Item
5.02 Departure of
Directors or Certain Officers; Election of Directors; Appointment of Certain
Officers; Compensatory Arrangements of Certain Officers.
(e) On
March 4, 2008, the Compensation Committee (the “Committee”) of the Board of
Directors of NIC Inc. (“NIC” or the “Company”) approved a new executive
compensation program for executive officers of the Company and approved the
incentive compensation grants under the program for fiscal year 2008. The new
executive compensation program includes the following components: base salary,
short-term incentive compensation (i.e., annual cash bonus), and a two-pronged,
long-term, equity-based incentive plan that includes annual restricted stock
grants with (i) a service-based component and (ii) a performance-based
component. Under the terms of the program, total incentive
compensation granted in any one fiscal year cannot exceed 250% of base salary
for the Chief Executive Officer and 200% of base salary for the other executive
officers
.
Base
salary.
As previously reported in a Form 8-K filed by the
Company, on February 4, 2008, (a) the Board of the Directors appointed
Harry H. Herington, who was the President of the Company, as Chief Executive
Officer, (b) Mr. Herington received a raise in base salary in connection with
his promotion to $380,000 per year and (c) Stephen M. Kovzan, Chief Financial
Officer of the Company, and William F. Bradley, Jr., Chief Operating Officer and
General Counsel of the Company, received raises in base salary, each to $260,000
per year. Under the executive compensation program, the base salaries of the
executive officers are subject to change by the Committee from time to
time.
Annual cash
incentive plan.
The annual cash incentive plan for
executive officers included in the executive compensation program measures
annual Company performance using the following key financial metrics as
performance criteria:
|
·
|
Operating
income - 50% weighting
|
|
·
|
Total
revenues - 25% weighting
|
|
·
|
Cash
flow return on invested capital - 25%
weighting
|
The
definitions of operating income and total revenues are consistent with those
terms defined in generally accepted accounting principles and will be derived
directly from the face of the consolidated statements of income included in the
Company’s Annual Report on Form 10-K for the respective fiscal
year. Cash flow return on invested capital is defined as consolidated
cash flow from operating activities minus capital expenditures, the difference
of which is divided by the difference between total assets and non-interest
bearing current liabilities. Consolidated cash flow from operating
activities and capital expenditures will be derived from the face of the
consolidated statements of cash flows included in the Company’s Annual Report on
Form 10-K for the respective fiscal year. Total assets and
non-interest bearing liabilities will be derived from the face of the
consolidated balance sheets included in the Company’s Annual Report on Form 10-K
for the respective fiscal year.
For
2008, the Committee determined a “target” performance level for the Company for
each of the above three performance criteria. Performance of the
Company at the target level will result in an annual cash incentive that is 50%
of the executive’s base salary. The Committee also determined a range
of possible cash incentives above and below target performance, ranging from 25%
of base salary for achieving “threshold” performance to 75% of base salary for
achieving “superior” performance. No payments are awarded under the
plan if threshold performance is not achieved, and no additional payments are
awarded for performance in excess of the superior level. The
following table sets forth
threshold,
target and superior Company performance levels for the performance criteria
included in the annual cash incentive plan for 2008:
|
Performance
Criteria
|
Performance
Levels
|
|
Threshold
|
Target
|
Maximum
|
|
|
|
|
|
|
Operating
income
|
90%
of budget
|
Budget
|
110%
of Budget
|
|
|
|
|
|
|
Total
revenue
|
95%
of budget
|
Budget
|
105%
of Budget
|
|
|
|
|
|
|
Cash
flow return on invested capital
|
20%
|
25%
|
30%
|
Target
performance levels for operating income and total revenues are based upon the
Company's annual budget approved by the Board of Directors. Target
performance for cash flow return on invested capital is based on the Company’s
expected five-year average return on invested capital from 2004 to
2008. Threshold and maximum performance levels in the table above
were recommended by management and approved by the Committee based on the
Company’s past performance.
Long-term,
equity-based incentive plan.
