Role of the Compensation Committee Recent trends in board practices and director compensation

1. Role of the Compensation Committee Recent trends in board practices and director compensation Rosina Dixon and Pearl Meyer NACD New York Chapter March 12, 2003

2. The Compensation Committee Also known as: • The Compensation and Organization Committee • The Management Development and Compensation Committee

3. Compensation CommitteeNew Requirements • Sarbanes-Oxely Legislation – does not address the Compensation Committee • NYSE Listing Requirements • All members must be independent directors. • The Committee must have a charter. • The Committee must conduct an annual performance evaluation. • NASDAQ – All members must be independent.

4. Compensation CommitteeBest Practices • Composition • Responsibilities • Sample Calendar • Charter Outline

5. Compensation Committee - Composition • At least 3 members and no more than 5 • All independent • Experience in general management, law, finance and knowledge of the company should be represented • Recommended by the Nominating Committee and approved by the Board

6. Independence • Sarbanes – Oxely Legislation • No compensation other that as a director • No affiliation • New York SE Listing Standards • Board must affirmatively determine no material relationship • 5-year cooling-off period for former employees of the company or its auditor; members of interlocking compensation committees; family

7. Independence - continued • NASDAQ • No significant shareholders • No relatives of executives • No former partners or employees of the auditor • No executives of charities receiving >$200,000 or 5% of gross revenues • 3-year cooling-off period for interlocking compensation committees, recipients of >$60,000, employment/partnership in auditor, family

8. Compensation Committee Responsibilities • Determine compensation policy • Annual review of CEO’s goals and performance versus goals • CEO compensation including salary, incentive and equity based awards • Compensation for elected officers and directors • Overall evaluation process and compensation structure – oversight of management’s decisions • Use of consultants • Reports to Board • Reports to Shareholders in the annual proxy statement • Annual performance evaluation • Charter

9. Compensation Committee Calendar • First quarter • Review CEO and corporate performance versus goals • Recommend annual incentive compensation • Review CEO and corporate goals for the coming year • Second quarter • Review salary structure and CEO salary • Review long term incentive and equity based compensation • Annual report to shareholders • Third quarter • Review performance of corporate benefit plans

10. Compensation Committee Calendar continued • Fourth quarter • Review performance of committee • Review compensation philosophy and charter • Review estimates of annual incentive payouts • Ad Hoc • Review compensation for new hires • Significant changes to underlying assumptions may lead to reconsideration of existing compensation

11. Charter Outline • Purpose • Membership • Compensation philosophy • Committee responsibilities and duties • Review goals and objectives relevant to CEO performance • CEO compensation • Elected officer and director compensation • Overall compensation structure • Report to Board and to shareholders • Subcommittees • Consultants • Annual evaluation • Charter

12. Director Compensation • Director compensation should motivate directors and align their interests to those of the shareholders • Timing of changes to director compensation • Annual at time of board evaluation • When recruiting new board members • When level of board activity changes • Other – e.g. change in value of option package