The following Corporate Governance Guidelines have been adopted by the Board of Directors
(the "Board") of Hewitt Associates, Inc. ("Hewitt") to assist the Board in the exercise of its responsibilities. These Corporate Governance Guidelines reflect the Board's commitment to monitor the effectiveness of policy and decision making both at the Board and management level, with a view to enhancing long-term stockholder value. In the event of a conflict between these Corporate Governance Guidelines and any applicable law or regulation or any provision of the Certificate of Incorporation or By-laws of Hewitt, such law, regulation or provision shall control. These Corporate Governance Guidelines are subject to modification from time to time by the Board.
It is the Board's express intention to observe appropriate corporate governance requirements and to timely implement proposed New York Stock Exchange ("NYSE") listing requirements as the same may be amended from time to time.
Composition of Board of Directors
Size of Board
By Board resolution, the Board has 10 members. The size of the Board could, however, be increased or decreased if determined to be appropriate by the Board. For example, it may be desirable to increase the size of the Board in order to accommodate the availability of an outstanding candidate for director. Vacancies created by the resignation or removal of a director or the addition of a director position may be filled by the majority vote of the directors then in office to serve in that capacity until the next annual meeting of stockholders at which the designated term of the class to which the new director(s) have been elected expires.
Independent Directors
A majority of the Board will be comprised of directors who meet the criteria for independence required by the New York Stock Exchange. The Board will determine annually, based on all of the relevant facts and circumstances, whether each director satisfies the criteria for independence and must disclose each of these determinations in its filings. The Board may adopt and disclose categorical standards to assist it in making such determinations and may make a general disclosure if a director meets these standards. Any determination of independence for a director who does not meet these standards, however, must be specifically explained.
Lead Director
A Lead Director will be appointed annually by the Board. The Lead Director shall be independent of the Company and its management, consistent with the criteria required by the New York Stock Exchange. The Lead Director will preside over executive sessions of the Board of Directors, acting as the liaison between the independent Directors and the Chairman of the Board and Chief Executive Officer. The Lead Director may also serve as the contact person to facilitate communications by shareholders directly with non-management members of the Board. The Lead Director may provide input to the Chairman on agendas for the Board. The Lead Director serves temporarily as Chairman of the Board and the Company's spokesperson if the Chairman is unable to act.
Board Membership Criteria
The Board seeks members from diverse professional and personal backgrounds who combine a broad spectrum of experience and expertise with a reputation for integrity. The entire Board or a designated committee thereof, is responsible for identifying and screening candidates for Board membership. This assessment will include an examination of whether the individual is independent, as well as consideration of diversity, skills and experience in the context of the needs of the Board. The Board may also consider advice and recommendations from others, such as executive search firms, as it deems appropriate. Directors are expected to advise the Chairman before accepting an invitation to serve on the board of another company and/or committee appointments to any board. If the Chairman determines a conflict of interest exists by serving on the board or a board committee of another company, the Chairman will promptly bring this matter to the attention of the full Board, which will make the determination whether the director should be removed from a committee of the Board. The full Board shall also consider whether the conflict warrants requesting the director should consider offering to resign from the Board.
Directors' Tenure, Retirement and Succession
- Terms and Term Limits. Directors are divided into three classes, with each class consisting, as nearly as possible, of one-third the total number of directors. Each director is elected to serve a three-year term, thereby helping to ensure continuity in Board service. The Board does not presently favor term limits for directors but will review this position from time to time.
- Retirement Policy. The Board was formed in 2002. At present, the Board has not adopted a retirement policy, noting that age should not be a barrier to service of any director maintaining the interest, commitment, passion and ability to serve on the Board.
- Resignation Policy — Non-independent Directors. Non-independent directors should offer to resign from the Board upon their resignation, removal or retirement as an employee of Hewitt. The full Board has discretion as to whether or not it should accept a tendered resignation.
- Directors Changing Their Present Job Responsibilities. Upon a change in a director's primary business position, the director should notify the Chairman and the Lead Director, who shall review the appropriateness of the affected director remaining on the Board given the changed circumstances. While a change in position or retirement from a position does not mean that the director will be asked to leave the Board, the affected director is expected to act in accordance with the Board's recommendation following such review.
- Majority Voting. In an election of directors, any nominee who receives a greater number of votes "withheld" from or voted "against" his or her election than votes "for" his or her election, other than elections in which the number of nominees exceeds the number of directors to be elected, shall tender his or her resignation to the Board. The Nominating and Corporate Governance Committee shall then review the matter and recommend to the Board whether it should accept the resignation.
