| COMPENSATION DISCUSSION AND ANALYSIS |
Executive Summary [top]
The following provides an overview of our compensation philosophy and programs as detailed in the “Compensation Discussion and Analysis.”
- The Dow Chemical Company (“Dow” or the “Company”) believes in pay-for-performance, which is why over 80% of the compensation of our Named Executive Officers (“NEOs”) is linked to a combination of personal and Company goals and stock price performance.
- The following elements comprise the total compensation awarded to our NEOs: base salary, cash-based short-term incentive award (“Performance Award”), and equity‑based long-term incentive (“LTI”) awards consisting of Performance Shares, Stock Options, and Deferred Stock.
- LTI awards are used to align executive actions with long-term management and stockholder goals, providing rewards consistent with the creation of stockholder value. They also help retain executives over time and help executives meet their stock ownership guidelines.
- We target all elements of our compensation programs to provide compensation opportunity at the median of our peer group. Actual payouts under these programs can be above or below the median based on Company and personal performance.
- Our annual Performance Award is linked directly to short-term Company goals and performance, in line with our “pay-for-performance” philosophy.
- Our executives participate in the same group benefit programs, on substantially the same terms as other salaried employees.
- Our executives are allowed limited perquisites, such as financial planning services and executive physical examinations, which are granted to facilitate strong, focused performance on their jobs.
- Our compensation programs are designed to attract, motivate, reward, and retain the most talented executives.
- The NEOs who appear in the compensation tables of this 2008 Proxy Statement are:
- Andrew N. Liveris, President, Chief Executive Officer (“CEO”) and Chairman
- Geoffery E. Merszei, Executive Vice President and Chief Financial Officer (“CFO”)
- Michael R. Gambrell, Executive Vice President, Basic Plastics and Chemicals, Manufacturing and Engineering
- William F. Banholzer, Executive Vice President and Chief Technology Officer
- David E. Kepler, Executive Vice President, Chief Sustainability Officer, Chief Information Officer, and Corporate Director of Shared Services
- Andrew N. Liveris, President, Chief Executive Officer (“CEO”) and Chairman
Introduction [top]
With annual sales of $54 billion and 46,000 employees worldwide, Dow is a diversified chemical company that combines the power of science and technology with the “Human Element” to constantly improve what is essential to human progress. The Company delivers a broad range of products and services to customers in around 160 countries, connecting chemistry and innovation with the principles of sustainability to help provide everything from fresh water, food and pharmaceuticals to paints, packaging and personal care products.
One of the fundamental components of our success in this competitive industry is the Human Element. At Dow, we understand the value of people and know that without our valued employees, we would not be the leading chemical company in the world today. In order to maintain the competitive advantage our employees give us, we must be able to attract, motivate, reward, and retain individuals who can successfully lead and contribute to our Company. Having responsible and competitive compensation programs help ensures we are able to do this.
Compensation Objectives [top]
The compensation programs at Dow are designed to support the realization of Dow’s vision of being the largest, most profitable and most respected chemical company in the world, while promoting the interests of our stockholders and other stakeholders. These principles have enabled the Company to deliver strong stockholder value over time, and have helped the Company develop and retain top talent.
The objectives of Dow’s compensation programs are:
- Attract, motivate, reward, and retain the most talented people by providing competitive total compensation.
- Motivate and reward employees for the achievement of Dow’s measures of success:
- Stockholder return, as measured by stock price appreciation plus dividends on a reinvested basis.
- Company financial performance.
- Individual performance on specific financial and operational measures.
- Stockholder return, as measured by stock price appreciation plus dividends on a reinvested basis.
Additionally, the following principles apply to the design and implementation of our executive compensation practices:
- Drive Company results. The program emphasizes variable, at-risk incentive award opportunities which are payable only if specified goals are achieved and/or Dow’s stock price appreciates. The largest part of NEO compensation is focused on long-term performance based on Dow’s return to stockholders. These at-risk incentives represent at least 80% of the NEOs direct compensation.
