Exhibit 99.2
DIRECTORS' COMPENSATION
Goodyear directors who are not officers or employees of Goodyear or any of its
subsidiaries receive, as compensation for their services as a director, $17,500
per calendar quarter. The Presiding Director receives an additional $13,750 per
calendar quarter. The chairperson of the Audit Committee receives an additional
$3,750 per calendar quarter and the chairpersons of all other committees receive
an additional $1,250 per calendar quarter. Any director who attends more than 24
board and committee meetings will receive $1,700 for each additional meeting
attended ($1,000 if the meeting is attended by telephone). Travel and lodging
expenses incurred in attending board and committee meetings are paid by
Goodyear. A director who is also an officer or an employee of Goodyear or any of
its subsidiaries does not receive additional compensation for his or her
services as a director.
Directors who are not current or former employees of Goodyear or its
subsidiaries participate in the Outside Directors' Equity Participation Plan
(the "Directors' Equity Plan"). The Directors' Equity Plan is intended to
further align the interests of directors with the interests of shareholders by
making part of each director's compensation dependent on the value and
appreciation over time of the Common Stock.
Under the Directors' Equity Plan, on the first business day of each calendar
quarter each eligible director who has been a director for the entire preceding
calendar quarter will have $17,500 accrued to his or her plan account. On April
14, 2004, individuals who had served as director since October 1, 2003 had an
additional $20,000 accrued to their account pursuant to an April 13, 2004
amendment to the Directors' Equity Plan. Amounts accrued are converted into
units equivalent in value to shares of Common Stock at the fair market
value of the Common Stock on the accrual date. The units will receive dividend
equivalents at the same rate as the Common Stock, which dividends will also be
converted into units in the same manner. The Directors' Equity Plan also permits
each participant to annually elect to have 25%, 50%, 75% or 100% of his or her
retainer and meeting fees deferred and converted into share equivalents on
substantially the same basis.
A participating director is entitled to benefits under the Directors' Equity
Plan after leaving the Board of Directors unless the Board of Directors elects
to deny or reduce benefits. Benefits may not be denied or reduced if, prior to
leaving the Board of Directors, the director either (i) attained the age of 70
with at least five years of Board service or (ii) attained the age of 65 with at
least ten years of Board service. The units will be converted to a dollar value
at the price of the Common Stock on the later of the first business day of the
seventh month following the month during which the participant ceases to be a
director and the fifth business day of the year next following the year during
which the participant ceased to be a director. Such amount will be paid in ten
annual installments or, at the discretion of the Compensation Committee, in a
lump sum or in fewer than ten installments beginning on the tenth day following
the aforesaid conversion from units to a dollar value. Amounts in Plan accounts
will earn interest from the date converted to a dollar value until paid at a
rate one percent higher than the prevailing yield on United States Treasury
securities having a ten-year maturity on the conversion date.
The units accrued to the accounts of the participating directors under the
Directors' Equity Plan at April 2, 2004 are set forth in the "Deferred Share
Equivalent Units" column of the Beneficial Ownership of Management table on page
11.
Goodyear also sponsors a Directors' Charitable Award Program funded by life
insurance policies owned by Goodyear on the lives of pairs of directors.
Goodyear donates $1 million per director to one or more qualifying charitable
organizations recommended by the paired directors after both of the paired
directors are deceased. Assuming current tax laws remain in effect, Goodyear
will recover the cost of the program over time with the proceeds of the
insurance policies purchased. Directors derive no financial benefit from the
program.
