 | 8,810 | 1,392,668 | |||||||||||||||||
|
Joseph R. DeMartino, Sr. V.P., NA Field Operations |
2006 | 300,000 | 60,000 | 664,284 | 6,396 | 1,030,680 | |||||||||||||||||
|
Peter C. George, Sr. V.P., Engineering and CTO |
2006 | 300,000 | 60,000 | 652,721 | 5,960 | 1,018,681 | |||||||||||||||||
| (1) | Represents 20% of each executive officers base salary as provided for under the terms of the 2006 management incentive plan. Refer below for more details. |
| (2) | The bonus earned by Mark V. Julien for fiscal 2006 is prorated between the five-month period of fiscal 2006 during which Mr. Julien served as an executive officer and earned bonus compensation under the management incentive plan and the seven-month period of fiscal 2006 prior to that when Mr. Julien was covered under a different incentive plan. |
| (3) | Refer to Note C, Stock-Based Compensation, in the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K filed on December 13, 2006 for the relevant assumptions used to determine the valuation of our option awards. |
| (4) | Amounts shown include (a) the portion of the health insurance premiums typically paid by an employee but which is paid by us on behalf of our executive officers; (b) the cost of the annual sales incentive trip; and (c) the matching contributions made to the 401(k) savings plan on behalf of the named executive officers. |
| (5) | Includes $47,591 for estate and tax planning services paid by us on behalf of Mark S. Ain, our executive chairman. |
Base Salary
It is the goal of our compensation committee to establish salary compensation for our executive officers based on our companys operating performance relative to comparable peer companies over a three to five year period. In setting base salaries for fiscal 2006, we reviewed Pearl Meyers recommendations with respect to the salary compensation of officers with comparable qualifications, experience and responsibilities at companies in their recommended peer group. It is not our policy to pay our chief executive officer at the highest level relative to his peers but rather to set his compensation on a basis relative to the other members of our senior management team. We believe that this gives us the opportunity to attract and retain talented managerial employees both at the senior executive level and below.
Bonus
The management incentive plan is designed to reward our executives for the achievement of shorter-term financial goals, principally increases in pre-tax income. It is our general philosophy that management be rewarded for their performance as a team in the attainment of these goals, rather than individually. We believe that this is important to aligning our executive officers and promoting teamwork among them. Hence, unlike most companies in Pearl Meyers study who have different bonus percentages for different executive levels, we decided to continue our practice of maintaining the bonus percentages for all our executive officers at the same level. Although each executive officer is eligible to receive an award under the plan, the granting of the awards to any individual or the officers as a group is entirely at the discretion of our committee. The compensation
17
committee may choose to award the bonus or not, and decide on the actual level of the award in light of all relevant factors after completion of the fiscal year.
At the beginning of fiscal 2006, our compensation committee adopted the 2006 management incentive plan. Under the terms of the 2006 management incentive plan, the bonus payable to each executive officer ranged from 20% of each officers base salary if we achieved 89.7% of our non-GAAP pre-tax income as set forth in our financial plan for fiscal 2006 to 80% of each executive officers base salary if we achieved 110% of our non-GAAP pre-tax income as set forth in our financial plan for fiscal 2006. The target bonus amount for each executive officer was established at 40% of each officers fiscal 2006 base salary, which corresponded to our achievement of 100% of our non-GAAP pre-tax income as set forth in our financial plan for fiscal 2006.
Bonuses Awarded
In its discretion our compensation committee decided to award bonuses for fiscal 2006 based solely upon our achievement of non-GAAP pre-tax income performance goals as established in the 2006 management incentive plan, which was previously approved by the compensation committee on November 15, 2005. At our actual achievement level of 91.5% of non-GAAP pre-tax income, each executive officer, with the exception of Mr. Julien, was awarded a bonus equal to 20% of his base salary. The bonus awarded to Mr. Julien, who became an executive officer on May 1, 2006, was pro-rated for that period. In addition, Mr. Julien earned a prorated bonus from the incentive plan in which he participated prior to becoming an executive officer.
Stock Option and Equity Incentive Programs
We intend that our stock award program is the primary vehicle for offering long-term incentives and rewarding our executive officers and key employees. We also regard our stock award program as a key retention tool. This is a very important factor in our determination of the type of award to grant and the number of underlying shares that are granted in connection with that award. Because of the direct relationship between the value of an option and the market price of our common stock, we have always believed that granting stock options is the best method of motivating the executive officers to manage our company in a manner that is consistent with the interests of our company and our stockholders. However, because of the evolution of regulatory, tax and accounting treatment of equity incentive programs and because it is important to us to retain our executive officers and key employees, we realize that it is important that we utilize other forms of equity awards as and when we may deem necessary. In fiscal 2006, we granted restricted stock units to certain eligible employees as we believed that this was a more efficient way to reward them for and motivate them toward superior performance. The compensation committee has decided to extend this practice to all employees including the executive officers in fiscal 2007.