- Be cost effective and aligned with stockholder value creation. Incentive awards are earned only if specified financial goals are achieved and when Dow’s stock price appreciates. Higher compensation is paid when goals are exceeded and reduced compensation is paid when goals are not met.
- Emphasize stock ownership. Long-term incentive awards are delivered as equity‑based awards to senior executives. These executives are required to maintain a minimum level of stock ownership to encourage managing from an owner’s perspective and to better align their financial interests with those of Dow stockholders. NEOs are expected to own Dow securities with a value equal to between four and six times their annual base salary. For further information, please refer to the Executive Stock Ownership Guidelines section.
The Role of the Compensation Committee [top]
The Compensation Committee (the “Committee”) of the Board of Directors, which is comprised entirely of independent Directors, is responsible for ensuring the Company’s executive compensation policies and programs are competitive within the markets in which Dow competes for talent and reflect the long-term investment interests of our stockholders. The Committee reviews and approves the compensation design, compensation levels and benefits programs for the NEOs and other senior leaders.
With respect to the CEO, the Committee annually reviews and approves the corporate goals and objectives relevant to the CEO’s compensation, evaluates the CEO’s performance against those objectives, and makes recommendations to the Board of Directors regarding the CEO’s compensation level based on that evaluation. The Board of Directors is responsible for approving the CEO’s compensation types and amounts. The CEO makes recommendations to the Committee regarding compensation for the NEOs and other senior executives. The Committee is responsible for approving NEO compensation and has broad discretion when setting compensation types and amounts.
The Compensation Committee has retained an independent compensation consultant from Hewitt Associates. The consultant, Mr. Michael Powers, reports directly to the Committee. He advises the Committee on trends and issues in executive compensation and the reasonableness of the group of companies used for benchmarking (the “Survey Group”). He consults on the competitiveness of the compensation structure and levels of Dow’s executive officers and provides advice and recommendations related to proposed compensation and the design of compensation programs. The Committee has the sole authority to retain and oversee the work of Mr. Powers.
Dow’s Executive Compensation Department provides additional analysis and counsel as requested by the Committee related to:
- Gathering the compensation data of the Survey Group.
- Benchmarking compensation components (base salary, Performance Award, LTI awards) against the Survey Group.
- Making preliminary recommendations of base salary structure, target award levels for the Performance Award, and design and award levels for LTI awards.
You can learn more about the Committee’s purpose, responsibilities, structure and other details by reading the Committee’s charter which can be found in the Corporate Governance section of the Company’s website at www.DowGovernance.com.
Establishing NEO Compensation [top]
Compensation for the NEOs and other executive officers is evaluated and set annually by the Compensation Committee based on the latest available Survey Group and Company performance data. An individual executive’s compensation is established after considering the following factors:
- Median compensation for similar jobs in the market.
- The Company’s performance against financial measures including earnings per share, EBIT (earnings before interest, income taxes and minority interests), total stockholder return, economic profit, cash flow management and cost management discipline.
- The Company’s performance relative to goals approved by the Committee.
- Individual performance versus personal goals and contributions to Company performance.
- Business climate, economic conditions and other factors.
When establishing compensation levels, Company management and the Committee also review summary total compensation tables or “tally sheets” for the NEOs. The tally sheets model all aspects of compensation under various scenarios, such as stock price sensitivity and business performance. The tally sheets present the estimated dollar value of compensation components provided to the NEOs during the most recent fiscal year. They are used as an annual reference point to assist the Committee’s overall understanding of NEO compensation.
After an analysis of these factors and other relevant data, the Committee develops compensation recommendations for the CEO to be considered by the Board of Directors. The CEO develops compensation recommendations for the other NEOs and presents them to the Committee. The Committee sets NEO compensation after considering the recommendations of the CEO, as well as other data. The CEO receives assistance with compensation administration from Dow’s Executive Compensation Department. The Executive Compensation Department has retained the compensation consultant services of Towers Perrin. Towers Perrin provides the following assistance to the Executive Compensation Department:
- Survey Group compensation information for executives and non-employee Directors.
