SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[ X ] Definitive proxy statement
[ ] Definitive additional material
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Watson Wyatt & Company
(Name of Registrant as Specified in Its Charter)
Watson Wyatt & Company
(Name of person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(i)(2).
[ ] $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: 1
(4) Proposed maximum aggregate value of transaction:
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the form or schedule and the date
of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
1 Set forth the amount on which the filing fee is calculated and state
how it was determined.
<PAGE>
DEFINITIVE COPIES
WATSON WYATT WORLDWIDE
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
November 6, 1996
Washington, D.C.
The Fiftieth Annual Meeting of Shareholders of Watson Wyatt & Company (the
"Company" or "Watson Wyatt") will be held on Wednesday, November 6, 1996, at
8:30 a.m., Eastern Standard Time, at 601 13th Street, N.W., Suite 900,
Washington, D.C., for the following purposes:
I. To elect directors of the Company to hold office until
the next Annual Meeting of Shareholders or until the election
and qualification of their successors.
II. To approve amendments to Article 9 of the Company's Bylaws to
modify certain aspects of the method of calculating the share
price of the Company's Common Stock and change the Bylaw
references from Net Book Value to Formula Book Value.
III. To transact such other business as may properly come
before the meeting or any adjournment thereof.
The close of business on October 13, 1996, has been fixed as the record date for
the determination of shareholders entitled to notice of and to vote at the
meeting.
WE STRONGLY URGE YOU TO REVIEW THIS PROXY STATEMENT AND TO COMPLETE AND RETURN
THE ENCLOSED PROXY BALLOT AS SOON AS POSSIBLE. YOUR VOTE IS IMPORTANT NO MATTER
HOW MANY SHARES YOU OWN. VOTING YOUR SHARES IMMEDIATELY WILL HELP TO AVOID
COSTLY FOLLOW-UP E-MAIL AND TELEPHONE SOLICITATION.
TO ASSURE THAT YOUR SHARES WILL BE VOTED AT THE MEETING, PLEASE COMPLETE, SIGN
AND DATE THE ENCLOSED PROXY BALLOT PROMPTLY AND DELIVER IT TO YOUR OFFICE
ADMINISTRATOR IN THE ENCLOSED ENVELOPE. OFFICE ADMINISTRATORS WILL FORWARD THE
SEALED ENVELOPES TO PRICE WATERHOUSE LLP IN WASHINGTON, D.C.
By Order of the Board of Directors
Walter W. Bardenwerper, Secretary
Washington, D.C.
October 14, 1996
<PAGE>
WATSON WYATT WORLDWIDE
P R O X Y S T A T E M E N T
ANNUAL MEETING OF SHAREHOLDERS
NOVEMBER 6, 1996
This Proxy Statement and the attached Proxy are being furnished to shareholders
("Shareholders") of Watson Wyatt & Company (the "Company") on or about October
14, 1996, in connection with the Annual Meeting of Shareholders of the Company
to be held on November 6, 1996, at the time and place and for the purposes set
forth in the accompanying notice of the meeting.
The accompanying Proxy is solicited on behalf of the management of the Company.
Shareholders who execute proxies retain the right to revoke them at any time
prior to the voting thereof by giving notice to the Company in writing or in
person at the meeting. All shares of the Company's common stock ("Common Stock")
represented by properly executed and unrevoked proxies received in time for the
Annual Meeting will be voted.
FINANCIAL DATA AND OTHER INFORMATION
A copy of the Annual Report to Shareholders of the Company for the fiscal year
ended June 30, 1996 accompanies this Proxy Statement. The Annual Report includes
descriptions of the operations of the Company and presents the Company's audited
financial statements.
OUTSTANDING STOCK ENTITLED TO VOTE
Each holder of record of Common Stock at the close of business on October 13,
1996 is entitled to one vote per share on each matter to come before the Annual
Meeting. At the close of business on October 1, 1996, 17,203,775 shares of
Common Stock were outstanding and entitled to vote. Shares representing a
majority of all of the outstanding shares of the Company must be represented at
the meeting in person or by Proxy in order to conduct business at the meeting.
A list of Shareholders will be available for inspection at least ten days prior
to the Annual Meeting at the Office of the Secretary, 601 Thirteenth Street,
N.W., Suite 900, Washington, D.C. 20005.
I. ELECTION OF DIRECTORS
The Board of Directors has nominated the fifteen individuals listed below for
election to the Board of Directors. Subject to prior resignation or removal,
each Director elected will hold office until the next Annual Meeting or until
his/her successor is elected and qualified. The election of any individual
Nominee to the Board requires the affirmative vote of a majority of the
outstanding shares present in person, or by Proxy, at the Annual Meeting. For
purposes of determining the existence of a quorum, votes to withhold authority
and to abstain will be counted as present and will have the same effect as "no"
votes for purposes of determining whether the required vote has been obtained.
<PAGE>
If any nominee for a directorship is unable to serve as a Director at the time
of the Annual Meeting, the proxies may be voted for a substitute nominee
selected by the Board of Directors. Management has no reason to believe, at this
time, that any of the nominees listed below will be unable to serve.
Although the Company's Bylaws permit a maximum of twenty-five directors, the
Bylaws give the Board of Directors the authority to determine the actual number
of directors within that limit. The Board of Directors has set the size of the
Board at fifteen. The Board of Directors recommends that the Shareholders vote
FOR each of the fifteen nominees listed below.
BIOGRAPHICAL INFORMATION FOR NOMINEES TO THE BOARD
Walter W. Bardenwerper (Age - 45): Vice President, General Counsel, Secretary,
and Director, as well as an officer and director of various subsidiaries of the
Company, Mr. Bardenwerper joined the Company in 1987 as General Counsel and
Assistant Secretary. He is a member of the Executive and Finance Committees of
the Board and has been a Director since 1992. Mr. Bardenwerper is also a
Director of Watson Wyatt Investment Consulting, Inc. and is on the Board of
Managers of Wellspring Resources, LLC.
