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// Main Site / Member's Area / Company Profiles / Wiley John & Sons Inc / EXECUTIVE COMPENSATION - Compensation Discussion and Analysis 2007

EXECUTIVE COMPENSATION - Compensation Discussion and Analysis 2007

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Compensation
Discussion and
Analysis

          Our compensation program for senior executives, including the named executive officers, is administered by the Compensation Committee, which is currently composed of four independent directors. Information about the members of the Compensation Committee can be found on pages 7 through 12 of the proxy statement. The overarching goals that guide the design and administration of executive compensation programs include the ability to:

  • Recruit and retain the highest caliber of executive talent by offering a compensation program that is competitive in the marketplace.
  • Motivate and reward executives for achieving strategic and financial objectives through the use of annual cash incentives.
  • Align executives’ and shareholders’ interests through awards of equity components that are dependent upon the performance of the Company.

          The following principles and practices shaped the design and implementation of our compensation program for fiscal year 2007. The principles and practices help ensure the following:

  • Compensation is merit based in that the total compensation opportunity and actual payout for each executive is based on current responsibilities, future potential and sustained performance against challenging financial and strategic objectives.
  • There is a correlation between compensation (both annual and long-term) and the Company’s performance. The program is structured such that at executive levels a larger portion of annual and total compensation is variable, driven by performance and significantly composed of stock-based compensation.
  • Executives/members of the Wiley Leadership Team have a significant, ongoing ownership stake in the Company in order to strengthen the alignment of our executives’ interests with those of our shareholders.
  • The program is competitive with the total compensation program of competitor companies in the publishing/information and media industries when performance goals are achieved. To that end the Committee annually reviews an independently researched compensation survey as a guidepost to determine whether the Company’s compensation levels and programs are competitive and meet the Company’s stated objectives. The most recent survey, compiled by Towers Perrin includes publishing/media companies with whom Wiley competes for business and talent and for whom data is available, as well as other companies in general industry for positions that are not unique to the publishing industry. Base salaries, annual incentive awards and long-term incentive grants are determined within the framework of position responsibilities, future potential and the competitive market data. Regression analysis is used to ensure targeted compensation is appropriate to the size of the Company.
  • Ordinarily it is in the best interest of the Company to retain flexibility in its compensation programs to enable it to appropriately reward, retain and attract executive talent necessary to the Company’s success. To the extent such goals can be met with compensation that is designed to be deductible under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), such as the 2004 Key Employee Stock Plan and the Executive Annual Incentive Plan, each approved by the shareholders in September 2004, such compensation plans will be used. However, the Committee recognizes that in appropriate circumstances, compensation that is not deductible under the Code may be paid at the Committee’s discretion.
   
The Executive
Compensation Program
  • Compensation Strategy and Philosophy. Our executive compensation program consists of the following elements:
  • Base salaries;
  • Annual cash incentives;
   

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  • Long-term stock based incentives;
  • Retirement and other post-employment benefits;
  • Health and welfare benefits; and
  • Perquisites and other fringe benefits.

         As described in greater detail below, individual base salaries, annual cash incentive awards and long-term incentive grant amounts are determined within the framework of the executive’s position and responsibility, individual performance and future leadership potential, as determined by the CEO, or by the Compensation Committee in the case of the CEO, as well as with regard to the external marketplace.

          Our executive compensation program for the named executives and other members of the Wiley Leadership Team consists of a salary range for each position, a target cash incentive expressed as a percent of base salary and target long-term equity awards. Each executive’s base salary range, target annual cash incentive and long-term incentive award value is reviewed annually and is adjusted when and if needed, depending on market conditions, to remain competitive with the external market. The program is designed to pay median level base salaries, above median level total cash for the achievement of challenging financial targets and strategic objectives and below median total cash when those targets are not attained. Third quartile (75th percentile) or above levels of compensation can be attained when challenging, long–term financial goals are achieved and accompanied by future share price appreciation. Competitive benchmark compensation survey market data for each position is prepared annually by the Committee’s executive compensation consultant, Towers Perrin, using data from its annual media industry survey and its general industry survey. For publishing/business unit executives only the media industry survey data is used. For corporate executives, the data is weighted with a two-thirds weighting to media industry data and a one-third weighting given to the general industry data. Towers Perrin uses regression analysis to ensure its recommendations are appropriate for positions in companies of comparable size to Wiley and/or its businesses. Towers Perrin presents its annual review to the Committee at its March meeting as a way of assisting the Committee in ascertaining the competitiveness of the executive compensation program within our core publishing and information business, as well as general industry.