Conduct
Director's Duties
In exercising their duties, directors may consider, and act upon their beliefs concerning, Hewitt's long-term financial and other interests, and may take into account, among other factors, the social, economic and legal effects of Hewitt's actions upon all constituencies having a relationship with Hewitt, including without limitation, its stockholders, employees, clients, suppliers, consumers, and the community at large, so long as all actions and decisions reflecting such considerations are reasonably calculated to be in the interests of Hewitt's stockholders. In discharging that obligation, directors should be entitled to rely on the honesty and integrity of Hewitt's officers, employees, outside advisors and independent auditors.
Directors are expected to read broadly about Hewitt, its competitors, and the industry (ies) in which Hewitt competes. Directors who are not otherwise retired from service as officers of their companies are expected to maintain positions in good standing within their own companies as well as in their surrounding communities.
Directors are expected to attend Board meetings and meetings of committees on which they serve, and to spend the time needed and meet as frequently as necessary to properly discharge their responsibilities. Directors are expected to review meeting materials prior to Board and committee meetings and, when possible, should communicate in advance of meetings any questions or concerns that they wish to discuss so that management will be prepared to address the same. Directors are expected to participate actively in discussions, expressing divergent points of view and drawing on their experience.
Board Meetings
- Selection of Agenda Items and Executive Sessions. The Chairman establishes the agenda for Board meetings. Each Board member is free to suggest the inclusion of items on the agenda. Each Board member is also free to raise at any Board meeting subjects that are not on the agenda for that meeting. The full Board is regularly scheduled to meet four-six times a year. In addition, independent directors will meet at least 2 times a year, in executive session without any members of Hewitt's management, whether or not they are directors. There may, but does not need to be, a single presiding director at all executive sessions; however the directors meeting in executive session shall have to formulate and disclose the manner by which a presiding director shall be selected for each executive session. If, however, one director is chosen to preside at all executive sessions, his or her name will be disclosed in the annual proxy statement. The annual proxy statement will also disclose how interested persons may communicate with any such person or the directors who meet in executive session as a group.
- Distribution of Materials. Hewitt shall distribute, sufficiently in advance of meetings to permit meaningful review, any written materials that are important to the Board's understanding of the agenda items and other topics to be considered at a Board meeting. In the event of a pressing need for the Board to meet on short notice or if such materials would otherwise contain highly confidential or sensitive information, it is recognized that written materials may not be available in advance of the meeting.
Director Compensation
The Compensation and Leadership Committee, in accordance with the policies and principles set forth in its charter, will recommend the form and amount of director compensation for Board membership, Committee membership, and serving as Chairperson of a Board Committee. Hewitt employees who serve as directors will receive no compensation for their service as directors, but will be compensated for their reasonable and necessary out of pocket expenses incurred in the course of their duties as directors. The Compensation and Leadership Committee will periodically review directors' fees and other compensation, including how such compensation relates to director compensation for companies of comparable size and complexity. As part of such review, the Compensation and Leadership Committee also will consider the impact that excessive director compensation could potentially have on director independence. The Compensation Committee's review will include an examination of both direct and indirect forms of compensation to Hewitt's directors, including charitable contributions to organizations with which a director is affiliated, and consulting or similar arrangements. Changes to director compensation will be proposed by the Compensation Committee to the Board for its consideration.
Director Stock Ownership
In order to promote equity ownership and further align the interests of the Board with Hewitt's shareholders, non-employee directors are required to retain Hewitt common stock or common stock equivalents granted annually for service as a director. All such equity, excluding equity granted in lieu of cash compensation, must be retained while an active Board member and cannot be sold or traded until six months after leaving the Board.
Continuing Director Education
All new members of the Board participate in a formal orientation program to acquaint themselves with Hewitt's business and structure. Such program includes review of documentation of Hewitt's business and financial structure, including a review of Hewitt's history, as well as meetings with members of senior management. Ongoing, non-director members of senior management are regularly invited to meet with the Board to apprise them on Hewitt's business activities.
Assessing Board Performance
The Board, in conjunction with the Nominating and Corporate Governance Committee, will conduct an annual self-evaluation to determine whether it and its committees are functioning effectively. The Nominating and Corporate Governance Committee will ask all directors to comment as to the Board's performance and will report annually to the Board with an assessment of the Board's performance, to be discussed with the full Board following the end of each fiscal year. The Nominating and Corporate Governance Committee will utilize the results of this self-evaluation process in assessing and determining the characteristics and critical skills required of prospective candidates for election to the Board and membership on various committees.
Access to Officers and Employees
Board members have complete and open access to Hewitt's Chief Executive Officer, Chief Operating Officer, Chief Administrative Officer, Chief Financial Officer, General Counsel, Manager of Internal Audit as well as Hewitt's independent advisors. Board members are encouraged to engage in discussion with other Hewitt leaders and employees. Board members who wish to have access to such other individuals should coordinate such access through the Chairman to minimize disruption to the business.