Charles A. Clemens (Age - 54): Vice President, Midwest Regional
Manager, Director, and a member of the Board of Directors of Watson
Wyatt Investment Consulting, Inc., in 1968, Mr. Clemens became a consultant
with a business later acquired by the Company. Mr. Clemens is Chair of the
Executive Committee and is a member of the Finance Committee of the Board
and has been a Director since 1992. Mr. Clemens formerly managed the
Cleveland office. Mr. Clemens is the brother-in-law of Mr. Daoust.
Paul R. Daoust (Age -48): Executive Vice President, Chief Operating Officer and
Director, as well as an officer and director of various subsidiaries of the
Company, in 1970, Mr. Daoust joined a business later acquired by the Company.
Mr. Daoust is a member of the Executive and the Compensation & Stock Committees
of the Board and has been a Director since 1989. Mr. Daoust is a
Director of Watson Wyatt Holdings (Europe) Limited. Mr. Daoust
formerly managed the Boston and New York offices. Mr. Daoust is the
brother-in-law of Mr. Clemens.
John J. Gabarro (Age - 57): Director, Mr. Gabarro has served as the UPS Foun-
dation Professor of Human Resource Management at the Harvard Business School
since 1990. Mr. Gabarro joined the Harvard faculty as an associate professor in
1972, and became a full professor in 1979. Mr. Gabarro has served as faculty
chairman of Harvard's International Senior Management Program and as
Chairman of its Organizational Behavior and Human Resources Management
faculty. Mr. Gabarro has worked as a consultant on organizational
change and executive transitions. He also serves as trustee of the American
Institute for Managing Diversity, and of the Worcester Polytechnic Institute.
Mr. Gabarro is a member of the Audit Committee of the Board and has been a
Director since 1995.
John J. Haley (Age - 46): Vice President, Retirement
Practice Director and Director, Mr. Haley joined the Company in 1977 as a
consulting actuary, and continues to render services in the retirement field.
Mr. Haley is a member of the Executive Committee and Chair of the Finance
Committee of the Board and has been a Director since 1992. Mr. Haley is a
member of the Management Committee of Watson Wyatt Partners ("Watsons"). Mr.
Haley formerly managed the Washington, D.C. office.
<PAGE>
Gary T. Hallenbeck (Age - 53 ): Vice President, Northeast Regional Manager,
Managing Consultant, New York and Director, Mr. Hallenbeck joined the Company
in 1993. From 1970 to 1993, Mr. Hallenbeck was with the management consulting
firm of Towers Perrin in a series of positions, including Vice President and
Manager-Employee Benefit Consulting Services from 1987 to 1990, and Vice
President and Manager of the New York office from 1990 to 1993. From 1988 to
1991, Mr. Hallenbeck was a Director of Towers Perrin. Mr. Hallenbeck
is a member of the Compensation and Stock and President's Pay
Committees of the Board and has been a Director since 1995.
Daniel B. Holmes (Age - 50): Vice President, Managing Consultant, Boston, and
Director, Mr. Holmes joined the Company in 1984 as a group healthcare practice
leader in the Boston office, and has served as Chair of the Group Healthcare
Practice. Mr. Holmes is a member of the Finance and the President's Pay
Committees of the Board and has been a Director since 1992. Mr. Holmes is
on the Board of Managers of Wellspring Resources, LLC.
Ira T. Kay (Age - 46):
Practice Director of the Company's Compensation Practice, Mr. Kay has been
with the Company since 1993. Prior to his tenure with the Company, Mr. Kay was
a Managing Director and served on the Partnership Management Committee of
The Hay Group. Prior to his association with Hay, Mr. Kay was a Managing
Director in the Human Resources Department of Kidder Peabody.
Brian E. Kennedy (Age - 53): Vice President, Managing Director, Canada and
Managing Consultant, Toronto, Mr. Kennedy joined the Company in 1995. Prior to
joining the Company, Mr. Kennedy was with the Alexander Consulting Group for 18
years, most recently as Chairman and Chief Executive Officer of Alexander Clay,
their U.K and European operations. Beginning in 1986, Mr. Kennedy served on the
Board of Directors of several Alexander Consulting Group companies.
Robert D. Masding (Age - 52): Senior Partner, Watsons, and
Director, Mr. Masding has been engaged in the actuarial consulting business
since 1969 and has been a partner of Watsons, which is a U.K.
partnership, since 1972. Mr. Masding has been a Director since March 1995,
subsequent to the formation of the alliance between the Company and Watsons.
R. Michael McCullough (Age - 58): Director, Mr. McCullough is Senior Chairman
of Booz, Allen & Hamilton. Mr. McCullough was elected to head Booz, Allen and
Hamilton in 1984. He joined Booz, Allen and Hamilton in 1965 as a
consultant, and was elected a Partner in the firm in 1971. In 1978 he
became Managing Partner of the firm's Technology Center. Mr. McCullough
is a member of the Boards of Interstate Hotels, O'Sullivan Corporation and Host
Marriott Management Services. Mr. McCullough has been a Director of the
Company since July 1996, when he was appointed to fill a vacancy.
A. W. "Pete" Smith, Jr. (Age - 52): President,
Chief Executive Officer and Director, as well as an officer and director of
various subsidiaries of the Company, Mr. Smith joined Cole Surveys, a subsidiary
of the Company, in 1968. Mr. Smith is a member of the Executive and Compensation
and Stock Committees of the Board and has been a Director since 1986. Mr. Smith
is also a Director of Watson Wyatt Holdings (Europe) Limited and on the
Board of Managers of Wellspring Resources, LLC. From 1985 to 1992, Mr.Smith was
Manager of the Company's San Francisco office; subsequently, he was Manager of
the Washington, D.C. office from 1992 to 1993.
John A. Steinbrunner (Age - 46) Midwest Region Retirement Practice Leader
and Senior Retirement Consultant in Watson Wyatt's
Cleveland office, Mr. Steinbrunner has been with the Company since 1974. Mr.
Steinbrunner was formerly the Retirement Practice Director.
<PAGE>
A. Grahame Stott (Age - 42): Vice President, Managing Director, Asia Pacific
Region and Director, Mr. Stott has been with the Company since 1982, has
served as a consultant in and manager of the Hong Kong office and is Chair
of the Asia/Pacific Retirement Committee of the Board. Mr. Stott has been a
Director since November 1995 when he was appointed to fill a vacancy.
