UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 11, 2005
THE READER'S DIGEST ASSOCIATION, INC.
(Exact name of registrant as specified in its charter)
Delaware 1-10434 13-1726769
(State or other jurisdiction of (Commission File (I.R.S. Employer
incorporation or organization) Number) Identification Number)
Pleasantville, New York 10570-7000
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(914) 238-1000
Check the appropriate box below if the Form 8-K is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
[ ] Written communication pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14a-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Section 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
As part of a comprehensive review of the executive compensation program of
The Reader's Digest Association, Inc. (the "Company"), the Compensation and
Nominating Committee of the Company's Board of Directors (the "Compensation
Committee") has approved for fiscal 2006 a redesigned executive incentive
program under which the named executive officers and other executive
officers may receive annual incentive awards under the Senior Management
Incentive Plan and the Management Incentive Compensation Plan (together,
the "Annual Incentive Plans") and the long-term incentive awards under the
2002 Key Employee Long Term Incentive Plan (the "Long Term Incentive Plan")
as described below. The intent of the redesigned program is to strengthen
and clarify the relationship between executive pay, Company performance and
shareholder value creation. Under the new design, awards under the Annual
Incentive Plans and the Long Term Incentive Plan work together as
components of a participant's total incentive compensation opportunity. The
Compensation Committee allocates the total incentive compensation
opportunity of each executive officer between annual incentive awards under
the Annual Incentive Plans and long-term incentive awards under the Long
Term Incentive Plan. The allocation will depend on the participant's
employment grade level and will emphasize variable pay over fixed pay and
long-term incentive over short-term incentive.
The Compensation Committee has approved the methodology for the
determination of the incentive pool and allocation of awards under the
Annual Incentive Plans in which the named executive officers and other
executive officers may participate. The business criteria and performance
goals have not been determined. Beginning with fiscal 2006 awards,
determination of incentive pools under the Annual Incentive Plans for each
of the Company's major business units (a "Business Unit") and corporate
staff functions (a "Staff Function") will be based on a combination of
Company corporate performance results and the particular Business Unit's or
Staff Function's performance results. For executive officers, the
proportion of the Business Unit (or Staff Function) performance versus
Company corporate performance for the incentive pool is as follows: (i) for
the Chief Executive Officer, 100% on Company corporate performance; (ii)
for the heads of each Business Unit, 60% of that Business Unit's
performance and 40% Company corporate performance; (iii) for the heads of
each Staff Function, 60% Company corporate performance and 40% of that
Staff Function's performance, and (iv) for the other executive officers
with respect to Staff Function, the Company's corporate performance will
have a greater weight than under (iii). Individual award amounts, ranging
from 0%-200% of the participant's target annual incentive award (which is
from 70% to 74% of the midpoint of the salary range for the grade level for
named executive officers (other than the Chief Executive Officer, which
will be determined subsequently) and from 51% to 65% of such midpoint for
other executive officers), will be determined based on an assessment of
individual performance and will take into account the overall performance
of the Company, Business Unit or Staff Function, as appropriate.
In addition, the Compensation Committee has approved for fiscal 2005 and
fiscal 2006 the components of the long-term incentive program under Long
Term Incentive Plan for the named executive officers and other executive
officers. The business criteria and performance goals have not been
determined. For long-term incentive awards in fiscal 2006, the named
executive officers and other executive officers will receive components of
long-term incentive compensation as follows: between 55%-50% will be in
performance-based restricted stock units and between 45%-50% will be in
stock options. Performance-based restricted stock units will include one or
more performance goals to be attained by the end of each three-year award
performance cycle to determine the number of units earned, ranging from
0%-300% of target, and will be paid out in cash based on the Company's
stock price at the end of the performance cycle. The maximum target
percentage is intended for superior performance results. For fiscal 2005,
the named executive officers and other executive officers received
long-term compensation in the form of stock options and restricted stock,
and will receive performance-based restricted stock units for the
three-year cycle commencing in fiscal 2005 as a transition to the
redesigned program, with respective weights of approximately 37%, 25% and
38%. Stock options vest annually in equal installments over a four-year
period beginning on the first anniversary of the date of grant and
restricted stock vests one-third after the second, third and fourth
anniversaries of the date of grant.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
THE READER'S DIGEST ASSOCIATION, INC.
(Registrant)
Date: March 16, 2005 /s/ Michael A. Brizel
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Michael A. Brizel
Senior Vice President and General Counsel