EXECUTIVE OFFICER COMPENSATION
SUMMARY OF COMPENSATION
The table below sets forth information regarding the compensation of the Chief
Executive Officer of Goodyear and the persons who were, at December 31, 2003,
the other four most highly compensated executive officers of Goodyear (the
"Named Officers") for services in all capacities to Goodyear and its
subsidiaries during 2003, 2002 and 2001.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG TERM COMPENSATION
-----------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ----------------------- ---------
----------------------------------------- SECURITIES
OTHER UNDERLYING LONG TERM ALL
ANNUAL OPTIONS/ INCENTIVE OTHER
COMPEN- RESTRICTED SARS PLAN COMPEN-
BONUS SATION STOCK (NUMBER PAYOUTS SATION
SALARY (DOLLARS) (DOLLARS) AWARD(S) OF (DOLLARS) (DOLLARS)
NAME AND PRINCIPAL POSITION YEAR (DOLLARS) (1) (2) (DOLLARS) SHARES) (3) (4)
- --------------------------- ---- ---------- --------- --------- ---------- ---------- --------- ---------
ROBERT J. KEEGAN 2003 $1,000,000 $509,200 $ 8,256 -0- 200,000 -0- $ -0-
Chairman of the Board, 2002 840,000 -0- 8,250 -0- 140,000 -0- 5,100
Chief Executive Officer 2001 826,667 566,724 81,686 -0- 90,000 -0- 5,100
and President (5)
C. THOMAS HARVIE 2003 415,000 175,000 8,250 -0- 42,700 -0- -0-
Senior Vice President, General 2002 415,000 102,537 8,250 -0- 32,000 -0- 6,655
Counsel and Secretary 2001 410,000 271,408 620 -0- 32,000 -0- 16,208
CHRISTOPHER W. CLARK 2003 310,083 256,888 2,000 -0- 26,000 -0- -0-
Senior Vice President, 2002 295,000 171,000 -- -0- 18,000 -0- 5,100
Global Sourcing (6) 2001 286,667 207,518 1,500 -0- 18,000 -0- 5,100
ROBERT W. TIEKEN 2003 465,000 84,000 8,256 -0- 45,000 -0- -0-
Executive Vice President and 2002 465,000 82,500 8,250 -0- 40,000 -0- 6,889
Chief Financial Officer 2001 460,000 283,635 -0- -0- 40,000 -0- 15,404
JARRO F. KAPLAN 2003 281,667 252,666 -0- -0- 26,000 -0- 12,000
President, Eastern Europe, 2002 270,000 255,000 -0- -0- 17,000 -0- 12,000
Africa and Middle East Region (7) 2001 238,009 78,575 -0- -0- 15,000 -0- 12,000
</Table>
NOTES TO SUMMARY COMPENSATION TABLE:
(1) Amounts awarded under the Performance Recognition Plan. In respect of
2001, the amounts indicated also include amounts awarded in cash and
shares of Common Stock to Messrs. Keegan and Tieken pursuant to one year
performance awards under the 1997 Plan. The payment of all of the award
to Mr. Keegan in respect of 2001, was deferred pursuant to the Deferred
Compensation Plan for Executives. Additional information regarding the
amounts awarded to the Named Officers and other executive officers under
the Performance Recognition Plan for 2003 is contained in the
Compensation Committee Report On Executive Compensation beginning at page
20.
(2) Amounts shown represent the cost to Goodyear of tax and financial
planning assistance provided to the Named Officers by third parties, and
moving expenses of $75,311 paid to Mr. Keegan in 2001.
(3) No payouts were earned in 2003, 2002 or 2001 pursuant to performance
equity grants under the 1997 Plan for performance periods ended December
31, 2003, 2002 or 2001, except as reported at Note 1 above.
(4) All Other Compensation for individuals other than Mr. Kaplan consists of:
(a) for 2002 (i) the value of deferred Common Stock equivalent units
accrued as dividend equivalents during 2002 in respect of units
awarded and deferred in February of 2001, 2000, 1999, 1998 and 1997,
and (ii) $5,100 of matching contributions under Goodyear's Savings
Plan.
(b) for 2001 (i) the value of deferred Common Stock equivalent units
accrued as dividend equivalents during 2001 in respect of units
awarded and deferred in February of 2000, 1999, 1998 and 1997, and
(ii) $5,100 of matching contributions under Goodyear's Savings Plan.
Mr. Kaplan received foreign service premium payments of $12,000 in each of
2003, 2002 and 2001. Mr. Kaplan did not receive matching contributions
under Goodyear's Savings Plan in 2003, 2002 or 2001.
(5) Mr. Keegan became a Goodyear employee on October 1, 2000 and served as
President and Chief Operating Officer from October 3, 2000 until he was
elected the President and Chief Executive Officer effective January 1,
2003. Mr. Keegan became Chairman of the Board effective June 30, 2003.
(6) Mr. Clark has served as Senior Vice President, Global Sourcing since
November 3, 2003. He served as President, Latin America Region, from
August 1, 2002 to November 2, 2003.
(7) Mr. Kaplan has served as President, Eastern Europe, Africa and Middle
East Region since May 7, 2001. He served as Managing Director of Deutsche
Goodyear from 1999 until May 6, 2001.
OPTION/SAR GRANTS IN 2003
The table below shows all grants of stock options and SARs during 2003 to the
Named Officers. Ordinarily, Stock Options and SARs are granted annually in
December of each year.