Angela H. Watson (Age - 42): Vice President
and Director, Ms. Watson joined the Company in 1981 as a consultant in the Group
and Healthcare Practice. She is currently an account manager, and is the
Northeast Region's Director of Marketing and Client Relations. Ms. Watson is
Chair of the Human Resources Committee, a member of the U.S. Benefits Committee,
and has been a Director since 1993.
STANDING COMMITTEES OF THE BOARD
Executive Committee
Walter W. Bardenwerper
Charles A. Clemens - Chair
Paul R. Daoust
John J. Haley
A. W. Smith, Jr.
The Executive Committee oversees and reviews the Company's long-range corporate
and strategic planning. Additionally, it meets throughout the year between
meetings of the Board of Directors to review, consider and make decisions
affecting general management policies of the Company, to approve significant
business decisions not requiring full Board approval and to make recommendations
to the executive officers and the Board. The Committee held seven meetings
during fiscal year 1996.
Compensation and Stock Committee
Paul R. Daoust
Gary T. Hallenbeck*
A. W. Smith, Jr.
Robert J. Webb*- Chair
The Compensation and Stock Committee oversees general compensation policies and
practices, and makes recommendations and certain decisions regarding the
administration of Common Stock transactions. The Compensation and Stock
Committee does not, however, establish the compensation of the President, which
is set by the President's Pay Committee. The Committee held three meetings
during fiscal year 1996.
Note: The Board of Directors does not have a nominating committee or a
committee performing similar functions.
*Also a member of the President's Pay Committee.
<PAGE>
Audit Committee
John J. Gabarro
Sylvester J. Schieber - Chair
Robert J. Webb
The Audit Committee assesses and monitors the control of financial transactions
and oversees financial reporting to Shareholders and others. It also reviews (in
cooperation with the Company's internal auditors, independent accountants and
management) the Company's internal accounting procedures and controls, and the
adequacy of the accounting services provided by the Company's Finance and
Administration office. The Committee held three meetings during fiscal year
1996.
Finance Committee
Walter W. Bardenwerper
Charles A. Clemens
John J. Haley - Chair
Daniel B. Holmes*
Barbara L. Landes (non-director member)
The Finance Committee reviews and considers issues relating to the capital
structure of the Company. This includes strategic determinations regarding the
financing of the Company's future growth and development. The Committee held
nine meetings during fiscal year 1996.
DIRECTORS' MEETINGS
The Board of Directors conducted seven meetings during fiscal year 1996. All
directors attended more than 75% of the meetings of the Board and the Committees
on which they served. All of the current Directors who are associates of the
Company are not compensated separately for their services as directors or as
members of any Committee of the Board. The Bylaws of the Company, however, do
not prohibit directors who are not active associates from receiving
compensation. Outside Directors in fiscal 1996 were paid a quarterly retainer of
$6,250 plus $1,500 per day for Board meetings, $1,000 per day for regular
Committee meetings ($750 if held in conjunction with a Board meeting), and
$2,000 per day for Committee meetings if the outside Director chaired that
Committee ($1,000 if held in conjunction with a Board meeting). These fees
are paid in shares of the Company's Common Stock (up to 7,500 shares), and
the balance is paid in cash. The Company intends to continue to similarly
compensate outside directors for services rendered. The Company's
Restated Certificate of Incorporation and its Bylaws provide that a
Director need not be a shareholder of the Company.
*Also a member of the President's Pay Committee
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of October 1, 1996. The
figures below include shares owned through the Company's Stock Purchase Plan and
the Stock Ownership Plan. Information is given below on an individual basis for
all current Directors and Nominees to the Board and the five most highly
compensated Executive Officers of the Company, and for all of the Company's
Executive Officers and Directors as a group.
<TABLE>
<CAPTION>
Number of Outstanding Shares
of Common Stock Beneficially
Name and Principal Owned on October 1, 1996
Occupation with the Company (Percentage of Total Shares)
<S> <C>
Walter W. Bardenwerper 91,936 (*)
Vice President; General Counsel
and Secretary
Charles A. Clemens 301,200 (1.75%)
Vice President and
Midwest Regional Manager
Paul R. Daoust 301,318 (1.75%)
Executive Vice President
and Chief Operating Officer
John J. Gabarro 7,500 (*)
Director
John J. Haley 227,749 (1.32%)
Vice President; Retirement
Practice Director
Gary T. Hallenbeck 102,500 (*)
Vice President; Managing
Consultant, New York;
Northeast Regional Manager
* Beneficial ownership of 1% or less of all of the outstanding Common Stock is
indicated with an asterisk.
<PAGE>
Number of Outstanding Shares
of Common Stock Beneficially
Name and Principal Owned on October 1, 1996
Occupation with the Company (Percentage of Total Shares)
<S> <C>
Daniel B. Holmes 134,318 (*)
Vice President; Managing
Consultant, Boston
Ira T. Kay 32,200 (*)
Practice Director, Compensation
Practice
Brian E. Kennedy 20,000 (*)
Vice President; Managing
Consultant, Toronto;
Managing Director, Canada
Robert D. Masding 0 1
Senior Partner,
Watson Wyatt Partners
R. Michael McCullough 0 2
Director
Sylvester J. Schieber 123,338 (*)
Vice President; Director of the
Research and Information Center
A. W. Smith, Jr. 276,342 (1.61%)
President and Chief
Executive Officer
John A. Steinbrunner 98,191 (*)
Midwest Region Retirement
Practice Leader
A. Grahame Stott 89,000 (*)
Vice President; Managing
Director, Asia Pacific Region
Angela H. Watson 52,704 (*)
Vice President
Robert J. Webb 295,800 (1.72%)
Vice President; Managing
Consultant, Dallas;
Southwest Regional Manager
All current directors and executive officers 2,289,664 (13.31%)
as a group (18)
<FN>
* Beneficial ownership of 1% or less of all of the outstanding Common Stock is
indicated with an asterisk.
1Watson Wyatt Holdings Limited, which is wholly-owned by Watson Wyatt Partners,
in which Mr. Masding is a senior partner, owns 355,000 shares of the Company's
Common Stock.
