Role of the Committee

The Executive Compensation and Development Committee is made up of four independent members of the Board. The Committee members are neither employees nor former employees of the Company. The functions of the Committee include:

• reviewing the executive compensation strategy,
• reviewing the design of the executive compensation program,
• overseeing the administration of the executive compensation plans,
• monitoring and overseeing the career development of executives,
• annually establishing performance commitments for the CEO, executive officers and key management,
• reviewing performance annually and determining the individual elements of total compensation for the CEO and other designated executives, and
• reviewing at least annually diversity representation at the senior and mid-management levels.

Principles of Executive Compensation

The Company’s executive compensation program is designed to:

• tie compensation to performance that is consistent with the Company’s values and increases shareholder value,
• attract and retain employees needed to meet the Company’s growth and performance objectives,
• set the total compensation of executives at market competitive levels,
• link compensation to both short and long-term performance,
• place a significant portion of each executive’s compensation at risk; the more senior an executive’s position, the more compensation should be at risk, and
• link the interests of executives with our owners through stock ownership.

Executive Compensation Practices

Each year, the Company participates in surveys prepared by outside consultants. The companies included in these surveys are those the Company competes with for executive talent. Most, but not all, of these companies are included in the Dow Jones Industrial Index shown in the Performance Graph on page 25. Based largely on the median compensation of these surveyed companies, the Committee sets the target compensation of senior executives.