OPTION/SAR GRANTS IN 2003
<Table>
<Caption>
INDIVIDUAL GRANTS
---------------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF SECURITIES % OF TOTAL AT ASSUMED ANNUAL RATES OF
UNDERLYING OPTIONS/ EXERCISE STOCK PRICE APPRECIATION FOR
OPTIONS/SARS SARS OR OPTION TERM
GRANTED GRANTED TO BASE PRICE (DOLLARS)(3)(4)
(NUMBER OF EMPLOYEES (DOLLARS PER EXPIRATION ----------------------------
NAME SHARES)(1) IN 2003 SHARE)(2) DATE 5% 10%
- ---- -------------------- ---------- ------------ ---------- ----------- -------------
Robert J. Keegan 200,000 5.2% $6.81 12-02-13 $856,000 $2,170,000
C. Thomas Harvie 42,700 1.1 6.81 12-02-13 182,756 463,295
Christopher W. Clark 26,000 .7 6.81 12-02-13 111,280 282,100
Robert W. Tieken 45,000 1.2 6.81 12-02-13 192,600 488,250
Jarro F. Kaplan 26,000 .7 6.81 12-02-13 111,280 282,100
</Table>
NOTES TO OPTION/SAR GRANTS TABLE:
(1) On December 3, 2003, stock options in respect of an aggregate of
3,850,350 shares of Common Stock were granted to 842 persons, including
the Named Officers. All shares are the subject of non-qualified stock
options. Each stock option will become exercisable in respect of 25% of
the shares covered thereby on each of the first four anniversaries of the
grant date. Each unexercised stock option terminates automatically if the
optionee ceases to be an employee of Goodyear or one of its subsidiaries
for any reason, except that (a) upon retirement or disability of the
optionee more than six months after the grant date, the stock option will
become immediately exercisable and remain exercisable until its
expiration date, and (b) in the event of the death of the optionee more
than six months after the grant thereof, each stock option will become
exercisable and remain exercisable for up to three years after the date
of death of the optionee. Each option also includes the right to the
automatic grant of a new option (a "reinvestment option") for that number
of shares tendered in the exercise of the original stock option. The
reinvestment option will be granted on, and will have an exercise price
equal to the fair market value of the Common Stock on, the date of the
exercise of the original stock option and will be subject to the same
terms and conditions as the original stock option except for the exercise
price and the reinvestment option feature.
(2) The exercise price of each stock option is equal to 100% of the per share
fair market value of the Common Stock on the date granted. The option
exercise price and/or withholding tax obligations may be paid by delivery
of shares of Common Stock valued at the market value on the date of
exercise.
(3) The dollar amounts shown reflect calculations at the 5% and 10% rates set
by the Securities and Exchange Commission and, therefore, are not
intended to forecast possible future appreciation, if any, of the price
of the Common Stock. No economic benefit to the optionees is possible
without an increase in price of the Common Stock, which will benefit all
shareholders commensurately.
(4) In order to realize the potential values set forth in the 5% and 10%
columns of the Table, the per share price of the Common Stock would be
$11.09 and $17.66, respectively.
OPTION/SAR 2003 EXERCISES AND YEAR-END VALUES
The table below sets forth certain information regarding option and SAR
exercises during 2003, and the value of options/SARs held at December 31, 2003,
by the Named Officers.
AGGREGATED OPTION/SAR EXERCISES IN 2003 AND
DECEMBER 31, 2003 OPTION/SAR VALUES
<Table>
<Caption>
NUMBER OF SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS
ACQUIRED DECEMBER 31, 2003 AT DECEMBER 31, 2003
ON EXERCISE VALUE (NUMBER OF SHARES) (DOLLARS)(1)
(NUMBER OF REALIZED --------------------------- ---------------------------
NAME SHARES) (DOLLARS) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- --------- ----------- ------------- ----------- -------------
Robert J. Keegan................ -0- -0- 327,500 432,500 $0 $210,000
C. Thomas Harvie................ -0- -0- 140,750 90,950 0 44,835
Christopher W. Clark............ -0- -0- 80,852 53,500 0 27,300
Robert W. Tieken................ -0- -0- 184,250 103,750 0 47,250
Jarro F. Kaplan................. -0- -0- 72,490 48,800 0 27,300
</Table>
NOTE TO OPTION/SAR EXERCISES AND YEAR-END VALUES TABLE:
(1) Determined using $7.86 per share, the closing price of the Common Stock
on December 31, 2003, as reported on the New York Stock Exchange
Composite Transactions tape.
LONG TERM INCENTIVE AWARDS
The 2002 Performance Plan of the Company (the "2002 Plan") empowers the
Compensation Committee to make grants and awards from time to time until April
15, 2005. Such grants and awards may be incentive or non-qualified stock
options, stock appreciation rights, restricted stock grants, performance grants,
any other stock-based grants and awards authorized by the Committee, or any
combination of any or all of such grants and awards, whether in tandem with each
other or otherwise, to officers and other key employees of the Company and its
subsidiaries.
During 2003, the Company did not make any long term grants or awards to any
Named Officer. Accordingly, the long term incentive plan awards table is
omitted.
OTHER COMPENSATION PLAN INFORMATION
STOCK OPTIONS AND SARS
At May 10, 2004, stock options (including, in the case of certain options,
tandem SARs) in respect of 22,412,744 shares were outstanding under the 2002,
1997 and 1989 Plans having a weighted average exercise price of $28.11.
PERFORMANCE RECOGNITION PLAN
Approximately 768 key employees, including all executive officers of Goodyear,
will participate in the Performance Recognition Plan of Goodyear (the
"Performance Plan") for plan year 2004. On December 1, 2003, the Committee
selected the participants, established their respective target bonuses, and
approved the performance criteria and goals. Awards in respect of plan year 2004
will be made in 2005 based on each participant's level of achievement of his or
her goals, the Chief Executive Officer's (or, in the case of participants who
are not officers, other officers' of Goodyear) evaluation of the extent of the
participant's contribution to Goodyear, and the Committee's determination of the
amount available for payment to the relevant group of participants. Awards, if
any, will be paid (except to the extent deferred by the Committee) in cash.