2Mr. McCullough is a new Director and will be acquiring shares in the future.
</FN>
</TABLE>
COMMON STOCK PURCHASE ARRANGEMENTS
To encourage ownership of Common Stock by associates, the Company maintains a
Stock Purchase Plan ("SPP"). The Company regularly sells Common Stock to
associates in February or March of each year pursuant to the SPP. Historically,
ownership of the Common Stock has been spread widely among associates, with no
individual shareholder owning more than 2% of the total number of shares
outstanding. Until recently, it has been the Company's policy not to sell shares
to shareholders who, as a result of such sales, would have purchased more than
300,000 shares under the SPP. The Company has recently reduced this number to
200,000.
Many transfers of Common Stock occur each year among associates and the Company
because the Company's Bylaws require that associates who leave the Company must
offer to resell their shares of Common Stock to the Company or to other
associates. It is unlikely, however, that more than 25% of the Company's
outstanding shares would be transferred in any particular year. Moreover,
because such transfers occur among many individuals, they are unlikely to result
in any change in control of the Company. The SPP permits associates to borrow up
to the full amount of the purchase price of the Common Stock from the Company's
lenders and the Company guarantees all such loans. As of October 1, 1996,
3,426,714 shares of the Common Stock were pledged to the Company's lenders to
secure loans to shareholders, representing approximately 19.9% of the
outstanding shares of Common Stock. Few shareholders have ever defaulted on
their loans and no lender has ever obtained (or even attempted to obtain)
ownership of pledged shares. The Company believes it is unlikely that financing
arrangements under the SPP would result in any change in control of the Company.
BIOGRAPHICAL INFORMATION FOR OTHER EXECUTIVE OFFICERS OF THE COMPANY
Robert J. Ellis (Age - 50): Vice President and Director of Marketing, Mr. Ellis
joined the Company in 1980 as a consultant in the area of employee
communications and has previously served as Chair of the Communications Practice
Committee. Mr. Ellis was a Director from 1992 to 1993.
<PAGE>
Barbara L. Landes (Age - 46): Vice President, Finance and Chief Financial
Officer, Ms. Landes joined the Company in 1994. From 1989 to 1993,
Ms. Landes served as the Senior Vice President, Finance & Operations for
WWOR-TV, Inc., a company primarily engaged in the media and entertainment
business. Within that time period, Ms. Landes also held the positions of Vice
President, Chief Financial Officer and Treasurer of Pinelands, Inc. which was
the parent company of WWOR-TV, Inc. Ms. Landes is a non-director member of
the Finance Committee of the Board.
Gary M. Lawson (Age - 44): Vice President,
Southeast Regional Manager, and Managing Consultant, Atlanta, Mr. Lawson joined
the Company in 1988 as a compensation consultant and previously served as Chair
of the Compensation Practice Committee. Mr. Lawson was a Director from 1992 to
1993.
Paul V. Mee (Age - 50): Vice President, Western Regional Manager, and Managing
Consultant, Southern California, Mr. Mee joined the Company in 1994. From 1990
to 1994, Mr. Mee was a Managing Director of Alexander Consulting Group, a human
resources and benefits consulting firm. Prior to that position, he was a
Principal and Practice Leader with Towers Perrin.
Sylvester J. Schieber (Age - 50): Vice President, Director and Director of the
Research and Information Center, Mr. Schieber joined the Company in 1983. Mr.
Schieber consults in the area of health care and retirement policies. Mr.
Schieber is Chairman of the Audit Committee of the Board and has been a Director
since 1989.*
Robert J. Webb (Age - 53): Vice President, Southwest Regional
Manager, Managing Consultant, Dallas, and Director, Mr. Webb joined the Company
in 1964 and became Manager of the Dallas office in 1987. Mr. Webb is Chairman of
the Compensation and Stock and President's Pay Committees of the Board,
and a member of the Audit Committee and has been a Director since 1987.*
* not standing for re-election
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth annual compensation for services rendered to the
Company in all capacities for the fiscal years ended June 30, 1996, 1995 and
1994 by those persons who were, on June 30, 1996, the Chief Executive
Officer/President and the other four most highly compensated Executive Officers
of the Company:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
(U.S. Dollars)
Annual Compensation
Other
Total Annual
Name and Fiscal Salary/ Compensation1
Principal year Salary Bonus Bonus
Position
<S> <C> <C> <C> <C> <C>
A.W. Smith, Jr. 1996 559,300 300,000 859,300 20,000
President, CEO 1995 534,300 128,000 662,300 25,000
and 1994 500,000 180,000 680,000 25,000
Director
(Prior to August
1, 1993,
Vice President
and Director)
Paul R. Daoust 1996 507,800 275,000 782,800 10,000
Executive Vice 1995 483,600 116,000 599,600 15,000
President, 1994 445,000 160,000 605,000 18,000
COO and Director
(Prior to August
1, 1993,
Vice President
and
Director)
Charles A. 1996 413,700 300,000 713,700 12,100
Clemens 1995 390,900 200,000 590,900 29,600
Vice President; 1994 373,100 185,000 558,100 12,500
Midwest
Regional
Manager
and
Director
Gary T. 1996 443,100 200,000 643,100 40,000
Hallenbeck 1995 415,000 200,000 615,000 32,500
Vice President; 1994 271,300 450,000 2 721,300 30,000
Northeast
Regional Manager;
Managing
Consultant, New
York and Director
John J. Haley 1996 385,700 225,000 610,700 30,000
Vice President; 1995 352,000 150,000 502,000 19,500
Retirement 1994 313,900 205,000 518,900 19,800
Practice
Director and
Director
<FN>
1 "Other Annual Compensation" consists of a cash bonus of $1 per share for
each share purchased in 1996, 1995, and 1994 under the Stock Purchase
Plan. This bonus was also available to all participating
associates.
2 Includes a $300,000 bonus paid at the time of hire to compensate
for sums forfeited as a result of leaving his prior employer.