- Benchmarking of key compensation practices and trends in executive compensation.
Market Benchmarking [top]
Dow benchmarks its executive compensation programs, designs, and compensation elements against a Survey Group of 20 companies with which Dow competes for executive talent. Market pay data for the Survey Group is gathered through compensation surveys conducted by Towers Perrin.
Dow targets the median of the Survey Group for all compensation elements in order to increase its ability to attract, motivate, develop and retain top level executive talent.
The Survey Group is periodically evaluated and updated to ensure the companies in the group remain relevant. The 20 companies, which are comparable to Dow in annual revenue (median of $38 billion) and market capitalization (median of $59 billion) as of the latest measurement date in the fourth quarter of 2007, are listed below:
| • 3M Company | • IBM Corporation |
| • Alcoa Inc. | • Johnson & Johnson |
| • The Boeing Company | • Kraft Foods, Inc. |
| • Caterpillar, Inc. | • Monsanto Co. |
| • E. I. du Pont de Nemours and Company | • Motorola, Inc. |
| • Eli Lilly and Company | • PepsiCo, Inc. |
| • Emerson Electric Co. | • Pfizer Inc. |
| • General Electric Co. | • PPG Industries, Inc. |
| • Hewlett‑Packard Company | • The Proctor & Gamble Company |
| • Honeywell International, Inc. | • United Technologies Corporation |
Compensation Elements [top]
The key components of compensation for all NEOs are shown below. The chart outlines the size, in percentage terms, of each element of compensation. The striped sections of the charts reflect the “at-risk,” or performance‑based components of compensation.
NEO Compensation
To focus executives on both the short-term and long-term success of the Company, greater than 80% of NEO compensation is considered at-risk because the value is based upon the achievement of specified results. If specific financial and operational goals are not met, then at-risk compensation will decrease. If goals are exceeded, then at-risk compensation will increase.
Base Salary [top]
Base salary is a fixed portion of compensation based on an individual’s skills, responsibilities, experience and sustained performance. Dow chooses to provide base salary in exchange for the employee’s services. This component is paid on a monthly basis for use in meeting ongoing monthly financial obligations.
Base salaries for executives are benchmarked against similar jobs at other companies and are targeted at the median of the Survey Group. In 2007 there were no material differences between Dow’s executive salary structure and the market. Actual salaries vary by individual and are based on sustained performance toward the achievement of Dow’s strategy and goals.
Changes in base salary for the NEOs, as well as for all Dow salaried employees, depend on projected salary changes in the external market for similar jobs, the individual’s current salary compared to the market, and the employee’s contributions to Dow’s performance.
Performance Award [top]
The Performance Award is an annual cash incentive program. Dow chooses this component of compensation to reward employees for achieving critical Company and individual goals. For 2007, there were three parts to the Performance Award Program consisting of two Company components and an individual component:
- Company components:
- Economic Profit is defined as Net Operating Profit after Tax minus a Capital Charge (Net Operating Profit excludes certain items and the cumulative effect of changes in accounting principles). Capital Charge is defined as total capital multiplied by the planned cost of capital. This element comprises 50% of the Performance Award potential.
- Cost management is a measure of fiscal discipline and responsibility measured against expense budgets. This element comprises 25% of the Performance Award potential.
- Economic Profit is defined as Net Operating Profit after Tax minus a Capital Charge (Net Operating Profit excludes certain items and the cumulative effect of changes in accounting principles). Capital Charge is defined as total capital multiplied by the planned cost of capital. This element comprises 50% of the Performance Award potential.