Target bonuses under the Performance Plan have been established for calendar
year 2004 as follows: Mr. Keegan, $1,300,000; Mr. Harvie, $280,000; Mr. Clark,
$220,000; Mr. Tieken, $330,000; Mr. Kaplan, $190,000, and all participants (768
persons) as a group, $26,167,067.
EXECUTIVE PERFORMANCE PLAN
On December 1, 2003, the Compensation Committee established the Executive
Performance Plan. The purpose of the plan is to provide long-term incentive
compensation opportunities to attract, retain and reward key personnel and to
motivate key personnel to achieve business objectives. Upon the attainment of
performance goals established by the Committee, participants will be eligible to
receive a cash award at the end of the performance period subject to adjustment
and approval by the Committee. No grants were issued under this plan as of
January 1, 2004.
SAVINGS PLAN
Goodyear sponsors the Employee Savings Plan for Salaried Employees (the
"Savings Plan"). An eligible employee, including officers, may contribute 1% to
50% of his or her compensation to the Savings Plan, subject to an annual
contribution ceiling ($13,000 in 2004). Savings Plan participants who are age 50
or older and contributing at the maximum plan limits or at the annual
contribution ceiling are entitled to make "catch-up" contributions annually up
to a specified amount ($3,000 in 2004). Contributions to the Savings Plan are
not included in the current taxable income of the employee
pursuant to Section 401(k) of the Internal Revenue Code of 1986, as amended.
Employee contributions are invested, at the direction of the participant, in any
one or more of the nine available funds and/or in mutual funds under a self
directed account.
Prior to January 1, 2003, Goodyear matched at a 50% rate each dollar
contributed by a participating employee up to a maximum of the lesser of (i) 6%
of the participant's annual compensation or (ii) legally imposed limits.
Goodyear contributions are invested by the Savings Plan trustee in shares of
Common Stock. Goodyear suspended the matching program effective January 1, 2003.
Participants with three years of service or who have attained age 52 may
transfer all or any whole percentage of their employer match funds from the
Goodyear Stock Fund to any one or more of the other investment alternatives.
SEVERANCE PLAN
The Goodyear Employee Severance Plan (the "Severance Plan"), adopted on
February 14, 1989, provides that, if a full-time salaried employee of Goodyear
or any of the domestic subsidiaries (who participates in the Salaried Pension
Plan) with at least one year of service is involuntarily terminated (as defined
in the Severance Plan) within two years following a change in control, the
employee is entitled to severance pay, either in a lump sum or, at the
employee's election, on a regular salary payroll interval basis.
The severance pay will equal the sum of (a) two weeks' pay for each full year
of service with Goodyear and its subsidiaries and (b) one month's pay for each
$12,000 of total annual compensation (the base salary rate in effect at the date
of termination, plus all incentive compensation received during the twelve
months prior to his or her separation). Severance pay may not exceed two times
the employee's total annual compensation.
In addition, medical benefits and basic life insurance coverage will be
provided to each employee on the same basis as in effect prior to his or her
separation for a period of weeks equal to the number of weeks of severance pay.
A change in control is deemed to occur upon the acquisition of 35% or more of
the Common Stock by any "acquiring person" or any change in the composition of
the Board of Directors of Goodyear with the effect that a majority of the
directors are not "continuing directors."
If the Named Officers had been involuntarily terminated as of December 31,
2003 (following a change in control), the amount of severance pay due would have
been: Mr. Keegan $2,000,000; Mr. Harvie, $965,000; Mr. Clark $1,012,000; Mr.
Tieken, $1,095,000; and Mr. Kaplan $1,080,000.
The Company also follows general guidelines for providing severance benefits
to executive officers of the Company whose employment terminates prior to
retirement, and under appropriate circumstances. Executive officers eligible for
such benefits typically receive a separation allowance based on individual
circumstances, including length of service, in an amount generally equivalent to
6 to 18 months of base salary plus an amount based on the individual's target
bonus then in effect over an equivalent period. The separation allowance may be
paid in a single lump sum or in installments. The Company may also provide
limited outplacement and personal financial planning services to eligible
executive officers following their termination.
DEFERRED COMPENSATION PLAN
Goodyear's Deferred Compensation Plan for Executives provides that an eligible
employee may elect to defer all or a portion of his or her Performance Plan
award and/or annual salary by making a timely deferral election. Several
deferral period options are available. All amounts deferred earn amounts
equivalent to the returns on one or more of five reference investment funds, as
selected by the participant. The plan was amended in 2002 to eliminate a
provision that required the automatic deferral of any cash compensation earned
which, if paid as and when due, would not be deductible by Goodyear for federal
income tax purposes by reason of Section 162(m) of the Code.
