COMPENSATION COMMITTEE CHARTER
This Compensation Committee Charter was adopted by the Board of Directors (the "Board") of Longs Drug Stores Corporation (the "Company") on March 2, 2004.
The purpose of the Compensation Committee (the "Committee") of the Board is to provide assistance to the directors in fulfilling their responsibilities by (1) designing (in consultation with management or the Board), recommending to the Board for approval and evaluating the compensation plans, policies and programs of the Company, especially those regarding executive compensation, (2) determining the compensation of the chief executive officer of the Company and (3) producing an annual report on executive compensation, including the Company’s Internal Revenue Code Section 162(m) deductibility policy, for inclusion in the Company’s proxy materials in accordance with applicable rules and regulations. The Committee aims to ensure that compensation programs are designed to encourage high performance, promote accountability and assure that employee interests are aligned with the interests of the Company’s stockholders.
In addition to the specific powers and responsibilities delegated to the Committee in this Charter, the Committee shall also carry out and may exercise any other powers or responsibilities as are assigned by law, the Company’s charter or bylaws or as may be delegated to it by the Board from time to time. The powers and responsibilities delegated by the Board to the Committee in this Charter or otherwise shall be exercised and carried out by the Committee as it deems appropriate without requirement of Board approval, and any decision (including any decision to exercise or refrain from exercising any of the powers delegated to the Committee hereunder) shall be made by the Committee in its sole discretion. While acting within the scope of the powers and responsibilities delegated to it, the Committee shall have and may exercise all the powers and authority of the Board. To the fullest extent permitted by law, the Committee shall have the power to determine which matters are within the scope of the powers and responsibilities delegated to it.
II. Committee Authority and Responsibilities
The Committee has the following authority and responsibilities.
1. At least annually, review and, if necessary, revise the Company’s compensation philosophy.
2. At least annually, review and approve corporate goals and objectives relevant to Chief Executive Officer compensation, and, as part of a process that also involves the Governance and Nominating Committee, evaluate the Chief Executive Officer’s performance in light of those goals and objectives. The Committee shall determine the appropriate elements and levels of compensation (including base salary and short-term and long-term incentives) for the Chief Executive Officer based on this evaluation. In determining the long-term incentive component of the Chief Executive Officer’s total compensation, the Committee will also consider appropriate factors, such as the Company’s performance and relative stockholder return, the elements and value of similar incentive awards provided to chief executive officers at comparable companies, and the awards previously provided to the Chief Executive Officer. The Committee shall review and, to the extent appropriate, approve for the Chief Executive Officer any employment, severance, change in control or similar agreement or arrangement, as well as any special or supplemental benefits or perquisites, proposed to be provided to the Chief Executive Officer.
3. The Committee shall periodically review and approve all annual bonus, long-term incentive compensation, stock option, employee pension and welfare benefit plans (including 401(k) and similar plans), and with respect to each plan shall have responsibility for:
(i) providing oversight of the general administration of such plans;
(ii) approving performance targets, with input from and consultation with management, under all annual bonus and long-term incentive compensation plans as appropriate and committing to writing any and all performance targets for all executive officers who may be "covered employees" under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), within the period provided by Section 162(m) of the Code in order for such target to be "pre-established" within the meaning of Section 162(m);
(iii) determining that any and all performance targets used for any performance-based equity compensation plans have been met before payment of any executive bonus or compensation or exercise of any executive award granted under any such plan(s);
(iv) approving all amendments to, and terminations of, all compensation plans and any awards under such plans;
(v) granting any awards under any performance-based annual bonus, long-term incentive compensation and equity compensation plans to executive officers, including stock options and other equity rights (e.g., restricted stock, stock purchase rights); and
(vi) approving which executive officers are entitled to awards under the Company’s stock option plan(s).
All plan reviews should include reviewing the plan’s administrative costs, reviewing current plan features relative to any proposed new features and assessing the performance of the plan’s internal and external administrators if any duties have been delegated.
4. At least annually review and approve, for the executive officers that directly report to the Chief Executive Officer and, to the extent required under Rule 16b-3 under the Securities Exchange Act of 1934 or Section 162(m) of the Code, any other officer, corporate goals and objectives relevant to such officers and determine for such officers (a) the annual base salary level, (b) the short-term incentive opportunities, (c) the long-term incentive opportunities, (d) to the extent appropriate, any employment, severance, change in control and similar agreements and arrangements, and (e) to the extent appropriate, any special or supplemental benefits or perquisites, proposed to be provided to such officers. In establishing the elements and value of such officers’ total compensation, including the long-term incentive component of total compensation, the Committee will consider appropriate factors, such as the officers’ performance, the Company’s performance and relative stockholder return, the elements and value of compensation provided to officers with comparable duties at comparable companies, and the elements and value of compensation previously provided to such officers.
5. Have authority to retain and terminate any advisors (e.g., compensation consultants, attorneys, accountants, etc.) to be used to assist in the evaluation of director, Chief Executive Officer or senior executive compensation and sole authority to approve the advisor fees and other retention terms.
