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DEF 14A
GRAHAM HOLDINGS CO filed this Form DEF 14A on 03/23/2017
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PROPOSAL 4: RE-APPROVAL OF PERFORMANCE GOALS UNDER THE COMPANY’S 2012 INCENTIVE COMPENSATION PLAN

The Company is seeking re-approval of the material terms of the performance goals under the Company’s 2012 Incentive Compensation Plan (the “2012 ICP”). The 2012 ICP was originally adopted by the Board of Directors in February 2012 and approved by stockholders in May 2012. Stockholders are being asked to re-approve the material terms of the performance goals (including the employees eligible to receive awards pursuant to the currently effective 2012 ICP and the maximum number of awards that may be granted to each such employee on an annual basis) currently contained in the 2012 ICP for purposes of Section 162(m) of the Internal Revenue Code. No amendments or modifications to the 2012 ICP are being proposed for stockholder approval, and re-approval will not impact the nature and amount of the awards available for grant under the 2012 ICP.

Section 162(m) of the Code generally does not allow a publicly held company to obtain tax deductions for compensation of more than $1 million paid in any year to its CEO, or any of its other three most highly compensated executive officers (other than the chief financial officer), unless the compensation qualifies for an enumerated exception under 162(m) of the Code. Compensation that is “performance-based” in accordance with conditions specified under Section 162(m) of the Code is not subject to these deduction limits. One of the requirements for compensation to be “performance-based” under Section 162(m) is that the Company must obtain shareholder approval of the material terms of the performance goals for such compensation every five years. The material terms include (1) the employees eligible to receive compensation; (2) the business criteria on which the performance targets may be based and (3) the maximum amount that an employee may receive on an annual basis for achieving the performance goals.

While re-approval of the performance criteria under the 2012 ICP is required for compensation to qualify as “performance-based compensation” under Section 162(m), it does not mean that all awards or other compensation under the 2012 ICP will qualify, or be intended to qualify, as performance-based compensation or otherwise be deductible. If stockholders re-approve the material terms of the performance goals under the 2012 ICP, the Compensation Committee currently anticipates that, to the extent practicable and in the Company’s best interest, performance-based compensation programs will be designed to satisfy the requirements of Section 162(m) of the Code to permit the deduction for tax purposes of the full amount of such awards. However, there may be business considerations that dictate that the Company grant incentive awards that may not be deductible under Section 162(m) of the Code.

The following is a summary of the material terms of the performance goals under the 2012 ICP, which is qualified in its entirety by reference to the provisions of the 2012 ICP, attached hereto as Appendix A.

Material Terms of the 2012 ICP Performance Goals

As discussed in the “Compensation Discussion and Analysis” section of this Proxy Statement, incentive compensation is a key component of the Company’s pay-for-performance strategy. The purpose of the 2012 ICP is to promote the interests of the Company and its shareholders by providing incentives to those employees who have been or will be responsible for the Company’s future growth, profitability and continued success and to strengthen the ability of the Company to attract, motivate and retain such employees.

Employees Eligible to Receive Awards. The Company’s employees as well as non-employee Directors are eligible to receive awards under the 2012 ICP. Participants in the 2012 ICP are designated by the Compensation Committee. There are at present approximately 142 employees of the Company who are participants under the 2012 ICP and receive annual bonus awards and/or hold restricted stock, stock options or performance units granted under the 2012 ICP. Each named executive officer participates in the 2012 ICP.

Performance Goals. During the first 90 days of each performance period, the Compensation Committee establishes the objective criteria for determining whether an award will be payable for that year, and if so, the amount of the awards payable to each participant for various performance levels. The performance criteria among which the Compensation Committee may select are as follows:

 

    market price of the Company’s common stock;

 

    earnings per share of the Company’s common stock;

 

    net income or profit (before or after taxes);

 

    return on stockholder equity;

 

    cash flow;

 

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