RETIREMENT BENEFITS
Goodyear maintains a Salaried Pension Plan (the "Pension Plan"), a defined
benefit plan qualified under the Code, in which many salaried employees,
including most executive officers, participate. The Pension Plan permits any
eligible employee to make monthly optional contributions up to a maximum 2004
contribution of $3,660.50. The Code limits the maximum amount of earnings that
may be used in calculating benefits under the Pension Plan, which limit is
$205,000 for 2004. The Pension Plan provides benefits to participants who have
at least five years of service upon any termination of employment.
Goodyear also maintains a Supplementary Pension Plan (the "Supplementary
Plan"), a non-qualified, unfunded plan which provides additional retirement
benefits to certain officers and other key employees. The Supplementary Plan
provides pension benefits to participants who have at least 30 years of service
or have ten years of service and are age 55 or older.
Under the Pension Plan and the Supplementary Plan (the "Pension Plans"),
benefits payable to a participant who retires between ages 55 and 65 are subject
to a reduction for each full year of retirement before age 65. Participants may
elect a lump sum payment of benefits under the Pension Plans, subject to the
approval of the
Compensation Committee in respect of benefits under the Supplementary Plan.
The table below shows estimated annual benefits payable at selected earnings
levels under the Pension Plans assuming retirement on July 1, 2004 at age 65
after selected periods of service.
The pension benefit amounts shown include the maximum benefits obtainable and
assume payments are made on a five year certain and life annuity basis and are
not subject to any deduction for social security or any other offsets. Pension
benefits are based on the retiree's highest average annual earnings, consisting
of salary and cash payments under the Performance Recognition Plan, for any five
calendar years out of the ten years immediately preceding his or her retirement
(assuming full participation in the contributory feature of the Pension Plan).
Earnings covered by the Pension Plans are substantially equivalent to the sum
of the amounts set forth under the "Salary" and "Bonus" columns of the Summary
Compensation Table on page 13. The years of credited service under the Pension
Plans for the Named Officers are: Mr. Keegan, 32 years (Supplementary Plan
only); Mr. Harvie, 8 years; Mr. Clark, 30 years; Mr. Tieken, 9 years, and Mr.
Kaplan 34 years.
PENSION PLAN TABLE
<Table>
<Caption>
5 YEAR AVERAGE ESTIMATED ANNUAL BENEFITS UPON RETIREMENT AT JULY 1, 2004, FOR YEARS OF SERVICE INDICATED.
ANNUAL -------------------------------------------------------------------------------------------
REMUNERATION 10 YEARS 15 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS 45 YEARS
- -------------- --------- --------- ----------- ----------- ----------- ----------- -----------
$ 250,000 $ 50,064 $ 68,625 $ 99,049 $ 111,190 $ 118,264 $ 124,853 $ 131,423
500,000 105,064 143,625 206,549 231,190 245,764 259,853 273,923
750,000 160,064 218,625 314,049 351,190 373,264 394,853 416,423
1,000,000 215,064 293,625 421,549 471,190 500,764 529,853 558,923
1,250,000 270,064 368,625 529,049 591,190 628,264 664,853 701,423
1,500,000 325,064 443,625 636,549 711,190 755,764 799,853 843,923
1,750,000 380,064 518,625 744,049 831,190 883,264 934,853 986,423
2,000,000 435,064 593,625 851,549 951,190 1,010,764 1,069,853 1,128,923
2,500,000 545,064 743,625 1,066,549 1,191,190 1,265,764 1,339,853 1,413,923
</Table>
EMPLOYMENT AGREEMENT
Mr. Keegan and Goodyear entered into an agreement, dated September 11, 2000,
which provided, among other things, for the employment of Mr. Keegan as
President and Chief Operating Officer.
Under the agreement, Mr. Keegan received an initial base salary of $800,000
per year and a bonus for 2000 of $432,000. The agreement also provided an annual
bonus target of $640,000 for 2001. In accordance with the agreement and
determinations of the Compensation Committee, Mr. Keegan was also granted a
stock option for 250,000 shares of Common Stock on October 3, 2000, at an $18.25
per share exercise price. The agreement also set forth the Company's expectation
with respect to grants to be made under Goodyear's long-term incentive program.
The agreement stated that the target amount of stock option grants for Mr.
Keegan's position was 140,000 shares. The agreement noted that this amount was
subject to reduction if the Company adopted an additional component to the
program.
As contemplated by the agreement, on December 4, 2000, Mr. Keegan was granted
stock options for 80,000 shares of Common Stock at an exercise price of $17.68
per share and on December 5, 2000 he was awarded performance unit grants for
12,000 units for the performance period ending December 31, 2001, for 24,000
units for the performance period ending December 31, 2002, and for 36,000 units
for the performance period ending December 31, 2003.