</FN>
</TABLE>
<PAGE>
DEFINED BENEFIT PLANS
Pension Plan for U.S. Associates. The following table sets forth the estimated
annual benefits (excluding Social Security) under the Company's qualified
pension plan and non-qualified excess pension plans to a U.S. associate who
qualifies for normal retirement in fiscal year 1996 with the specified average
salary during the three consecutive fiscal years with highest aggregate annual
salaries prior to retirement and the specified years of credited service:
Annual Benefit Amounts 1:
<TABLE>
<CAPTION>
Average Annual Salary
for
Three-Year
Period
with Highest
Earnings Years of Credited Service
Preceding
Retirement 10 15 20 25 28
<S> <C> <C> <C> <C> <C>
$150,000 $34,857 $52,285 $69,713 $83,392 $91,599
250,000* 59,857 89,785 119,713 143,392 157,599
350,000* 84,857 127,285 169,713 203,392 223,599
450,000* 109,857 164,785 219,713 263,392 289,599
550,000* 134,857 202,285 269,713 323,392 355,599
650,000* 159,857 239,785 319,713 383,392 421,599
750,000* 184,857 277,285 369,713 443,392 487,599
850,000* 209,857 314,785 419,713 503,392 553,599
<FN>
1 The annual benefit at normal retirement (age 65) under the qualified plan
is equal to 2-1/2% times the associate's average salary for the three
consecutive years with the highest annual salaries for each completed
year and month of continuous service up to 20 years, plus 2% times the
associate's average salary for such three-year period for each completed
year and month of continuous service over 20 years, up to a maximum of
8-1/3 years, less 30/17% of the associate's estimated Social Security
benefit for each completed year and month of continuous service, up to a
maximum of 28-1/3 years of service.
* As required by Section 415 of the IRC, qualified plan payments may not
provide annual benefits exceeding a maximum amount, currently $120,000.
For those associates who are covered under the excess plans, amounts
above this maximum will be paid under the terms of the excess plans, up
to the amounts shown in the table above. Pursuant to Section 401(a)(17)
of the IRC, annual compensation in excess of $150,000 (for FY95) cannot
be taken into account in determining qualified plan benefits.
</FN>
</TABLE>
The years of credited service for the associates named in the cash compensation
table as of June 30, 1996 are: Mr. Smith - 27.6 years; Mr. Daoust - 26.1 years;
Mr. Clemens - 28.1 years, Mr. Hallenbeck - 2.8 years and Mr. Haley - 19.2 years.
Benefits are based solely on the compensation shown in the "salary" column of
the Summary Compensation Table.
<PAGE>
Pension Plan for Canadian Associates. The following table sets forth the
estimated annual benefits (excluding Canada/Quebec Pension Plan benefits) under
the Company's registered and excess pension plans (in U.S. Dollars converted
from Canadian Dollars at an exchange rate of US$0.7350 per CDN$1.00) to a
Canadian associate who qualifies for normal retirement in fiscal year 1996 with
the specified average earnings during the three calendar years with the highest
average annual salary prior to retirement and the specified years of credited
service:
Annual Benefit Amounts 1:
<TABLE>
<CAPTION>
Average Annual Earnings for Years of Credited Service
Three-Year Period
with Highest Earnings
Preceding 20 25 30
Retirement
<S> <C> <C> <C>
$ 110,250 $52,862 $63,321 $70,293
183,750 89,612 107,421 119,293
257,250 126,362 151,521 168,293
330,750 163,112 195,621 217,293
<FN>
1 Under the registered plan, the annual benefit at normal retirement (age
65) is based on the associate's average annual salary and credited
service and equals 2% of the average annual earnings multiplied by the
associate's credited service. Average annual earnings is the average
annual rate of taxable compensation excluding taxable benefits of an
associate for the period of 36 consecutive months which produces the
highest average. In accordance with Canadian tax rules, the value of any
pension benefits payable to the associate from the registered plan shall
not, in the year of pension commencement, exceed certain amounts
prescribed by the Income Tax Act and regulations pursuant thereto. Under
the non-registered plan, the annual benefit at normal retirement (age
65), inclusive of the registered plan benefit, is equal to 2.5% of the
associate's average salary for the three consecutive years with the
highest annual salaries for each completed year and month of continuous
service up to 20 years, plus 2.0% of the associate's average salary for
such three-year period for each completed year and month of continuous
service over 20 years, up to a maximum of 8-1/3 years, less 30/17% of
the associate's estimated Canada/Quebec Pension Plan Benefit for each
completed year and month of continuous service, up to a maximum of
28-1/3 years of service.
</FN>
</TABLE>
Supplemental Retirement Program for U.S. and Canadian Associates. This
non-qualified program provides to senior associates additional temporary
retirement benefit incentives to retire before age 65. Effective October 1,
1995, associates eligible for benefits under this program were those who: (1)
had attained age 50 and had at least 10 years of credited service or whose age
plus years of credited service equals 75 (U.S. associates only), and (2) had
average annual compensation at termination at least equal to the current minimum
compensation level, which was $115,036 in the U.S., and CDN$116,200 in Canada as
of June 30, 1996. Prior to October 1, 1995, eligibility for early retirement was
age 55 with 15 or more years of credited service. Annual compensation is equal
to 12 times the rate of monthly salary as of May 1 plus any amount payable as
the fiscal year end bonus and mid fiscal year bonus, if any, for each of the
three consecutive fiscal years that results in the highest average. This plan
includes a provision which states that increases in annual compensation received
after December 31, 1995 shall not be taken into account in determining the
average. For purposes of this program, annual compensation refers to
compensation amounts shown in the "Total Salary/Bonus" column of the Summary
Compensation Table. The benefit formula under the Supplemental Retirement
<PAGE>
Program is approximately the same as the formula under the qualified pension
plan and is inclusive of benefits under the qualified and excess pension plans.
Benefits under the Supplemental Retirement Program are paid from retirement
until the associate reaches age 65. Any pension effect related to this program
has not been considered in the preceding tables, since the tables assume normal
retirement (age 65).
The Company also has other pension plans which have been established in several
countries for the benefit of eligible associates in those jurisdictions.