          Each year, compensation decisions covering base salary, annual incentives and stock-based awards are primarily driven by assessments of individual and Company performance. Comparisons are also made to the compensation survey data. However, individual annual and long-term incentive payments from preceding years are not used as factors in determining recommendations for the total compensation opportunity for an upcoming year.

          Compensation for the CEO is established using the same process and philosophy previously discussed for members of the Wiley Leadership Team. The Compensation Committee establishes the CEO’s base salary, target annual incentive and stock-based awards using data from the Towers Perrin Media Industry and General Industry surveys. The data is regressed based on revenue to ensure that targeted compensation is appropriate for the CEO of a company of Wiley’s size in the publishing/media industries, as well as general industry. In addition, the CEO’s compensation relative to the next two highest compensated executives is evaluated.

          As noted more fully below and in other sections of this Proxy Statement, a significant portion of the total direct compensation (defined as base salary, annual incentives and the value of stock based awards) paid to our named executive officers is aligned closely with shareholder interests, since it is based on the attainment of revenue, earnings per share and cash flow objectives. Approximately 87% of our CEO’s fiscal year 2007 compensation was variable with the annual incentive payment subject to the achievement of revenue, earnings per share and cash flow objectives; achievement of three year earnings per share and cash flow objectives for the restricted performance share award, and in the case of stock option grant, future increases in the Company’s stock price. For the other named executive officers, the variable percentages of fiscal year 2007 compensation opportunities ranged from 80% to 82% of total compensation. We believe that this incentive design provides strong motivation to focus on attaining results that create shareholder value.

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          Base Salaries. The base salaries of our named executive officers are based on a review of the competitive median marketplace for equivalent executive positions as previously discussed, and an assessment of the executive’s individual performance evaluated under our Performance Management Program by the CEO. The Company uses a Performance Management Program that measures performance against financial goals approved by the Compensation Committee as well as other quantitative and qualitative strategic objectives established at the beginning of the fiscal year. The Committee approves the objectives of the CEO, evaluates his performance and discusses their recommendation with the full Board of Directors in executive session. The CEO evaluates the performance of the members of the Wiley Leadership Team/Executive Officers and presents his ratings and base salary recommendations to the Committee for their approval.

          Base salary increases for the CEO and the other named executive officers are effective July 1 of each year.

          Annual Incentives. Annual incentives are payable for the achievement of annual performance goals established by the Committee and for individual performance and contributions. In fiscal year 2007, target annual incentives ranged from 60% of base salary for some executives to 110% of base salary for Mr. Pesce. For fiscal year 2007, the corporate performance measures were revenue, earnings per share and cash flow. Performance goals for individual businesses were based on revenue, EBITA and cash flow. Payouts, if any, can range from 0 to 200% of the target incentive, depending on the level of achievement of financial goals and individual objectives between threshold and outstanding measures of performance.

          Financial objectives are weighted at 75% of the target award and individual strategic objectives are weighted at 25% of the target award. At the end of the performance cycle a payout factor is calculated using actual results against the target for the financial measures. This results in a payout from 0% to 200% for financial objectives. A rating from 0 to 200% is also established for performance on strategic objectives. For members of the Wiley Leadership Team reporting to the CEO, the CEO completes the rating and strategic objectives recommendation. For the CEO, the evaluation is done by the Compensation Committee and discussed with the full Board of Directors. The results are combined to produce an award of between 0 and 200% of the targeted award for each executive participating in the plan.