In accordance with the agreement and under the 1997 Plan, Mr. Keegan entered
into a Restricted Stock Purchase Agreement dated October 3, 2000, pursuant to
which he purchased 50,000 shares of the Common Stock for $.01 per share, which
shares could not be transferred by Mr. Keegan prior to October 3, 2002 and were
subject to a repurchase option whereby Goodyear could have repurchased all or a
portion of such shares at $.01 per share through October 3, 2002 if Mr. Keegan
ceased to be employed by Goodyear for any reason (other than his death or
disability) prior to October 3, 2002. On October 3, 2002 Goodyear's conditional
repurchase option expired and all other restrictions on transfer lapsed.
Mr. Keegan will also receive a total pension benefit equal to what he would
have earned under the Pension Plans if his service with Goodyear were equal to
the total of his service with Goodyear and Eastman Kodak Company. Mr. Keegan
also received a $10,000 relocation allowance. He also receives the same
non-salary
benefits generally made available to Goodyear executive officers.
Mr. Keegan's agreement was supplemented on February 3, 2004 to provide for the
payment of severance compensation to Mr. Keegan upon the termination of his
employment with Goodyear under the circumstances outlined in the supplemental
agreement. If paid, the severance compensation would consist of (i) two times
the sum of Mr. Keegan's annual base salary and target bonus then in effect, plus
(ii) the pro rata portion of Mr. Keegan's target bonus for the then current
fiscal year. In the event that severance compensation is paid to Mr. Keegan
under the agreement, the agreement restricts Mr. Keegan from participating in
any business that competes with Goodyear for a period of two years. The term of
the supplemental agreement is from February 3, 2004 to February 28, 2009. If Mr.
Keegan's employment was terminated as of December 31, 2003 and the supplemental
agreement was in effect at that time, the amount of severance due Mr. Keegan
would have been $4,000,000. This amount would not be payable if Mr. Keegan
received benefits under previously described Severance Plan.
CONSULTING AGREEMENT
Mr. Samir G. Gibara and Goodyear entered into an agreement, dated February 4,
2003, which provided for the retention of Mr. Gibara as a consultant to Goodyear
from January 1, 2003 through December 31, 2003. Under the agreement, Mr. Gibara
provided assistance and advice to Goodyear and received $180,000 paid in equal
monthly installments. The payments under the consulting agreement were in
addition to any fees Mr. Gibara received as a non-employee director. Mr. Gibara
previously served as Goodyear's Chief Executive Officer from January 1, 1996 to
December 31, 2002 and as its Chairman of the Board of Directors from July 1,
1996 to June 30, 2003.
OTHER MATTERS
During 2003, Goodyear and its subsidiaries in the ordinary course of their
business and at competitive prices and terms made sales to or purchases from, or
engaged in other transactions with, corporations of which certain Goodyear
non-employee directors are executive officers and/or directors. Goodyear does
not consider the transactions to be material to its business and believes such
transactions were not material in relation to the business of such other
corporations or the interests of the directors concerned.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE POLICIES AND PRACTICES
The Board of Directors of Goodyear (the "Board") has delegated to the
Compensation Committee of the Board (the "Committee") primary responsibility for
establishing and administering the compensation programs of Goodyear for its
executive officers and other key personnel. In performing its duties, the
Committee meets with the Chief Executive Officer to review compensation policy
and specific levels of compensation paid to the executive officers and other key
personnel, administers Goodyear's plans for its executive officers and certain
other key personnel and reports and makes recommendations to the Board regarding
executive compensation policies and programs.
The Committee annually reviews Goodyear's executive compensation practices to
determine whether Goodyear's executive compensation practices (a) enable
Goodyear to attract and retain qualified and experienced executive officers and
other key personnel, (b) will motivate executive officers and other key
personnel to attain appropriate short term and long term performance goals and
to manage Goodyear for sustained long term growth, and (c) align the interests
of executive officers and other key personnel with the interests of the
shareholders.
Goodyear provides compensation in the form of: (1) competitive salaries; (2)
annual cash bonuses based on performance measured against specific goals; and
(3) long term compensation in the form of Common Stock of Goodyear and/or cash
pursuant to performance unit grants with multi-year performance periods and
stock options granted at the fair market value of the Common Stock on the date
of grant.
Executive compensation programs are designed so that a substantial percentage
of each executive officer's compensation is dependent upon corporate performance
and appreciation in the value of Common Stock.
In addition, the Committee desires to encourage ownership of Common Stock by
executive officers by providing forms of performance-based incentive
compensation that give executive officers the opportunity to acquire shares of
Common Stock. In furtherance of this objective, the Chief Executive Officer
reviews ownership levels among the executive officers and reports them to the
Committee.
Section 162(m) of the Internal Revenue Code (the "Code") provides that
compensation paid to a public company's chief executive officer and its four
other highest paid executive officers in excess of $1 million is not deductible
unless such compensation is paid only upon the achievement of objective
performance goals where certain procedural requirements have been satisfied.