REPORT OF THE COMPENSATION AND STOCK COMMITTEE/PRESIDENT'S PAY COMMITTEE
ON EXECUTIVE COMPENSATION
Compensation Philosophy. The Company's compensation program is designed to
attract, motivate and retain quality associates by providing competitive total
compensation based on individual and company performance factors. In addition,
the program is designed to be flexible in order to permit adjustments
necessitated by general economic conditions or individual circumstances. The
Company's compensation philosophy applies to all associates, including
executive officers. Specifically, the compensation program is designed to:
1. Create a performance-oriented environment with variable
compensation based upon achievement of annual and long term
results;
2. Focus management on maximizing shareholder value while at the
same time adequately compensating all associates; and
3. Provide compensation that reflects the Company's performance
relative to its key competitors and changes in its own
performance over time.
For the fiscal year ended June 30, 1996 the compensation of the Company's
executive officers (and all other bonus-eligible associates) was comprised
primarily of three elements: Base salary, fiscal year-end bonuses and cash
bonuses related to Stock Purchase Plan allocations. In any given year,
the Compensation and Stock Committee and the Board of Directors will determine
what amounts, if any, should be distributed as compensation payments under the
Company's available plans.
Determination of Compensation of the CEO. The base compensation of the CEO for
fiscal 1996 was established taking into account the following factors:
1. The CEO's level of base compensation received in fiscal 1995.
2. Annual increases based upon progress made by the CEO in improving
the Company's financial performance as well as achieving other
key objectives and comparative annual increases granted to other
associates within the Company.
3. Information regarding compensation levels of CEOs of
companies in similar industries.
<PAGE>
The fiscal year-end bonus of the CEO was primarily determined by a formula that
related to the Net Operating Income (NOI) of the Company. NOI was defined to be
the Company's net income before income taxes and discretionary payments such as
bonuses, profit sharing and dividends. The formula bonus was then adjusted
according to other factors the Committee deemed relevant based on the
Performance Development Plan established for the CEO at the beginning of the
fiscal year.
During fiscal 1996, the CEO was granted a cash bonus of $1 per share for each
share purchased under the Company's 1996 Stock Purchase Plan. This bonus was
also granted to all other associates purchasing stock under the 1996 Stock
Purchase Plan.
Determination of Compensation of Other Executive Officers. The base compensation
and fiscal year-end bonuses of the Company's other Executive Officers are
determined by the CEO and COO (except with respect to the COO's own
compensation, which is determined by the CEO after consultation with the
President's Pay Committee) consistent with the factors described above and also
taking into account the performance of the business units managed by these
individuals.
President's Pay Committee Compensation and Stock Committee
Gary T. Hallenbeck Paul R. Daoust
Daniel B. Holmes Gary T. Hallenbeck
Robert J. Webb - Chair Bruce I. Rollick*
A.W. Smith, Jr.
Robert J. Webb - Chair
COMPENSATION AND STOCK COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
The members of the Company's Compensation and Stock Committee as of June 30,
1996, were Paul R. Daoust, Gary T. Hallenbeck, Bruce I. Rollick, A.W. Smith, Jr.
and Robert J. Webb. All are officers of the Company or its subsidiaries.* The
members of the Committee, however, do not participate in the decisions regarding
their own compensation levels.
SHAREHOLDER RETURN GRAPH
The graph set forth on the following page depicts total cumulative shareholder
return and assumes $100 invested on July 1, 1991 in the Company's Common Stock,
the New York Stock Exchange Broad Market Index, and an independently compiled
industry peer group index comprised of the common stock of companies within the
management consulting services standard industrial classification code. The
graph assumes reinvestment of dividends. Please note that returns on the
Company's Common Stock are calculated using stock prices determined
in accordance with the Company's Bylaws, whereas the returns shown for the
indices are based on the value of shares traded on an open market.
The independently compiled peer group index was utilized because the Company's
most direct competitors do not make their financial information publicly
available.
*Bruce Rollick served on this Committee through June 30, 1996, when he retired
from the Company.
<PAGE>
Comparative 5-Year Cumulative Total Return
Among Watson Wyatt, Peer Group, and Broad Index
<TABLE>
<CAPTION>
Year Watson Wyatt Peer Group NYSE Broad
Common Stock Index Market Index
<S> <C> <C> <C>
1991 100.00 100.00 100.00
1992 89.81 75.31 113.82
1993 87.26 72.65 129.08
1994 94.27 71.03 133.58
1995 95.75 81.86 159.45
1996 104.88 137.42 199.49
</TABLE>
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 1, 1995, the Company transferred its United Kingdom operations to R
Watson & Sons (subsequently renamed Watson Wyatt Partners) and received a
beneficial interest and a 10% interest in a defined profit pool of the
partnership. The Company also transferred its Continental European operations to
a newly formed holding company owned by the Company and Watson Wyatt Partners in
exchange for 50.1% of its shares. Mr. Robert D. Masding, a senior partner of
Watson Wyatt Partners, is a member of the Company's Board of Directors. Watson
Wyatt Partners and the Company provide various services to and on behalf of each
other in the ordinary course of business.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's executive officers and directors to file certain reports with the
Securities and Exchange Commission relating to their ownership of, and
transactions in, the Company's Common Stock. To the Company's knowledge, based
on review of the copies of such filed reports, all Section 16(a) filing
requirements applicable to such officers and directors have been complied with,
except that due to an administrative oversight, Forms 4 reporting the
acquisition of rights to purchase common stock by the directors and executive
officers of the Company were filed concurrently with the Forms 4 reporting the
actual purchase of such shares. Also, due to an administrative oversight, a Form
4 for Mr. Rollick was inadvertently filed a few days late.
II. PROPOSED AMENDMENTS TO ARTICLE 9 OF THE COMPANY'S BYLAWS
TO MODIFY CERTAIN ASPECTS OF THE METHOD OF CALCULATING
THE SHARE PRICE OF THE COMPANY'S COMMON STOCK AND
CHANGE THE BYLAW REFERENCES FROM "NET BOOK VALUE"
TO "FORMULA BOOK VALUE"
The Board of Directors seeks Shareholder approval of a proposal to amend Section
9.9(b) of the Company's Bylaws (the "Amendment") to modify the method of
calculating the share price of the Company's Common Stock through three specific
changes described below. The Company's Board of Directors unanimously approved
the amendment on August 23, 1996 and recommends that the Shareholders approve
the Amendment.
