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DEF 14A
GRAHAM HOLDINGS CO filed this Form DEF 14A on 03/23/2017
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Performance Units

To highlight specific long-term financial goals, the 2012 ICP provides for the grant of performance-based compensation, which the Company grants pursuant to its Performance Unit Plans. The named executive officers participate in these plans, in which performance-based goals are determined at the beginning of each four-year award cycle. The goals consider operating income, peer company performance, cash flow, earnings per share, measures of economic value added, and/or quantitative revenue growth or profitability measurements of the Company as a whole or of individual business units. Management and the Committee believe that they have designed the performance-based goals to be challenging, but achievable. In the past four award cycles, the Company achieved or exceeded its goals and paid out at or above target. Each Performance Unit has a nominal value of $100 and a maximum potential payout of $200. The payment of a total award to any individual at the end of an award cycle may not exceed $5 million.

For each cycle under a Performance Unit Plan, the Committee establishes a valuation formula within 90 days of the beginning of the cycle and no later than prior to the completion of the first quarter of the cycle. At the end of the cycle, the unit value is calculated, based on application of the formula, and payments are made to named executive officers in the year following the end of the cycle. The formula used to calculate the payouts is determined by (i) a weighted combination of factors that relate to individual business unit performance of the Company’s operating divisions and (ii) the discretion of the Committee. A new four-year cycle commences every two years, with the result that there are always two overlapping cycles in progress.

In connection with the sale of Washington Post Media (“WPM”) to Nash Holdings LLC (“Nash”), completed in October 2013 (the “WPM Transaction”), the Committee, in January 2014, revised the valuation formulas with respect to the 2013–2016 cycle.

Awards under the 2013–2016 cycle were initially based on a two-pronged formula. The 2013–2016 cycle formula consisted of an average of the value of the performance units allocable to (1) the 2013–2016 performance of Cable ONE and Graham Media Group (“GMG”) (65%); plus (2) an amount based on Kaplan’s achievement of cumulative operating income goals during the four-year period, excluding Kaplan stock compensation expense and restructuring charges (35%). In light of the Cable ONE spin-off, the Committee in January 2015 revised the valuation formula of the 2013–2016 cycle to take effect on the closing date of the transaction, which was July 1, 2015. Specifically, the Committee determined that if Cable ONE were no longer held by the Company for the final year and one-half of the performance period, then the weighting of performance units attributable to an average of Cable ONE and GMG should be reduced, and the weighting of performance units attributable solely to GMG should make up for the reduction. Accordingly, as of July 1, 2015, awards under the 2013–2016 cycle are based on a three-pronged formula consisting of the average of the value of the performance units allocable to (1) the performance of Cable ONE through June 30, 2015 and the 2013–2016 performance of GMG (49%); plus (2) the value of the performance units allocable to the 2013–2016 performance of GMG (16%); plus (3) an amount based on Kaplan’s achievement of cumulative operating income goals during the four-year period, excluding Kaplan stock compensation expense and restructuring charges (35%).

Awards under the 2015–2018 cycle are based on a three-pronged formula consisting of the average of (1) the value (up to $200) of a Kaplan Performance Unit paid to Kaplan in accordance with the final unit valuation of the 2014–2017 Kaplan Long-Term Incentive Plan (35%); plus (2) the value of a Performance Unit under the GMG valuation (35%); plus (3) an amount based on cumulative operating income goals during the four-year period for SocialCode, Slate, Graham Healthcare Group (formerly Celtic Healthcare and Residential Healthcare Group), Forney Corporation and Joyce/Dayton Corporation (30%). In December 2016, the Committee approved an amendment to the 2015–2018 Corporate Performance Unit Plan to include cumulative operating income goals for Group Dekko (acquired by the Company in the fourth quarter of 2015) in category (3) above.

The Committee selected these targets because they reflected the key priorities for the Company on the grant date (or the amendment date, as applicable) for the applicable time periods. The values of performance units in the 2013–2016 and 2015–2018 cycles are determined at the conclusion of those cycles, based on the performance criteria described below.

The performance measure used in the formula for the 2013–2016 cycle prior to the Cable ONE spin-off is cumulative free cash flow of Cable ONE over the applicable three-year period and the cash flow margin of GMG described below. Free

 

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