Stock Awards Granted
We grant stock awards to our executive officers and key employees based upon prior performance, the importance of retaining their services and the potential for their performance to help us attain our long-term goals. However, there is no set formula for the granting of awards to individual executives or employees. In each of the past three fiscal years, we have granted on average awards, primarily stock options, to purchase 3.5% of the outstanding shares of our common stock on a fully-diluted basis. Of this amount, less than one quarter has been granted to the named executive officers, and the balance has been granted to other officers, non-employee directors and key employees. During fiscal year 2006, a total of 498 employees and 6 non-employee directors received stock awards to purchase an aggregate of 3.3% of the outstanding shares of our common stock, including the six named executive officers, who received stock options to acquire an aggregate of 270,000 shares or 25.4% of the total options granted in fiscal 2006.
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Timing of Grants
Stock awards to our executive officers and other key employees are typically granted annually in conjunction with the review of the individual performance of our executive officers. This review takes place at the regularly scheduled meeting of the compensation committee, which is held in conjunction with the quarterly meeting of our board in November. Because of discussions surrounding the granting of restricted stock units as opposed to stock options to certain of our employees and because of our practice of awarding grants to all recipients on the same date, the fiscal 2006 awards were delayed and not granted until the beginning of December, 2005. It is our compensation committees intention to return to the practice of granting annual awards at the time of the compensation committees November meeting. Stock awards are granted to our non-employee directors on the date of our annual meeting of stockholders, in accordance with the terms of our 2002 plan. Grants to newly hired employees are effective on the employees first day of employment, and to facilitate this practice, the board has authorized the chair of the compensation committee and the executive chairman of the board to grant individual stock awards, up the equivalent of 10,000 stock options, to non-executive employees between scheduled meetings of the compensation committee. The exercise price of all stock options is set at the prior days closing price of our common stock on NASDAQ.
Stock Ownership Guidelines
In October 2003, our board approved stock ownership and retention criteria. Under these guidelines, all of our executive officers and members of the board are required to purchase a minimum of $100,000 worth of our stock, valued at the time of purchase, and to maintain this minimum amount throughout their tenure as an executive officer or as a member of the board. New executive officers and new board members have three years to purchase this minimum amount at the rate of at least one-third per year.
Perquisites
We limit the perquisites that we make available to our executive officers, particularly in light of recent developments with respect to corporate crime and abuse involving perquisites. Our executives are entitled to few benefits that are not otherwise available to all of our employees. In this regard it should be noted that we do not provide pension arrangements, post-retirement health coverage, or similar benefits for our executives or employees.
The perquisites we provided in fiscal 2006 are as follows. All employees who participated in our 401(k) plan received up to $2,000 in matching funds. All of our named executive officers participated in our 401(k) plan and received matching funds. Each year, we hold a sales incentive trip to reward the top achievers in our sales and service organization. If they so choose, participants may be accompanied by their spouse or a guest. In fiscal 2006, four of our executive officers who led the trip were also accompanied by their spouse, the cost of whose trip we paid for. The tax liability associated with the value of the trip was paid for by our executive officers. Our health and insurance plans are the same for all employees. In general, our employees pay 25% of the health premium due. However, it is our policy to pay the full premium for our executives. In fiscal 2006, we provided estate and tax planning services for Mark S. Ain.
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|
Name |
Grant Date |
Estimated Future Payouts Under Non-Equity Incentive Plan Awards |
Estimated Future Payouts Under Equity Incentive Plan Awards |
All
Other of Stock
or Units |
All
Other (#) |
Exercise
of |
Closing
Price of
on |
Grant Fair Value
of Option (S)(2) |
|||||||||||||||||||
|
Threshold ($) |
Target ($) |
Maximum ($) |
Threshold ($) |
Target ($) |
Maximum ($) |
||||||||||||||||||||||
|
Aron J. Ain, CEO |
12/05/05 | 60,000 | $ | 48.22 | $ | 47.47 | $ | 1,026,000 | |||||||||||||||||||
|
Mark V. Julien, CFO |
12/05/05 | 15,000 | 48.22 | 47.47 | 256,500 | ||||||||||||||||||||||
|
Mark S. Ain, Executive Chairman |
12/05/05 | 50,000 | 48.22 | 47.47 | 855,000 | ||||||||||||||||||||||
|
Paul A. Lacy, President |
12/05/05 | 55,000 | 48.22 | 47.47 | 940,500 | ||||||||||||||||||||||
|
Joseph R. DeMartino, Sr. V.P., NA Field Operations |
12/05/05 | 45,000 | 48.22 | 47.47 | 769,500 | ||||||||||||||||||||||
|
Peter C. George, Sr., V.P., Engineering and CTO |
12/05/05 | 45,000 | 48.22 | 47.47 | 769,500 | ||||||||||||||||||||||
| (1) | The exercise price of the stock option awards is equal to the prior days closing price of the common stock as reported by The NASDAQ Global Select Market. |
| (2) | Refer to Note C, Stock-Based Compensation, in the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K filed on December 13, 2006 for the relevant assumptions used to determine the valuation of our option awards. |
The compensation committee granted non-statutory stock options to the executive officers at a previously scheduled meeting, which was held on December 5, 2005, the same date on which they granted stock awards to our other employees. In keeping with our standard policy and practice, the exercise price of the stock options that were awarded was $48.22 per share, the prior days closing price of our common stock as reported on The NASDAQ Global Select Market. The terms of the options provide for vesting in four equal annual installments commencing one year from the date of grant. The options have a life of 4 1/2 years and expire six months after the vesting is complete.