<PAGE>
CURRENT DEFINITION OF NET BOOK VALUE OF COMMON STOCK
Shares of Common Stock of the Company are valued according to a formula set
forth in the Company's Bylaws. Section 9.9 of the Bylaws currently defines the
Net Book Value of Common Stock ("Net Book Value") as "the consolidated net book
value of the Common Stock of the Corporation determined, on an accrual basis, by
generally accepted accounting principles ("GAAP"), except that in computing such
Net Book Value as of June 30, 1984, or any subsequent fiscal year end,
consolidated assets of the Corporation consisting of subscriber lists, computer
software and data banks used principally in compensation survey or related
businesses carried on by the Corporation or any subsidiary shall be valued at
50% of the Consolidated income [revenue] received by the Corporation in respect
of such business during the fiscal year then ended."
PROPOSED AMENDMENT
Overview. The proposed Amendment would modify the formula for
determining the price of the Company's Common Stock to eliminate
temporary variations in stock value arising from certain non-operating
transactions by:
(i) spreading the economic impact of certain real estate sublease
losses over the remaining life of the sublease;
(ii) eliminating annual changes in the Currency Translation
Adjustment ("CTA")occurring after June 30, 1996, and
(iii) eliminating for future years the adjustment related to the value
of the Company's survey business.
Share value for the fiscal year ended June 30, 1996 was calculated using the
current Net Book Value formula. The proposed amendment has no immediate impact
on the price per share of the Company's common stock for fiscal year 1996 and
would only affect the method of calculating the per share price on a
prospective basis. The Company would continue to prepare its financial
statements using GAAP consistent with the requirements of the Securities and
Exchange Commission. The modified formula, which would be called "Formula
Book Value," would be used to determine share price for periods subsequent
to June 30, 1996. Formula Book Value would be the Net Book Value as of June
30, 1996, increased or decreased by net income or losses, and all other GAAP
basis increases or decreases to Net Book Value occurring after June 30,
1996, adjusted as detailed in items (i) and (ii) above. The adjustment for
the Company's survey business which is currently part of Net Book Value (as
previously defined) will no longer be made.
As noted above, currently the share price of the Company's Common Stock is
calculated using the Net Book Value calculation set forth in the Company's
Bylaws. Share value therefore varies based primarily upon earnings (and, of
course, as a result of net purchases and sales of the Company's common stock),
which affects all Shareholders equally. Sublease losses and currency translation
adjustments are recognized under GAAP before they are realized in the day-to-day
operations of the Company. These temporary effects have a disproportionate
<PAGE>
impact in the short-term on prospective buyers or sellers of shares,
respectively. In the case of real estate subleases, the immediate loss
recognition required under GAAP may also discourage prudent transactions such as
physical relocations of Company facilities (as further described below). Thus,
the Company believes it is both appropriate, and in the long term best
interests of the Company and its Shareholders, to eliminate these temporary
effects. Further, the Company believes that unique adjustments for the survey
business which were added to the Bylaws in 1984 are no longer necessary or
appropriate.
The Company, therefore, proposes to change the method of calculating its share
price as described below to more accurately align share value with the long-term
business interests of the Company.
Adjustment for Real Estate Lease Transactions. From time to time, typically in
order to reduce occupancy costs, the Company may determine that it is beneficial
to relocate offices or reduce the square footage of existing offices.
Sublease losses arise when the actual rent and ancillary costs of the property
being subleased exceed the subtenant's rent payment. A relocation often
results in a reduction of the square footage or rent per square foot and a
concomitant reduction in operating expense, which creates economic value to the
Company in excess of any such sublease loss. Even though the net reduction in
operating expenses may be recognized prospectively over a period of several
years, GAAP requires that the sublease loss be recorded at the time office
space under a continuing leasehold no longer has any future use or benefit
to the Company.
For purposes of calculating share price only, management believes that it is
appropriate to defer and amortize these sublease losses over the lease term of
the subleased space, since this will more accurately reflect the economic impact
of the transaction. The Company will not adjust the share calculation for
sublease losses on idle space or operations in leased facilities that are
terminated and not relocated to a new facility, since in either case, there
would not be any future economic benefit to the Company.
Management recommends approval of the proposed change since it reduces temporary
fluctuations in share value arising from subleasing transactions. The results of
the vote on this proposal will not necessarily change the course of any
particular future real estate transactions. Decisions regarding the Company's
real estate are made by management of the Company after weighing the business
benefits and disadvantages associated with such transactions; management will
continue to make decisions that it believes are in the best interests of the
Company and its Shareholders.
The Company is currently considering a real estate transaction which, if
completed, would reduce the Company's occupancy costs, but which would generate
a current sublease loss for GAAP purposes. Management has signed a lease for new
office space and subleased part of its existing office space that will allow it
to relocate some or all of its corporate operations from the existing
Washington, D.C. location to a less expensive suburban Maryland location.
<PAGE>
The following example illustrates the effect this transaction could have on
earnings:
The Company currently leases 94,000 square feet for its headquarters in an
office building in Washington, D.C. at an average cost of $52 per square foot
with approximately a five year term remaining. The Company has concluded that it
can achieve significant savings by subleasing all of the existing space at a net
effective rent (after all transaction costs) of $27 per square foot and
relocating to 60,000 square feet at $22 per square foot.
<TABLE>
<CAPTION>
Square Dollar Lease Gross
Current Rent Obligation: Footage per Term Amount
Sq. (in
Foot millions)
<S> <C> <C> <C> <C>
Remaining Rent Obligation on current 94,000 $52 5 $ 26.9
space
Sublease income on Current space 94,000 $27 5 $(13.9)
-------
Effective Rent on Current Space $ 13.0
New Rent Obligations: (1) 60,000 $22 5 $7.2
- ------------------------- ====
Combined Rent Obligation: $20.2
(Effective Rent plus New Rent)
Net Reduction in Occupancy Expense: $6.7
<FN>
(1) - The expiration dates of the old and new lease are actually different from
each other, but 5 years is used in both cases to allow a relevant comparison.