          In fiscal year 2007, the Company exceeded its revenue and EPS targets, and was below its cash flow target. Based on the weighting of the three financial measures, and actual financial results relative to the threshold, target and outstanding levels of performance established at the beginning of the year, this resulted in a payout of 127% of target for corporate financial objectives.

          Long-Term Stock Based Incentives. The long-term incentive compensation program for executives consists of restricted performance shares and stock options. These stock-based incentives are intended to align the interests of management with those of the Company’s shareholders.

          In administering this program, the Compensation Committee considers data from the Towers Perrin executive compensation surveys previously discussed (which utilize SFAS123R accounting value for equity), and the recommendations of the CEO, to establish the targeted equity awards (value and number of shares) for each executive. Approximately 60% of the targeted equity value is awarded in stock options and 40% of the targeted equity value is awarded in restricted performance shares. The Committee believes the combined grants of stock options and restricted performance shares provide an appropriate balance between risk and potential reward and serve as an effective retention tool for superior performers. The Committee believes that having the long-term value contingent upon achieving financial objectives that drive shareholder value (EPS and cash flow) is in our shareholders’ interests. The Committee also believes that having a portion of the long-term value in stock options ensures that the executives will not receive the full targeted value unless shareholders also see a commensurate rise in the actual stock price.

  • Restricted Performance Shares. At the beginning of each fiscal year a new three year long-term plan cycle begins. At that time, the Committee, utilizing the data and process described above, establishes the targeted number of restricted performance shares for each executive and the CEO. During the performance period, no shares are issued and consequently the executive has neither voting nor dividend rights to those shares. At the end of the three year performance cycle, actual shares are awarded based upon performance against established earnings per share and cumulative cash flow goals set at

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    the beginning of the performance cycle. The number of shares awarded can range from 0 to 200% of the target award. Once awarded, the shares become restricted for a two year period and vest 50% on the first anniversary after the end of the performance period and 50% on the second anniversary after the end of the performance period. During the restricted period, the executives are entitled to voting and dividend rights on the shares earned. The Committee has the right to accelerate the vesting for earned shares in the case of an executive’s retirement. For the fiscal year 2005-2007 performance cycle, actual EPS performance was at the outstanding level and cash flow was just below outstanding resulting in a payment of 191% of the targeted shares.
  • Stock Options. Option grants are generally awarded on an annual basis, have terms of ten years and generally vest 50% in the fourth year and 50% in the fifth year from the date of grant. All employees’ stock options have exercise prices that are equal to the current market price of Class A Stock as of the grant date. The grant date is five business days after the earnings release for the full fiscal year. The ultimate value of the stock option grants is aligned with increases in shareholder value and is dependent upon increases in the market price per share over and above the grant price. In fiscal year 2007, all executives, including the CEO, received approximately 60% of their targeted long-term incentive value in stock options.
  • Ownership Guidelines
    The Committee believes that the ultimate goal of the long-term plan is to align the interests of shareholders and management. To reinforce this principle, the Committee established stock ownership guidelines for all officers participating in the long-term plan. Ownership guidelines are four times base salary for the CEO and two and one-half times base salary for all other officers participating in the long-term plan. Participants have five years in which to attain these guidelines. All but one of the executives with at least five years of service have met or exceeded their targeted shareholdings.

          Retirement and Post-Employment Benefits. All named executive officers are eligible to participate in the Company’s qualified savings and retirement plans. However, the tax rules governing qualified retirement plans place significant limitations on the benefits which can be paid to executives.

  • Supplemental Executive Retirement Plan (the “SERP”). To assure that executives were provided with an adequate retirement income, in 1983 the Company implemented the Supplemental Executive Retirement Plan (the “SERP”). The SERP provided an annual benefit for ten years based on a percentage of base salary.