- Individual component: The achievement of individual goals, as linked to Dow’s strategy. This element comprises 25% of the award potential. Meeting goals would result in a target payout and greatly exceeding goals would result in a payout higher than target. In 2007, the Compensation Committee exercised discretion on the individual component of the Award. NEO goals are established at the beginning of each year and are reviewed and approved by the Committee. Goals for 2007 centered around the Company’s four strategic themes:
- Drive Financial Discipline and Low Cost-to-Serve
- Set the Standard for Sustainability
- Build a People‑Centric Performance Culture
- Invest for Strategic Growth
- Drive Financial Discipline and Low Cost-to-Serve
Individual award opportunities vary by job level and are targeted at the median of the annual bonus practices of the Survey Group. In 2007 there were no material differences between Dow’s Performance Award structure and the market. Actual award payouts are determined each February following completion of the plan year. Actual awards can range from 0% to 225% of the target award opportunity based on performance relative to goals as determined by the Committee. The Company does not assign specific probabilities of achievement to the target award levels. Over the length of an industry cycle the expectation is that, on average, incentive payouts would be close to target. The potential award payouts under the 2007 Performance Award Program are shown in the Grants of Plan-Based Awards table. Actual payouts to the NEOs are shown in the Summary Compensation table in the column labeled “Non-Equity Incentive Plan Compensation.”
The Committee determined that the Company component of the Performance Award would not be paid to any employee in the event the Company fails to report annual earnings greater than or equal to the sum of the dividends declared for the year. For the NEOs, an additional minimum performance goal of $700 million of net income, as defined in the 1994 Executive Performance Plan, had to be met in order for any payout to occur. This latter requirement is part of Dow’s strategy for complying with U.S. Internal Revenue Code Section 162(m) (see Tax Deductibility of Executive Compensation section for additional information).
In addition to the annual Performance Award, a special award was given to all salaried employees in March 2007 as recognition for outstanding efforts in achieving consecutive years of sustained earnings performance. The special award amount was calculated for all employees as the greater of 25% of monthly base salary or 10% of the target Performance Award. Actual payouts to the NEOs are shown in the Summary Compensation Table in the column labeled “Bonus.”
Long-Term Incentive Awards [top]
Each year the Company grants equity‑based LTI awards to leaders and other key employees who demonstrate high performance, as measured by management performance assessments. Dow chooses this component of compensation to motivate and reward employees for long-term stockholder value creation. It is also intended to help retain talented executives.
As with Dow’s approach for all elements of compensation, LTI awards are targeted to be competitive with the market median of the Survey Group for comparable positions. The size of the grant received by each NEO depends upon his or her job level and performance.
The three components that make up an LTI award are:
- Stock Options: 50% of the total LTI value granted
- Deferred Stock: 25% of the total LTI value granted
- Performance Shares: 25% of the total LTI value granted
LTI grants are approved by the Committee and administered by Dow’s Executive Compensation Department. The annual grant date for all employees is traditionally the Friday following the Committee’s February meeting – held on the second Wednesday of February each year. The 2007 grant date was February 16, 2007.
LTI awards are granted under The Dow Chemical Company 1988 Award and Option Plan, Dow’s omnibus stockholder‑approved plan for equity awards to employees. Dow calculates the accounting cost of equity‑based long-term incentive awards under revised Statement of Financial Accounting Standards No. 123 (“SFAS 123R”), Share‑Based Payment. As such, the grant date accounting fair value, which is fixed at the date of the grant, is expensed over the vesting period. Consistent with the U.S. Securities and Exchange Commission regulations, the 2007 compensation expense associated with any outstanding equity grants for the NEOs is presented in the Summary Compensation Table. Total outstanding unexercised or unvested LTI grants are shown in the Outstanding Equity Awards at Fiscal Year-End table. Each award type is discussed below:
Stock Options [top]
Stock Options are granted in order to provide incentive for long-term creation of stockholder value. Stock Options only have value to the extent the price of Dow Common Stock appreciates relative to the exercise price. The exercise price equals the closing price on the date of grant. Options vest in three equal annual installments and expire after 10 years. The Company does not grant discounted options, backdate options, or re-price outstanding options.