The Company’s long-term,
equity-based incentive plan for executive officers included in the executive
compensation program provides for annual restricted stock grants with a
service-based component (50% of annual value) and a Company performance
component (50% of annual value) to compensate executives with regard to the
Company’s long-term growth objectives.
Service-based
Component:
Under the long-term incentive plan, the annual
amount of service-based restricted stock to be awarded to the Chief Executive
Officer is 60% of the executive’s annual base salary, and the annual amount to
be awarded to the other executive officers is 50% of each executive's annual
base salary. Service-based restricted stock awards vest ratably over
a four-year service period following the date of grant. There is no
performance component tied to the service-based award.
On
March 4, 2008, the Committee granted the following awards of service-based
restricted stock for 2008 pursuant to the terms of the long-term incentive plan
(the closing market price of the Company’s common stock on March 4, 2008 was
$5.86 per share):
|
Name
|
|
Service-Based
Restricted Share Awards
|
|
|
|
|
|
Harry
H. Herington
|
|
38,908
shares
|
|
Stephen
M. Kovzan
|
|
22,184
shares
|
|
William
F. Bradley, Jr.
|
|
22,184
shares
|
Performance-based
Component:
The performance component of the long-term
incentive plan measures long-term Company performance using the following
performance criteria:
|
·
|
Operating
income growth (three-year compound annual growth rate) - 25%
weighting
|
|
·
|
Total
revenue growth (three-year compound annual growth rate) - 25%
weighting
|
|
·
|
Cash
flow return on invested capital (three-year average) - 50%
weighting
|
The
plan provides for annual grants of restricted stock tied to three-year
performance periods. A new three-year period is intended to begin
each year. At the end of each three-year period, executives receive a
number of shares per a pre-defined schedule of threshold, target and superior
Company performance. Each level of performance is associated with a
pre-defined payout, expressed as a percentage of target. The amount
of restricted stock to be awarded at the end of each three-year performance
period to the Chief Executive Officer for Company performance at target levels
is 60% of the executive’s base salary, and the amount to be awarded to the other
executive officers for Company performance at target levels is 50% of each
executive's annual base salary. The plan incorporates a range of
possible equity incentives above and below target performance. For
the Chief Executive Officer, this range is from 30% of base salary for achieving
threshold performance to 115% of base salary for achieving superior
performance. For the other executive officers, this range is from 25%
of base salary for achieving threshold performance to 75% of base salary for
achieving superior performance. No shares are awarded if threshold
performance is not achieved, and no additional shares are awarded for
performance in excess of the superior level. The following table sets
forth threshold, target and superior Company performance levels for the
performance criteria included in the long-term incentive plan:
|
Performance
Criteria
|
Performance
Levels
|
|
Threshold
|
Target
|
Maximum
|
|
|
|
|
|
|
Operating
income growth (three-year compound annual growth rate)
|
15%
|
20%
|
25%
|
|
|
|
|
|
|
Total
revenue growth (three-year compound annual growth rate)
|
15%
|
20%
|
25%
|
|
|
|
|
|
|
Cash
flow return on invested capital (three-year average)
|
15%
|
20%
|
25%
|
Performance
levels in the table above were recommended by management and approved by the
Committee based on the Company’s past performance.
On
March 4, 2008, the Committee granted the following awards of performance-based
restricted stock for 2008 pursuant to the terms of the long-term incentive plan
(the closing market price of the Company’s common stock on March 4, 2008 was
$5.86 per share):
|
Name
|
|
Performance-Based
Restricted Share Awards (1)
|
|
|
|
|
|
Harry
H. Herington
|
|
74,573
shares
|
|
Stephen
M. Kovzan
|
|
33,276
shares
|
|
William
F. Bradley, Jr.
|
|
33,276
shares
|
(1)
Represents the maximum
number of performance-based restricted shares able to be earned at the end of
the three-year performance period ending December 31, 2010 pursuant to the terms
of the long-term incentive plan. The actual number of shares earned
will be based on the Company’s performance as indicated above over the
three-year period ending December 31, 2010. No shares will be awarded
if threshold performance is not achieved, and no additional shares will be
awarded for performance in excess of the superior level.