6. Annually review director compensation and recommend to the full Board for approval the form and amount of director compensation.
7. Establish and periodically review policies concerning perquisite benefits for the Chief Executive Officer and other executive officers.
8. Periodically review the need for a Company policy regarding compensation paid to the Company’s executive officers in excess of limits deductible under Section 162(m) of the Code.
9. Determine the Company’s policy with respect to change of control or "parachute" payments.
10. Review and approve executive officer and director indemnification and insurance matters.
11. Review and approve any employee loans in an amount greater than $100,000.
12. Serve as the primary contact between the Company's senior Human Resources executive and the Board with respect to compensation issues.
13. Annually review the Company's budgeted salary increase. Periodically receive, together with the Chief Executive Officer, reports from the Company's senior Human Resources executive and/or outside consultants on existing and proposed benefit, compensation, and incentive programs to ensure continued appropriate and competitive programs and levels of compensation for all Company officers and key staff.
14. Prepare and approve the Report of the Compensation Committee to be included as part of the Company’s annual proxy statement.
15. Review and reassess this Charter at least annually and submit any recommended changes to the Board for its consideration.
16. Evaluate its own performance on an annual basis, including its compliance with this Charter, and provide the Board with any recommendations for changes in procedures or policies governing the Committee. The Committee shall conduct such evaluation and review in such manner as it deems appropriate.
17. Perform such other functions as may be assigned by the Board from time to time, and report to the Board its activities from time to time.
The Committee shall be a standing committee of the Board and shall consist of at least two directors as determined by the Board, none of whom shall be an employee of the Company and each of whom shall (1) satisfy the independence requirements of the New York Stock Exchange, (2) be a "non-employee director" within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934 and (3) be an "outside director" under the regulations promulgated under Section 162(m) of the Code.
Committee members, including the Committee Chairman, shall be appointed by the Board on the recommendation of the Governance and Nominating Committee, and may be removed from the Committee, with or without cause, by the Board.
IV. Meetings and Procedures
The Committee shall meet on a regular basis and may call special meetings as required.
The Chair (or in his or her absence, a member designated by the Chair) shall preside at each meeting of the Committee and set the agendas for Committee meetings. The Committee shall have the authority to establish its own rules and procedures for notice and conduct of its meetings so long as they are not inconsistent with any provisions of the Company’s bylaws that are applicable to the Committee or the Company’s Corporate Governance Guidelines.
All non-management directors that are not members of the Committee may attend and observe meetings of the Committee but may not vote and shall not participate in any discussion or deliberation unless invited to do so by the Committee. The Committee may, at its discretion, include in its meetings members of the Company’s management, members of the Company’s human resources, legal, tax and accounting departments, representatives of the independent auditor, the internal auditor and any other financial personnel employed or retained by the Company or any other persons whose presence the Committee believes to be necessary or appropriate. Notwithstanding the foregoing, the Committee may also exclude from its meetings any persons it deems appropriate, including but not limited to, any director that is not a member of the Committee.
The Committee shall have the authority, as it deems appropriate, to retain and/or replace, as needed, any independent counsel, compensation and benefits consultants and other outside experts or advisors that the Committee believes to be necessary or appropriate. The Committee may also utilize the services of the Company’s regular internal or external legal counsel or other internal or external advisors to the Company. The Company shall provide for appropriate funding, as determined by the Committee in its sole discretion, for payment of compensation to any such persons retained by the Committee and for ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.
When planning to establish, modify or certify performance targets under bonus plans for senior executives, grant any and all forms of equity compensation, modify or rescind any option, stock or restricted stock grants, or make, modify or rescind loans to employees or directors, the Committee shall consult the Company’s legal, tax and accounting departments before taking action.
V. Delegation of Duties
In fulfilling its responsibilities, the Committee shall, subject to the following paragraphs, be entitled to delegate any or all of its responsibilities to a subcommittee of the Committee, except that it shall not delegate its responsibilities set forth in paragraphs 3 and 4 of Section II above or any matters that involve executive compensation or any matters where it has determined such compensation is intended to comply with Section 162(m) of the Code by virtue of being approved by a committee of "outside directors" or is intended to be exempt from Section 16(b) under the Securities Exchange Act of 1934 pursuant to Rule 16b-3 by virtue of being approved by a committee of "non-employee directors." All proposed delegations must be adopted by a resolution of the Committee and reviewed for compliance with the relevant plan and Maryland corporate law by the Company’s legal, tax and accounting departments before they are voted upon at meetings. The resolution shall specify which duties are being delegated, to whom the duties are delegated, and which oversight powers the Committee retains.
In addition, the Committee shall, as it deems appropriate, cause the Company to seek stockholder approval of the performance goals used to set the performance targets in any performance-based equity compensation plans, whether through approval of the applicable plan or otherwise, to the extent required, and in the manner provided, by Section 162(m) and the treasury regulations promulgated thereunder.