    In 1989, in conjunction with a review of all of the Company’s retirement plans, the SERP was enhanced (the “1989 SERP”) by adding an alternative calculation which took into account annual cash incentives, recognizing the growing importance of annual incentives in executives’ pay packages. The change was designed to assist the Company in attracting and retaining mid-career executives.

    In 2004, as part of its oversight duties in looking at the value of the total compensation and retirement benefits, the Compensation Committee directed management to survey similar SERPs to assess the appropriateness and competitiveness of the Company’s plan and to ensure that it follows the best practices among such plans. Towers Perrin performed the study, finding Wiley’s SERP to be unusual in two respects: benefits are not related to service and the benefit is payable over the ten years following retirement, rather than the more typical benefit which is calculated based on service and payable over the executive’s lifetime after retirement. Based on these findings, we asked Towers Perrin to design a revised SERP which addressed these issues.

    The result—the “2005 SERP”—was approved by the Board of Directors and implemented effective January 1, 2005. The 2005 SERP did not replace the 1989 SERP, but rather allowed certain active SERP participants to elect, prior to December 31, 2005, to waive participation and rights to all benefits under the 1989 SERP and instead receive all benefits for both past and future service under the 2005 SERP. The 1989 SERP was closed to new participants effective March 9, 2005. The SERPs are more fully described in the notes to the “Pension Benefits Table” on page 23.
  • Nonqualified Supplemental Benefit Plan (the “Excess Plan”). In 1986, the Nonqualified Supplemental Benefit Plan was adopted by the Board of Directors to restore

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    benefits lost under the Retirement Plan of John Wiley & Sons, Inc. due to limitations imposed by IRS regulations.

  • Post-Employment Benefits. Depending on the circumstances of their termination, the named executives are eligible to receive severance benefits in the form of base salary as a lump-sum payment, annual incentive, healthcare benefits and accelerated vesting of all equity as determined by the provisions in their employment agreements which are discussed in detail starting on page 26. Under a dismissal without cause or Resignation for Good Reason following a change of control, base salary and target annual incentive is payable for 36 months for the CEO, and 24 months for the other named executives. The Company believes that it serves the best interest of the Company and its shareholders to have executives focus on the business merits of mergers and acquisitions without undue concern for their personal financial outcome.

    Under certain circumstances, the payments made in connection with a change in control may be considered to be “excess parachute payments” under IRC Section 280G and may not be deductible as compensation by the Company. In addition, IRC Section 4999 levies an excise tax on the executive receiving the payment in the amount of 20% of the excess amount. The Company will “gross-up” the executive for this excise tax if the amount of the payment exceeds the “excess parachute payment limit” by more than 15%; otherwise, the total payments made to the executive in connection with the change of control will be reduced to below the “excess parachute payment limit.”

    These post-termination benefits are more fully described in the notes to the Payments upon Termination and Change of Control on page 29.

  • Perquisites and other Benefits. The Company provides perquisites and other benefits, which average $11,360 to the named executive officers. These include financial planning and tax preparation, an allowance for business and health club memberships, parking in the headquarters building, and annual physical examinations. Although not a perquisite, Mr. Swanson, whose position has required spending approximately one-half of his time in Oxford, England since the acquisition of Blackwell Publishing in February 2007, has been allowed the use of a Company-leased apartment and automobile in Oxford. These are being provided in lieu of reimbursement for hotel and transportation expenses while conducting company business. The company-leased apartment and automobile are available and have been used by other company business guests throughout the year and are not made exclusively available for Mr. Swanson. In two cases, the Company has paid for his spouse to travel with him to Oxford.
Compensation
Committee Report

          The Compensation Committee has reviewed and discussed with Company management the Compensation Discussion and Analysis found on pages 15 through 20 of this Proxy Statement. Based on this review and discussion, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K and this Proxy Statement.

          Matthew S. Kissner, Chairman
          Warren J. Baker
          Richard M. Hochhauser
          Kim Jones

.-- Proxy Statement August 2007