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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
|
Option Awards |
Stock Awards |
||||||||||||||||||
|
Name |
Number of
Exercisable |
Number of
Unexercisable |
Equity
Incentive
Awards: |
Option
Exercise |
Option
Expiration |
Number of that
Have |
Market that
Have |
Equity
Have Not |
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) |
||||||||||
|
Aron J. Ain, CEO |
15,000 | 15,000 | $ | 16.57 | 04/07/2007 | ||||||||||||||
| 29,250 | 29,250 | 38.81 | 05/21/2008 | ||||||||||||||||
| 12,687 | 38,063 | 48.21 | 05/22/2009 | ||||||||||||||||
| 0 | 60,000 | 48.22 | 06/05/2010 | ||||||||||||||||
|
Mark V. Julien, CFO |
3,750 | 1,875 | 16.57 | 04/07/2007 | |||||||||||||||
| 9,000 | 9,000 | 38.81 | 05/21/2008 | ||||||||||||||||
| 4,150 | 12,450 | 48.21 | 05/22/2009 | ||||||||||||||||
| 0 | 15,000 | 48.22 | 06/05/2010 | ||||||||||||||||
|
Mark S. Ain, Executive Chairman |
0 | 22,500 | 16.57 | 04/07/2007 | |||||||||||||||
| 44,250 | 44,250 | 38.81 | 05/21/2008 | ||||||||||||||||
| 14,000 | 42,000 | 48.21 | 05/22/2009 | ||||||||||||||||
| 0 | 50,000 | 48.22 | 06/05/2010 | ||||||||||||||||
|
Paul A. Lacy, President |
45,000 | 15,000 | 16.57 | 04/07/2007 | |||||||||||||||
| 14,625 | 29,250 | 38.81 | 05/21/2008 | ||||||||||||||||
| 12,687 | 38,063 | 48.21 | 05/22/2009 | ||||||||||||||||
| 0 | 55,000 | 48.22 | 06/05/2010 | ||||||||||||||||
|
Joseph R. DeMartino, Sr. V.P., NA Field Operations |
11,250 | 0 | 25.16 | 12/05/2006 | |||||||||||||||
| 11,250 | 11,250 | 16.57 | 04/07/2007 | ||||||||||||||||
| 21,750 | 21,750 | 38.81 | 05/21/2008 | ||||||||||||||||
| 9,437 | 28,313 | 48.21 | 05/22/2009 | ||||||||||||||||
| 0 | 45,000 | 48.22 | 06/05/2010 | ||||||||||||||||
|
Peter C. George, Sr. V.P., Engineering and CTO |
33,750 | 11,250 | 16.57 | 04/07/2007 | |||||||||||||||
| 21,750 | 21,750 | 38.81 | 05/21/2008 | ||||||||||||||||
| 9,437 | 28,313 | 48.21 | 05/22/2009 | ||||||||||||||||
| 0 | 45,000 | 48.22 | 06/05/2010 | ||||||||||||||||
| (1) | Options become exercisable in four equal annual installments beginning on the first anniversary date of grant |
| (2) | The expiration date of each option occurs 4 1/2 years after the date of grant of each option |
21
OPTIONS EXERCISES AND STOCK VESTED
|
Option Awards |
Stock Awards |
||||||||
|
Name |
Number of Shares Acquired on Exercise (#) |
Value Realized on Exercise ($)(1) |
Number of Shares Acquired on Vesting (#) |
Value Realized on Vesting ($) |
|||||
|
Aron J. Ain, CEO |
16,876 | $ | 395,484 | ||||||