COMPENSATION OF NON-EMPLOYEE DIRECTORS
Non-employee Directors receive an annual retainer of $80,000, of which one-half is paid in
cash. In order to more closely align the compensation of non-employee Directors with long-term
enhancement of stockholder value, the other half of the retainer is paid by means of restricted
stock granted under our 2005 Long Term Stock Incentive Plan (the 2005 Plan) in accordance with
our Non-Employee Directors Equity Program (the Directors Equity Program), which has the same
material terms as their 1997 Non-Employee Directors Stock Plan that expired in 2007.
Grants of restricted stock vest in 20% equal annual installments over a five-year period. A
new non-employee Director is given an initial grant of restricted stock valued at one-half of the
Directors total retainer for the initial five years of anticipated service on the Board (subject
to adjustment for partial years). After full vesting of the initial grant, each non-employee
Director thereafter receives an annual grant of restricted stock valued at one-half of the annual
retainer. These annual grants vest over the succeeding five years.
The Directors Equity Program also provides for the grant to each non-employee Director on the
date of each Annual Meeting of Stockholders of a non-qualified option to purchase 8,000 shares of
Masco common stock at the fair market value on the date of grant. In addition, each new
non-employee Director receives a one-time stock option grant of 32,000 shares under our 2005 Plan.
All of these options become exercisable in equal annual installments on the first five
anniversaries of the grant date. Each option has a ten-year term for exercise, except that options
may generally be exercised for only a limited period of time upon death or, for options granted
before October 27, 2005, following termination of service as a non-employee Director for any reason
other than permanent and total disability or retirement on or after Mascos normal retirement age
The Directors Stock Plan restricts Directors from engaging in certain competitive activities while serving as a Director and for one year following
termination of service as a Director. Upon breach of this noncompete agreement, we may require the
Director to pay us certain amounts realized from awards of restricted stock and option exercises to
the extent realized on or after termination or within two years prior to termination.
The Board has established stock ownership guidelines for non-employee Directors that require
Directors to retain at least 50% of the shares of restricted stock they received until the date of
their termination from service as a Director. The vesting arrangements and stock retention
requirement are intended to assure that non-employee Directors maintain a financial interest in
Masco over an extended period of time.
We provide a few additional benefits to Directors. Non-employee Directors are eligible to
participate in our matching gifts program (which is generally available to our employees) pursuant
to which we will match gifts made to eligible educational and cultural institutions up to an
aggregate of $10,000 per year for each participant. In addition, if space is available, a
Directors spouse is permitted to accompany the Director who travels to attend Board or committee
meetings on Company aircraft. We have permitted, on an infrequent basis, non-employee Directors
personal use of Company aircraft. Directors are also eligible to participate in our employee
purchase program, which is generally available to our employees and enables them to purchase our
products for their personal use at discounted prices. We consult with former Directors from time to
time and have followed a practice of paying $50,000 per year to former Directors who make
themselves available for consulting for two years after ending their service on the Board.