(Continued)
Compensation Discussion and Analysis
- Overview - Compensation and Benefits for 2007
Overview
The compensation discussion and analysis below reflects our compensation decisions and philosophies and takes into account the following events. On March 30, 2007 (the “Kraft Distribution Date”), Altria distributed all of its remaining interest in Kraft Foods Inc. (“Kraft”) on a pro-rata basis to Altria’s stockholders in a tax-free distribution. The distribution ratio was 0.692024 of a share of Kraft for each share of Altria common stock outstanding as of the record date. On March 28, 2008, (the “PMI Distribution Date”), Altria distributed 100% of outstanding shares of PMI owned by Altria to its stockholders in a tax-free distribution. Each Altria stockholder received one share of PMI for each share of Altria common stock held as of the record date. As of March 28, 2008, as a result of the spin-off of PMI, Mr. Michael E. Szymanczyk assumed the role of Chairman and Chief Executive Officer of Altria Group, Inc., succeeding Mr. Louis C. Camilleri who resigned his position on that date to assume that role at PMI. In addition, Mr. Charles R. Wall resigned his position at Altria and assumed the role of Vice Chairman of PMI. Mr. Dinyar S. Devitre retired as an officer of Altria and became a member of our Board of Directors. Mr. Steven C. Parrish retired from Altria. These individuals were Altria’s named executive officers in 2007. The information provided below reflects the compensation decisions for fiscal year 2007 and, where appropriate, any material decisions made in 2008. In addition, we also describe the manner in which outstanding equity compensation and certain other compensation elements have been adjusted to reflect the spin-offs of Kraft and PMI and the elements of our executive compensation and benefit programs that have been changed in 2008 in connection with the spin-off of PMI. Our compensation programs are designed to support our business and financial objectives. The programs are set and periodically reviewed by the Compensation Committee of the Board of Directors. They are intended to achieve a number of objectives, including:
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to support our ability to attract, develop and retain world-class leaders;
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to align the interests of executives and stockholders;
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to reward performance;
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to support business growth, superior financial results, societal alignment and integrity of conduct; and
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to promote internal equity and a disciplined qualitative and quantitative assessment of performance.
These objectives provide the framework for the various components of compensation and benefits, and take into account the specific nature of our business. Each element of compensation is designed to achieve a specific purpose. Together, they form an aggregate package that is intended to be appropriately competitive and to provide the necessary flexibility and incentives to achieve our goals and objectives. The design of the overall package encompasses the following features:
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a mix of fixed and at-risk compensation. The higher the organizational level of the executive, the lower the fixed component of the overall compensation and benefits package;
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a mix of annual and long-term compensation and benefits to appropriately reward the achievement of annual goals and objectives and long-term performance aspirations; and
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a mix of cash and equity compensation that seeks to discourage actions that are solely driven by our stock price at any given time to the detriment of strategic goals, and to minimize the potential dilutive nature of equity compensation on stockholder value.
In determining the precise levels of each element of compensation as well as the total compensation and benefit package awarded, the Compensation Committee:
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exercises its business judgment and discretion in setting the level of compensation within pre-established ranges;
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reviews actual historical delivery of compensation versus design to ensure that actual compensation is consistent with the intent of the programs; and
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reviews total compensation design to assure that the various ranges remain appropriately competitive and continue to meet the objectives described above.
Our executives are ranked by salary band reflecting the executive’s level of responsibility and accountability. We expect to employ 14 senior executives in salary bands A through D. 
Compensation and Benefits for 2007
The Compensation Committee establishes and periodically reviews a compensation and benefits mix for each salary band. The compensation and benefits mix for each U.S.-based salary band as of December 31, 2007 was as follows: 2007 Design Mix of Compensation and Benefits
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(1) |
Annual equity awards and the annual value of Long-Term Performance Incentive awards. |
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(2) |
The benefit percentages represent the average annual value of retirement, healthcare, disability and death benefits and are based on the methodology employed by Hewitt Associates in its Total Compensation Measurement Study (described below in “Role of Consultants”). The actual value for any given year will vary based on, among other things, each employee’s age and years of covered service. These benefit percentages are not intended to represent the total value of benefits earned over a career and payable upon retirement. |
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(3) |
The mix of compensation and benefits for band A is based on actual equity awards in 2005, 2006 and 2007 for Mr. Camilleri (the only band A executive prior to the spin-off). The Compensation Committee followed a cumulative equity award strategy and, based on its assessment of Mr. Camilleri’s performance and a review of competitive data, has awarded Mr. Camilleri annual stock grants in the range of 100,000 to 200,000 shares. The Compensation Committee may follow a different award strategy for Mr. Szymanczyk and, as a result, his mix of compensation and benefits may be different. |
In 2007, our Chairman and Chief Executive Officer was in salary band A, and our Chief Financial Officer and other named executive officers were in salary band B. The table below compares Altria’s mix of compensation and benefits for salary bands A and B with that of the Compensation Survey Group (see discussion of the Compensation Survey Group below): Altria 2007 Design Mix of Compensation and Benefits
versus The Compensation Survey Group
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(1) |
The benefit percentages represent the average annual value of retirement, healthcare, disability and death benefits and are based on the methodology employed by Hewitt Associates in its Total Compensation Measurement Study (described below in “Role of Consultants”). The actual value for any given year will vary based on, among other things, each employee’s age and years of covered service. These benefit percentages are not intended to represent the total value of benefits earned over a career and payable upon retirement. |
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(2) |
75th percentile of the Compensation Survey Group as shown in 2007 Hewitt Associates Total Compensation Measurement Study. |
To maximize alignment with the interests of stockholders, we have provided a greater percentage of total compensation in the form of long-term incentive compensation than do the Compensation Survey Group companies, as follows: salary band A, 73% versus 65% and salary band B, 59% versus 50%. |