Deferred Stock [top]
Deferred Stock is granted in order to help the Company retain its NEOs and other key employees. Deferred Stock grants vest after three years. During the vesting period, holders of outstanding Deferred Stock grants receive quarterly payments equal to the dividend paid on equivalent shares of Dow Common Stock.
Performance Shares [top]
Performance Shares are granted to motivate employees and to reward the achievement of specified financial goals. Performance Shares are Deferred Stock which is earned only if the Company’s performance over a three-year period exceeds pre-established goals. The 2007 Performance Shares can be earned based on Dow’s 2007-2009 Return on Capital (“ROC”) relative to pre-established goals and can range from 0% to 250% of the target award amount. ROC measures how effectively a company has utilized the money invested in its operations and is calculated as Net Operating Profit after Tax (Net Operating Profit excludes certain items and the cumulative effect of changes in accounting principles) divided by total average capital.
To achieve a target payout, Dow’s ROC must equal or exceed pre-established ROC goals for the same period. Dow’s Performance Share ROC target is 10% across the industry cycle, which would produce a target payout of 100%.
Performance Shares accrue amounts equal to the dividend paid on equivalent shares of Dow Common Stock. The dividend equivalents are paid at the time the shares are delivered. All Performance Shares earned are delivered in the year following the performance period. Instead of receiving the Performance Share Award in the form of Dow Common Stock, the NEOs and certain other participants may elect to receive a cash payment equal to the value of the stock award on the date of delivery. Participants may only make this cash election if they meet or exceed the Executive Stock Ownership guideline for their job level.
Benefits [top]
The Company provides a comprehensive set of benefits to most employees. These include medical, dental, life, disability, accident, retiree medical and life, pension, and savings plans. The NEOs are eligible to participate in the same plans as most other salaried employees. In addition, because highly compensated employees are subject to U.S. tax limitations on contributions to some retirement plans, the Company has created non-qualified retirement programs intended to provide these employees with the same benefits they would have received under the qualified plans without the tax limits. The NEOs are eligible to participate in the same non-qualified retirement plans as all other highly compensated salaried employees.
Perquisites [top]
As part of a comprehensive executive compensation program, the Company provides the NEOs and other selected executives the following perquisites:
- Company car.
- Financial planning support (the greater of 3% of annual base salary or $5,000).
- Executive physical examination.
- Personal use of corporate aircraft (the CEO is the only employee permitted to use corporate aircraft for personal use, and is required to do so by the Board of Directors for security and immediate availability reasons).
- Executive Excess Umbrella Liability Insurance.
- Home security alarm system.
The Compensation Committee reviews the perquisites provided to the NEOs annually as part of their overall review of executive compensation. The Committee has determined that the perquisites are within an appropriate range of competitive compensation practices. Details about the NEOs perquisites, including the cost to the Company, are shown in the Summary Compensation Table under the “All Other Compensation” column and the accompanying narrative.
NEO Responsibilities and 2007 Accomplishments [top]
Andrew Liveris: Mr. Liveris serves as President, Chief Executive Officer and Chairman. Mr. Liveris’ compensation for 2007 reflects his contributions to the strong earnings performance of Dow, executing Dow’s strategy, and his strong commitment to improving the public image of the Company through support of the Human Element campaign and the Blue Planet Run, an around-the-world relay to raise awareness and funds to address the issue of one billion plus people without ready access to safe drinking water. The Committee also considered Mr. Liveris’ efforts in implementing key initiatives throughout the Company to improve both efficiency and employee morale, especially in his pursuit of profitable and mutually beneficial joint ventures supporting Dow’s “Asset Light” strategy and market‑facing businesses. Externally, Mr. Liveris participated on the American Chemistry Council, the International Council of Chemistry Associations, and the U.S. Climate Action Partnership, and was named America’s top chemicals/commodity CEO for the second consecutive year in a survey of more than 1,000 investment professionals conducted by Institutional Investor magazine.
