Summary
Dover Corporation (DOV) filed this 8-K on February 19, 2009, detailing proposed amendments to its 2005 Cash and Equity Incentive Plan, which are subject to shareholder approval at the May 7, 2009 annual meeting. The core of the amendments involves introducing 'performance shares' as a new equity award type and expanding the performance criteria for both cash and equity awards. This shift aims to better align executive compensation with company performance, particularly through a greater emphasis on shareholder return and other objective financial metrics.
Key Highlights
- 1Dover Corporation is proposing amendments to its 2005 Cash and Equity Incentive Plan, which requires shareholder approval.
- 2The key amendment introduces 'performance shares' as a new form of equity award, intended to be more performance-driven than previous awards.
- 3Performance criteria for awards are being expanded to include metrics like EBITDA, cash flow, total shareholder return (TSR), and sales, in addition to existing criteria.
- 4Cash performance awards (CP awards) for 2009-2011 will be based on internal total shareholder return (iTSR), a change from previous criteria.
- 5Equity awards granted on February 12, 2009, consist of Stock Appreciation Rights (SSARs) and contingent performance shares (or additional SSARs, depending on shareholder vote outcomes).
- 6Senior executive officers, including Named Executive Officers, received grants of SSARs and contingent performance shares, with a portion tied to the shareholder vote on the plan amendments.
- 7Performance shares awarded will be subject to a three-year performance period (2009-2011) and will pay out based on Dover's Total Shareholder Return (TSR) relative to a peer group of 38 industrial manufacturing companies.
Frequently Asked Questions
The primary changes involve introducing 'performance shares' as a new type of equity award and broadening the performance metrics used for both cash and equity incentive awards. This aims to more closely link executive pay to company and business unit performance, with a notable increase in the focus on shareholder returns.
Performance shares are equity awards that vest only if pre-established performance targets are met over a specified period (at least three years). Unlike Stock Appreciation Rights (SSARs), which are likely to have value over their term, the value of performance shares is directly tied to achieving specific performance goals. The Compensation Committee views performance shares as more performance-based and potentially more valuable, with up to twice the target number of shares potentially being earned.
For the 2009-2011 performance period, Cash Performance (CP) awards will be based on the internal Total Shareholder Return (iTSR) of the relevant business unit, if shareholders approve the plan amendments. iTSR is defined using a formula that incorporates changes in EBITDA and free cash flow relative to a starting entity value.
Shareholder approval is critical for the proposed amendments to the 2005 Cash and Equity Incentive Plan to take effect. Specifically, the introduction of performance shares and certain performance targets are contingent on this approval. If shareholders do not approve the amendments, the plan will continue under its existing terms, and certain granted awards may become void while others take effect.