Item 5.02 (e) Compensatory
Arrangements of Certain Officers
On
December 4, 2008 the Compensation and Management Development Committee (the
"Compensation Committee") of the Board of Directors of Eastman Chemical Company
("Eastman" or "the Company") approved Unit Performance Plan ("UPP") performance
measures and goals, specific target objectives with respect to such performance
goals, the method for computing the amount of the UPP award allocated to the
award pool if the performance goals are attained, and the eligibility criteria
for employee participation in the UPP, for the 2009 performance year. The
Compensation Committee also took certain other executive compensation actions
related to the executive changes.
The UPP
is on file with the Securities and Exchange Commission as Exhibit 10.09 to the
Company's Annual Report on Form 10-K for the year ended December 31, 2003, and
is available through the "Investors - SEC Filings" section of the Company's
Internet website (www.eastman.com) and
the SEC's Internet site at http://www.sec.gov.
Unit Performance
Plan
The UPP
is the Company's short-term incentive compensation vehicle for executive
officers and other management-level employees. The UPP is designed to provide an
incentive for superior business and individual performance by determining a
portion of annual cash compensation according to corporate performance and the
attainment of individual objectives and expectations. The amount of target
compensation that is made variable under the UPP ranges from 15% of base pay for
managers to 100% of base pay for the Chief Executive Officer. An award pool is
generated for the Company, equal to the aggregate of the UPP payouts for each
participant at target levels, multiplied by a "performance factor" determined by
corporate performance compared to the pre-set performance goal. The performance
factor can range from 0% if threshold Company performance goals are not met to
200% for specified above-goal corporate performance. The Compensation Committee
may, in its discretion, adjust the award pool to reflect overall corporate
performance and business and financial conditions.
The CEO,
in consultation with executive officers responsible for major organizations,
determines the allocation of the Company award pool to organizations within the
Company based on his assessment of the performance of the organizations relative
to objectives established at the beginning of the performance year. Once each
organization’s award pool is determined, management within each organization (or
in the case of the Chief Executive Officer, the Compensation Committee)
allocates the organization’s portion of the Company award pool for individual
payouts, based upon individual and organizational performance against objectives
and expectations established at the beginning of the performance year. An actual
individual award could exceed an individual’s target award, based on the
manager’s assessment of individual and organizational performance, but the sum
of all individual awards within an organization cannot exceed the amount of the
organization's allocated portion of the total Company award pool without
specific approval by the Compensation Committee.
2009 UPP Measures and
Participant Eligibility; Compensation Actions Related to
Executive Changes
As
established by the Compensation Committee, for 2009 the performance measure for
the UPP will be earnings from operations ("EFO"). The Compensation Committee
approved specific EFO targets and corresponding performance factors for the
Company. The target level for 2009 EFO corresponds to the Company's EFO
target under the annual business plan for 2009 as approved by the Board of
Directors.
The
amount of the Company award pool allocated to the executive officers will be
determined by aggregating their individual target variable pay amounts,
multiplied by a "performance factor" corresponding to their overall performance
compared to pre-established targets related to organizational results and
personal performance objectives. For 2009, the target variable pay for
performance that meets the pre-established objectives under the UPP (expressed
as a percentage of annual base salary) will be 100% for the Chief Executive
Officer (J. Brian Ferguson until May 7, 2009 and then James P. Rogers
through December 31, 2009); 80% for the President and Chemicals and Fibers
Business Group Head through May 7, 2009 (James P. Rogers); 75% for the
Executive Vice President and Polymers Business Group Head and Chief
Marketing Officer (Mark J. Costa); 70% for the Senior Vice President, Corporate
Strategy and Regional Leadership (Ronald C. Lindsay) and the Senior Vice
President and Chief Financial Officer (Curtis E. Espeland); 65% for the
Senior Vice President, Chief Legal Officer and Corporate Secretary (Theresa K.
Lee) and the Senior Vice President and Chief Administrative Officer (Norris
P. Sneed); and 60% for the Senior Vice President and Chief Technology Officer
(Gregory W. Nelson) .
As
previously reported in the Company’s Current Report on Form 8-K filed December
9, 2008, on May 7, 2009, Mr. Rogers will become President and Chief Executive
Officer of the Company and Mr. Ferguson will become Executive Chairman of the
Board. In connection with these executive changes, the Compensation Committee
took certain actions. For the portion of the 2009 UPP performance year after May
7, 2009, Mr. Rogers will participate in the UPP as Chief Executive Officer and
Mr. Ferguson will not participate in the UPP. Any other changes in the
responsibilities or positions of executives will similarly be taken into account
by the Compensation Committee in determining the variable pay to executives
under the UPP for 2009. Mr. Rogers also was awarded 50,000 restricted stock
units, and Messrs. Costa and Lindsay were each awarded 25,000 restricted stock
units, each scheduled to vest and payout in unrestricted shares of Company
common stock on December 31, 2012 if certain conditions are
satisfied.
At the
end of 2009, following determination of the total amount of the Company UPP
award pool available to the executive officers, the Chief Executive Officers
will assess the other executives’ individual performance against established
goals and expectations, and determine the amounts of the individual payouts
from the portion of the allocated award pool. The Chief Executive Officers’
assessments will be based upon measurement of each executive officer’s
performance against individual goals and expectations related to corporate and
organizational performance compared to established EFO and other performance
targets and the officer’s contributions to achievement of identified key
initiatives for 2009. Based on the Chief Executive Officers’ assessment, the
Compensation Committee will consider UPP payouts to the executive officers for
2009 in early 2010. The Compensation Committee will review the CEOs’ performance
against their respective individual financial, organizational, and strategic
objectives and determine their respective payouts for the portions of 2009
during which they served as CEO. The payouts, if any, to the CEOs and other
executive officers for 2009 will be disclosed in the Company's proxy statement
for its 2010 annual meeting of stockholders.
In
determining EFO for the purpose of measuring corporate performance, the UPP
provides for adjustments by the Compensation Committee for certain charges,
income items, or other events that are distortive of financial
results.