Geoffery Merszei: Mr. Merszei serves as Executive Vice President and Chief Financial Officer. He also has geographic oversight responsibility for the European region. Mr. Merszei’s compensation for 2007 reflects his contributions to the financial strength of the Company, through his leadership in driving financial discipline. Also reflected in his compensation for 2007 was his leadership in successfully running Dow’s Business Operating Committee, and his positive leadership in his oversight role for the growing European region.
Michael Gambrell: Mr. Gambrell serves as Executive Vice President, Basic Plastics and Chemicals, Manufacturing and Engineering. He also has geographical oversight responsibility for the India, Middle East, and Africa region. Mr. Gambrell’s compensation for 2007 reflects his contributions to the continued growth and advancement of the Company, particularly his effective assumption of responsibility for the manufacturing and engineering functions and his efforts in implementing and advancing Dow’s “Asset Light” strategy, including numerous joint ventures which are transforming the Company. The Committee also considered Mr. Gambrell’s outside participation in the U.S.‑India Business Council, the World Chlorine Council, and the National Association of Manufacturers.
William Banholzer: Dr. Banholzer serves as Executive Vice President and Chief Technology Officer. Dr. Banholzer’s compensation for 2007 reflects the progress he has made in advancing innovation and creating bottom line impact for Dow. In acknowledgement of this effort, Dow was recognized externally as one of the top ten R&D organizations in the world. Dr. Banholzer has been elected to a three-year term on the governing council of the National Academy of Engineering, making him the only employee in Dow history to be recognized with this distinction.
David Kepler: Mr. Kepler serves as Executive Vice President, Chief Sustainability Officer, Chief Information Officer, and Corporate Director of Shared Services. He also has geographic oversight responsibility for the Canadian region. Mr. Kepler’s compensation for 2007 reflects the advancement of a recognized World‑Class Supply Chain, putting the Company at the forefront of industry with Dow’s sustainability programs such as sustainable energy, world‑class environmental, health, and safety performance, and global water management. Dow and Mr. Kepler’s continued global recognition in leadership in Information Technology, which was recognized by selection into the top 20 on Ziff Davis Media’s “Top 100 CIOs,” and selection into the CIO Hall of Fame, was also an important factor in determining his compensation.
Compensation and Awards made by the Compensation Committee [top]
The Committee approved the following compensation and awards for the NEOs for 2007:
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Base salary amounts presented above differ from the amounts disclosed in the Summary Compensation Table because increases in base salary become effective in March. Therefore, the amounts reported in the Summary Compensation Table reflect two months at the 2006 base salary rate and ten months at the 2007 rate.
The 2007 Performance Award resulted in payouts averaging 134% of the target award opportunity for all employees, including the NEOs. This was calculated under the terms of the plan as described in the Compensation Elements section.
As shown in the following table, the amounts in columns (a) and (c) reflect the value of the actual awards granted in 2007; the amounts in columns (b) and (d) reflect the 2007 expense taken for grants made in 2007, as well as grants made in 2003-2006, which were previously reported and are not fully vested.
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The values for the 2007 actual stock awards and option awards differ from the values disclosed in the Summary Compensation Table due to the fact the Summary Compensation Table was prepared in accordance with U.S. Securities and Exchange Commission regulations issued in December 2006. These rules require the disclosure of the value of the equity award based principally on the treatment of the accounting expense in the income statement of the employer under the applicable accounting rule, SFAS 123R. Accordingly, the amounts shown in the Summary Compensation Table include amortization expense for prior year awards.
