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Risk Assessment of Compensation Policies and Practices
We seek to design our compensation policies and practices to reflect a balanced approach
between incentives to achieve short‐term and longer‐term objectives, both of which we believe will help
us achieve sustained growth and success over the long term. While we recognize that the pursuit of our
financial performance objectives and the link between the amount of compensation earned under our
incentive arrangements and achievement of the objectives may lead to employee behavior that
increases certain risks to our company, we believe that we have designed our compensation programs
and policies to mitigate these concerns and help to ensure that our policies and practices are consistent
with our risk profile.
Our Board relies on our Compensation and Human Resources Committee to address significant
risk exposures facing the company with respect to compensation, with appropriate reporting of these
risks to be made to the full Board. The Committee, with the assistance of management and
independent compensation consultants, periodically evaluates our compensation policies and practices
to assess whether the risks arising from these policies and practices are likely to have a material adverse
effect on our company and to assess the effect on these risks of any changes to our enterprise risk
profile. The Committee did not recommend or implement any material changes in 2014 as a result of its
most recent assessment, but has identified or implemented the following measures, among others, that
it believes serve to mitigate any risks arising from our compensation policies and practices:
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We use SVA as the performance measure under our annual cash incentive plans for our
executive officers and certain of our key non‐executive officer employees in part because it
ties rewards for participants to both short‐term and long‐term results that we actually
realize. We believe that SVA is the corporate performance measure that is tied most directly,
both theoretically and empirically, to the creation of long‐term shareholder value. By
focusing on our financial performance as a function of invested capital, our SVA‐based
annual cash incentive plans create incentives for prudent investments in assets that are
capable of providing strong long‐term returns.
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We have capped payouts under our SVA‐based cash incentive plan for our executive officers
at 200% and any cash incentive amounts earned in a year above 100% of the target amount
for the year are paid over time in installments, with one‐third of the above‐target amount
being paid to the participant in cash after the end of each of the following three years, so
long as the NEO has not voluntarily terminated his or her employment with us or has been
terminated for cause. We believe that capping the maximum annual cash incentive and
deferring over three years the payment of any cash incentive amounts earned above the
target cash incentive value serve to limit participants’ incentives to take short‐term or
inappropriately risky measures to increase payouts in any given year.
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Our SAR, RSU and PSU awards under our long‐term incentive compensation arrangements
are subject to five‐ and three‐year vesting or performance periods, respectively, which we
believe fosters employee retention and further helps to mitigate incentives to take short‐
term risks, while encouraging our employees to focus on our sustained growth over the long
term. In addition, we have capped the payouts under the PSU awards at 200% of the target
amount to limit participants’ incentives to take short‐term or inappropriately risky measures
to increase payouts in any given year.