Interaction with Third Parties
The Board believes that management should speak for Hewitt and that the Chairman should speak for the Board. It is suggested that each director refer all inquiries from institutional investors, analysts, the press or clients to the Chief Executive Officer or his or her designee.
Board Authority
The Board and each committee have the power to hire independent legal, financial or other advisors as they may deem necessary, without consulting or obtaining the approval of any officer of Hewitt
in advance.
Confidentiality
The Board believes maintaining confidentiality of information and deliberations is imperative. Information learned during the course of service on the Board is to be held confidential and used solely in furtherance of Hewitt's business.
Committee Matters
Board Committees
The Board will have at all times an Audit Committee, a Compensation and Leadership Committee, and a Nominating and Corporate Governance Committee. Each of these Committees will consist solely of independent directors satisfying, at a minimum, applicable legal, regulatory and stock exchange requirements. Committee members will be appointed by the full Board with consideration of the desires of individual directors.
The Board may, from time to time, establish or maintain additional committees as it deems necessary or appropriate.
Rotation of Committee Assignments and Chairs
Committee assignments and the designation of committee chairs should be based on each director's knowledge, interests and areas of expertise. The Board does not favor mandatory rotation of committee assignments or chairs. The Board believes experience and continuity are more important than rotation. Committee members and chairs may be rotated in response to changes in the membership of the Board and in all cases should be rotated only if rotation is likely to improve committee performance.
Committee Charters
Each committee shall have its own charter. These charters shall be posted on Hewitt's public web site and be available in printed form from Hewitt's Investor Relations department. The charters will set forth the purposes, goals and responsibilities of the committees as well as appointment and removal, committee structure and operations and committee reporting to the Board. The charters will also provide that each committee will annually evaluate its own performance.
Frequency and Length of Committee Meetings
The chair of each committee, in consultation with the committee members, will determine the frequency and length of the committee meeting consistent with any requirements set forth in the committee's charter. It is expected that the Audit and Compensation and Leadership Committees shall meet no less than four times per year and the Nominating and Corporate Governance Committee shall meet no less than two times per year.
Annual Review
The Board, or a designated committee thereof, will conduct an annual review of these guidelines and approve such amendments or modifications as it deems reasonable and appropriate to ensure effective corporate governance.
Succession Planning and Evaluation of Chief Executive Officer
The Board, in conjunction with the Compensation and Leadership Committee, sets policies and principles for CEO and senior management selection and performance review, as well as policies regarding succession in the event of an emergency or the retirement of the CEO or other member of senior management. The Board also is responsible for establishing policies and principles for the long-term succession to these positions.
The Compensation and Leadership Committee will conduct an annual review and approve corporate goals and objectives relevant to Chief Executive Officer compensation and issue its recommendation to the Board for establishing the Chief Executive Officer's compensation level based on this evaluation.
Review of Related Party Transactions
The Nominating and Corporate Governance Committee shall review, and approve or ratify, transactions between the Company and any related party, regardless of whether the transactions are reportable pursuant to Item 404 of Regulation S-K under the Securities Exchange Act of 1934, as amended. For purposes of these guidelines, a "related party transaction" is any transaction in which the Company was or is to be a participant and in which any related party has a direct or indirect material interest, other than transactions that (i) involve less than $50,000 when aggregated with all similar transactions, (ii) are available to all employees generally, (iii) involve compensation of executive officers or Directors duly authorized by the appropriate Board committee, or (iv) involve reimbursement of expenses in accordance with Company policy.
All related party transactions are to be reported to the Chief Legal Officer, prior to consummation to the extent practicable. The Chief Legal Officer shall review Officer and Director Questionnaires prepared in connection with the annual proxy preparation process and shall report to the Nominating and Corporate Governance Committee promptly after becoming aware of any related party transaction that may come to his or her attention. The Nominating and Corporate Governance Committee shall review related party transactions as they arise and are reported to the Committee and shall report on such reviews to the Board of Directors. No related party transaction shall be permitted to be consummated or to continue unless the Nominating and Corporate Governance Committee shall have approved or ratified the transaction.
For purposes of these guidelines, a "related party" is any person who is, or at any time since the beginning of the Company's last fiscal year was an executive officer or director (including in each case nominees for director), any shareholder owning in excess of five percent of the Company's common stock, and an immediate family member of an executive officer, director, or five percent shareholder.
For purposes of these guidelines, an "immediate family member" includes a person's spouse, parents, stepparents, children, stepchildren, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than employees) who shares such person's home.
