Incentive Compensation Adjustments for Special Items

Perhaps one of the most important and difficult duties delegated to compensation committees is the annual discretionary evaluation of whether adjustments should be made to the calculation of incentive plan performance or the performance goals themselves to account for non-operational, unbudgeted, unusual and/or infrequent special items in financial results prepared under Generally Accepted Accounting Principles, or GAAP. This annual rite is applicable to both annual bonus and long-term incentive plans, and necessarily involves the application of some science and some art.