Alternatively, such compensation may be deferred until the executive officer is
no longer a covered person under Section 162(m) of the Code. The Committee does
not mandate the automatic deferral of compensation of any cash compensation
earned which, if paid as and when due, would not be deductible by Goodyear for
federal income tax purposes by reason of Section 162(m) of the Code. In 2003, no
executive officer was paid in excess of $1 million.
COMPENSATION OF EXECUTIVE OFFICERS
SALARIES AND ANNUAL BONUS. The Committee met with the Chief Executive Officer
to receive his recommendations regarding 2003 adjustments to the salary and
annual bonus guidelines for each executive officer. The guidelines for each
position were based primarily on market data from two generally available
surveys (one of more than 400 companies and the other of more than 700
companies) and one independent 2002 survey (46 companies with median sales of
$23.8 billion) of the salary and annual bonus practices of other companies. The
Committee generally establishes salary and annual performance bonus guidelines
at levels that approximate the median (the 50th percentile), determined
utilizing regression analysis based on revenues, of such kinds of compensation
paid by the surveyed companies. In addition to the individual position data
surveys, three other general surveys indicating past, present and projected
salary and bonus structures and annual increases for executive positions were
reviewed.
The Committee also considered the Chief Executive Officer's recommendations,
which were based in substantial part on the aforesaid guidelines as well as on
certain subjective factors, including his evaluation of the performance of each
executive officer, Goodyear's recent performance and general economic and
competitive conditions.
As a result, the Committee did not grant salary merit increases to any
executive officer in 2003. However, salary adjustments were granted to a small
group of executive officers whose salaries were substantially below the
guideline for their position. In addition, salary increases were awarded in 2003
to certain executive officers that moved to positions with significant increases
in responsibility. In cases where the promoted officer's salary was
substantially below the guideline for the officer's new position, salary
increases were implemented in two stages, the first increase occurring at the
time of the promotion and the second at a later date.
In 2003, salaries of the executive officers named in the Summary Compensation
Table (the "Named Officers") were an average of 13.9% lower than the median
indicated by the guidelines and 8.2% higher than in
2002. The aggregate salaries paid to all executive officers during 2003 were
8.5% higher than in 2002. Salaries in 2003 averaged approximately 66% of total
annual cash compensation paid to the Named Officers and 72% of total annual cash
compensation paid to all executive officers.
The Performance Recognition Plan for 2003 was approved by the Committee at its
meeting on December 3, 2002. Pursuant to the Plan and based on the
recommendations of the Chief Executive Officer, in December 2002 the Committee
reviewed and adopted performance goals for plan year 2003 and established the
target amount of the annual performance bonus for each executive officer. The
goals for funding the 2003 payment pool were based 50% on Cash Flow targets and
50% on earnings before interest and taxes ("EBIT") targets for Goodyear and its
business units. Funding of the payment pool could have ranged from zero to 200%
of the target amounts depending on the Cash Flow and EBIT performance levels
achieved. Target amounts were based on 100% of the payment pool, and payouts
could be earned up to 200% of the portion of the target amount based on Cash
Flow goals and 200% of the portion of the target amount based on EBIT goals.
Payments to the individual participants from the payment pool could have
ranged from zero to an amount significantly higher than the target amount
depending on their individual performance. The target annual incentive
compensation levels of all executive officers for 2003 (assuming payout at 100%
of the target amount) were established to represent approximately 40% of total
2003 annual cash (salary and bonus) compensation, which was substantially the
same proportion as the median level established by the aforesaid surveys.
Payments made to participants in the Company's various business units were
based primarily on the financial performance of each respective business.
Although the Company's North American Tire business did not meet the EBIT and
Cash Flow goals set for it, the Committee determined that as a result of the
effort of the business to implement its turnaround plan, it was appropriate to
designate a payout pool of 25% of the target for the North American Tire
business.
The Named Officers have been awarded payouts at an average of 64% of their
target amount. Accordingly, the Performance Recognition Plan payments
represented an average of approximately 34% of annual cash compensation for the
Named Officers and 28% of the 2003 annual cash compensation of all executive
officers.
LONG TERM COMPENSATION. A significant portion of the total compensation
package of each executive officer is contingent upon the performance of
Goodyear. Long term performance-based compensation is designed to represent
approximately 50% of the total annual compensation of each executive officer if
target payouts are achieved.
Long term compensation generally includes stock options and performance grants
which measure performance over a three year period based on Goodyear's total
shareholder return and return on invested capital. Performance grants are
designed to comprise approximately 50% of target long term compensation.
Performance unit grants were granted under the 2002 Plan on December 3, 2002
for the three year performance period ending December 31, 2005. Each unit is
equivalent in value to one share of Common Stock. The performance criteria for
the performance period is based 50% on Goodyear's total shareholder return
during the period relative to a peer group, namely the firms (other than
Goodyear) comprising the S&P Auto and Component Industry Index, and 50% on
Goodyear's average annual return on invested capital during the performance
period.