Executive Stock Ownership Guidelines [top]
Dow has had minimum stock ownership guidelines for its NEOs and other senior executives since 1998. The guidelines are stated as a fixed number of shares of Dow Common Stock, which increase with job level and are reviewed periodically to ensure relevance. Specific stock ownership requirements vary by job level, but all executives must own shares of stock with a market value of the designated multiple of their base salary. The CEO is required to own stock with a value of six times base salary, while the other NEOs are required to own stock with a value of four times base salary. The executives are given four years to achieve the initial ownership guideline for their job level following promotion to that level. They are given one additional year to achieve compliance with a higher level guideline upon being promoted to that level. For purposes of these guidelines, stock ownership includes Dow Common Stock beneficially owned (including stock owned by immediate family members), Deferred Stock not yet delivered, Performance Shares vested but not yet delivered, and stock held beneficially through the Company’s 401(k) plan.
The following chart shows the stock ownership guidelines and respective holdings of the NEOs.
EXECUTIVE STOCK OWNERSHIP GUIDELINES FOR 2007
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Change-in-Control and Severance Arrangements [top]
In 2007, the Committee adopted a market competitive change-in-control arrangement for its senior executives in order to align the executives’ goals with the Company’s transformational strategy to become an earnings‑growth company. Under this arrangement, an executive must be involuntarily terminated within two years of a change-in-control in order to receive benefits. The Company believes this practice is in the best interest of stockholders as it does not pay any benefits to an executive unless he or she is negatively impacted by a change-in-control event that is in the best interest of Dow stockholders.
If a change-in-control event occurs the following benefits and provisions would apply to eligible executives:
- A severance payment equal to two times the executive’s base salary and target Performance Award (2.99 times for the CEO).
- An additional two years of credited service and age for purposes of calculating retirement benefits (three years for the CEO).
- A financial, tax, and outplacement allowance of $50,000.
- Eighteen months of health and welfare benefits at employee rates.
- Tax gross-up protection in the event severance benefits exceed statutory thresholds and become subject to an excise tax.
- LTI awards in the form of Performance Shares and Deferred Stock will vest and be delivered as soon as possible after the change-in-control event. Stock Options will vest immediately.
A change-in-control event is defined as: (i) the acquisition of 20% or more of the Company’s outstanding voting securities; (ii) changes to the membership of the Board of Directors that result in less than 50% of the current directors being re-elected to the Board; (iii) approval by the stockholders of the Company of the merger or consolidation of the Company with another entity in which the Company is not the surviving company, or where the other entity owns more than 50% of the Company’s outstanding voting securities; or (iv) the complete liquidation of, or the sale of all or substantially all assets of, the Company.
Executive Compensation Recovery Policy [top]
The Committee has adopted an executive compensation recovery policy for executive officers. Under this policy, the Company may recover incentive income that was based on achievement of quantitative performance targets if an executive officer engaged in grossly negligent conduct or intentional misconduct resulting in a financial restatement or in any increase in his or her incentive income. Incentive income includes income related to the annual Performance Award and LTI awards. The Company will also recover any awards made to an executive during the prior three years should the executive engage in activity that competes with, or is otherwise harmful to the Company or its affiliated companies.
Tax Deductibility of Executive Compensation [top]
Section 162(m) of the U.S. Internal Revenue Code generally limits the tax deductibility of compensation paid by a public company to its CEO and certain other highly compensated executive officers to $1 million in the year the compensation becomes taxable to the executive. There is an exception to the limit on deductibility for performance‑based compensation meeting certain requirements. Although the Company does consider the impact of the above rule when making compensation decisions, Dow policy does not require all executive compensation to be tax-deductible. In the interest of flexibility and overall benefit for the Company’s stockholders, the Committee will continue to facilitate the awarding of responsible but adequate executive compensation while taking advantage of Section 162(m) whenever feasible. Amounts paid under the compensation program, including base salary and grants of Deferred Stock (Restricted Stock and Restricted Stock Units), may not qualify as performance‑based compensation excluded from the limitation on deductibility.