No payouts were made in respect of the performance grants for the three year
performance period ended December 31, 2003.
The Committee annually grants stock options to officers and other key
employees of Goodyear. The Committee believes that annual grants of stock
options provide additional long term incentives to improve future Company
performance. All options are granted at a per share exercise price equal to the
market value of the Common Stock on the date of grant.
The Committee is provided survey information regarding the option granting
practices of other manufacturing companies of similar size in order to determine
if Goodyear's grants are competitive. The Committee believes that ordinarily
options should be granted once each year and that, under ordinary circumstances,
each year each executive officer should be granted options in respect of shares
having approximately the same dollar value, determined using the Black-Scholes
methodology applied in respect of the same surveys used to establish the salary
and annual bonus guidelines, subject to variation to reflect changes in the
responsibility or performance of the executive officer or changes in the
performance or circumstances of Goodyear.
Within the guideline ranges established using the surveys, the size of
individual stock option grants were determined primarily on the basis of the
responsibilities of each executive officer. Recent Company perform-
ance, prior grants and the prior performance of the executive officer were also
considered in determining the size of the grant.
On December 3, 2003, stock options in respect of 3,850,350 shares of Common
Stock were granted pursuant to the 2002 Performance Plan at an exercise price of
$6.81 per share (the fair market value of the Common Stock on that day) to 842
executive officers and key employees, which options expire on December 2, 2013.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Keegan was elected Chief Executive Officer effective as of January 1, 2003
and Chairman of the Board effective as of July 1, 2003. The Committee reviewed
Mr. Keegan's compensation in the same manner as described above for the other
executive officers. In light of Mr. Keegan's promotion and substantially
increased responsibilities, the Committee increased his salary effective January
1, 2003 to an annual rate of $1,000,000.
Pursuant to the Performance Recognition Plan for 2003, the Committee
established a target bonus of $1,000,000 for Mr. Keegan, the payout of which was
subject to adjustment by the Committee from zero to up to $2,000,000 depending
on the extent to which Mr. Keegan achieved the goals assigned to him. For total
company participants, including Mr. Keegan, potential payouts under the Plan are
calculated based on the attainment of company-wide EBIT and Cash Flow goals.
Although the 2003 company-wide EBIT goal was not met, cash flow slightly
exceeded the 2003 company-wide Cash Flow target. As a result of exceeding the
Cash Flow target, 50.92% of the target bonus for total company participants,
including Mr. Keegan, was available for the payment of awards under the Plan. In
determining the award to be made to Mr. Keegan, the Committee considered several
factors, including: the continued strengthening of the operating performance of
each of the Company's businesses other than the North American Tire business;
the implementation and execution of the Company's financing strategy; and the
progress made in the turnaround of the North American Tire business, including
the consummation of a new labor agreement with the United Steelworkers of
America, significant improvement in relations with the Company's dealer network
and improvement in the North American commercial truck tire business. The
Committee also noted that, upon his request, the Committee made no award under
the Plan to Mr. Keegan for 2002. As a result of these factors, the Committee
made an award to Mr. Keegan of $509,200 under the Plan in respect of 2003. This
award represents 50.92% of Mr. Keegan's target bonus for 2003.
Applying the same guidelines and performance measures and goals used in
respect of other executive officers, on December 3, 2002, performance unit
grants were made to Mr. Keegan for the three year performance period ending
December 31, 2005 for 60,000 units. Each unit is equivalent in value to one
share of Common Stock.
Mr. Keegan was granted stock options based on the same guidelines applied by
the Committee in respect of the stock option grants to the other executive
officers. On December 3, 2002, he was granted stock options in respect of
140,000 shares of Common Stock in respect of 2003. He was granted stock options
in respect of 200,000 shares of Common Stock in respect of 2004 on December 3,
2003.
May 18, 2004
THE COMPENSATION COMMITTEE
John G. Breen, Chairman
James C. Boland Gary D. Forsee
William J. Hudson, Jr. James M. Zimmerman
PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder returns of Goodyear
Common Stock, the Standard & Poor's 500 Composite Stock Index (the "S&P 500")
and the Dow Jones Auto Parts Index (the "Dow Auto Parts") at each December 31
during the period beginning December 31, 1998 and ending December 31, 2003. The
graph assumes the investment of $100 on December 31, 1998 in Goodyear Common
Stock, in the S&P 500 and in the Dow Auto Parts. Total shareholder return was
calculated on the basis that in each case all dividends were reinvested.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
GOODYEAR COMMON STOCK, S&P 500 AND DOW AUTO PARTS
GRAPH
<Table>
<Caption>
December 31, 1998 1999 2000 2001 2002 2003
GOODYEAR COMMON STOCK 100.00 57.00 49.28 53.21 15.77 18.20
S&P 500 100.00 121.04 110.02 96.95 75.52 97.18
DOW AUTO PARTS 100.00 102.59 74.91 97.99 88.36 125.66
</Table>