</FN>
</TABLE>
Under this scenario, the Company would achieve prospective reduced operating
expenses of $6.7 million, calculated by subtracting the combined rent obligation
(after the sublease) of $20.2 million from the remaining rent obligation of
$26.9 million on the original space. Notwithstanding the reduction in
prospective operating expenses of $6.7 million, GAAP requires that the net
present value of the sublease loss on the existing downtown space (equal to
$10.2 million, which is $13.0 million discounted at a rate of 8.5%) be recorded
immediately for purposes of determining net income under GAAP.
Under the proposed formula, the Company would spread the after-tax effect of the
loss ($10.2 million at a 50% tax rate, or $5.1 million) over the sublease
term for purposes of computing share value (see chart on next page).
This will match the loss to the economic impact of the transaction.
To provide for flexibility, the lease on the new Maryland space has been
structured so that the Company has an option, in the event that the vote on this
proposal is not favorable, to terminate half of the space which has been
acquired in return for a termination penalty. Under that scenario, instead of
recording a sublease loss of $10.2 million in FY97 with a net reduction in
expense over a five year term of $6.7 million, the Company would record a loss
of approximately $4.5 million but only achieve a net expense reduction of $3.0
million.
Currency Translation Adjustment. The Company considers all operations as
permanent investments. GAAP requires that in preparing financial statements all
assets and liabilities located outside of the United States be converted from
their local currencies to U.S. dollars. Despite the permanent nature of these
operations, adjustments are made to the balance sheet in each accounting period
to reflect changes in the carrying value of these assets solely due to changes
in currency fluctuations. The adjustment of these assets and liabilities is not
included in determining net income but is reported as a separate component of
equity until the net investment is liquidated through sale or disposition. The
Company believes that it is more appropriate to recognize the impact of the
currency fluctuations only upon sale or disposition of the assets since these
fluctuations may not necessarily reflect the value of the underlying assets, or
the value that would be placed on them at the time of sale or disposition. The
<PAGE>
adoption of Formula Book Value will result in the elimination of the
impact on equity of the constantly fluctuating currency exchange rates when
calculating share price and will cause currency fluctuations to be recognized,
for share value purposes, only upon the sale or disposition of the assets.
Survey Assets. Since 1984, Net Book Value has included a unique adjustment for
the value of the Company's business relating to preparing and selling
compensation and other surveys. The adjustments were made to recognize the value
of work performed but not yet recognized during a particular fiscal year in the
results of these operations. Although the results of such adjustments for past
years have become embedded in the share value, management believes that given
the current nature of this business, adjustments of this type in the future are
no longer necessary or appropriate. The proposed amendment eliminates this
adjustment in future years and would recognize income in the survey business
only on a current basis.
IMPACT ON STOCK PRICE
The impact on the stock price from adjusting the valuation formula in the manner
described above cannot be predicted and may be positive or negative in any
particular year. The following chart compares the share price over the past five
years as it was computed according to the Bylaws and as it would have been
computed assuming (i) the real estate loss transaction described above had
occurred on the first day of fiscal year 1992; (ii) Net Book Value for FY92
included a loss of approximately $5.1 million related to the sublease; and (iii)
the cumulative currency translation and survey adjustments were excluded from
the calculation starting in fiscal year 1992 (in thousands, except per share).1
<TABLE>
<CAPTION>
FY92 FY93 FY94 FY95 FY96
<S> <C> <C> <C> <C> <C>
Shares Outstanding 17,840 20,087 19,732 19,130 18,262
Share price (current formula) $4.23 $4.11 $4.44 $4.51 $4.94
Net Book Value (as reported)2 $75,462 $82,458 $87,541 $86,237 $90,297
Adjustments to share price:
Reversal of real estate
transaction loss 5,100 4,080 3,060 2,040 1,020
Recognition of real estate
transaction loss 3 (1,020) (1,020) (1,020) (1,020) (1,020)
________ _______ _______ _______ ______
Loss not yet recognized in
share price 4,080 3,060 2,040 1,020 0
Reverse annual effect of
surveys adjustment 339 (1) (443) 233 609
Reverse annual CTA adjustment (2,569) 3,488 (502) (1,036) 690
________ _______ ______ ______ _____
Formula Book Value (as proposed) $77,312 $89,005 $88,636 $86,454 $91,596
Shares Outstanding 17,840 20,087 19,732 19,130 18,262
Share Price (proposed formula) $4.33 $4.43 $4.49 $4.52 $5.02
<FN>
1 This example is for illustrative purposes only. Under the proposed formula,
currency translation and survey adjustments will be eliminated only for fiscal
years after 1996.
2 Please see Appendix 1 which sets forth the calculation of Net Book Value
of Common Stock.
3 Spreads the $5.1 million loss evenly over the five-year term of the sublease.
At the end of the five-year period, the $5.1 million loss recognized in the
income statement has also been fully recognized in the share price.
</FN>
</TABLE>
<PAGE>
Management believes the proposed formula should reduce the temporary
fluctuations in the share price related to real estate sublease loss
transactions and currency translation adjustments and more closely correlate
share price with net income from results of operations of the business viewed
over the long term.
In order to implement the changes described above, the Board of Directors seeks
Shareholder approval to also amend Sections 9.5(b), 9.5(c), 9.5(d)and 9.6(b)(i)
of the Company's Bylaws to change the references from Net Book Value in these
sections to Formula Book Value. The Company's Board of Directors unanimously
approved the Amendment on August 23, 1996 and recommends that the Shareholders
approve the amendment. The Amendment to these sections of the Bylaws is
required to conform the modification of the share value determination
throughout Article 9 of the Bylaws.
The Board of Directors believes that the proposal is beneficial to the Company
for the reasons set forth above. The Board of Directors recommends that
Shareholders vote FOR the proposal. Approval of the Bylaw Amendments requires
the affirmative vote of the holders of shares representing at least 80% of the
outstanding voting rights of the Company's Common Stock, not merely 80% of the
stock present in person or by proxy at the Annual Meeting.
The full text of the Amendments is set forth in Exhibit A to this Proxy
Statement. The Company will provide a copy of the complete Bylaws without charge
upon written request by a Shareholder. Requests should be directed to Walter W.
Bardenwerper, Vice President, General Counsel & Secretary, Suite 900, 601
Thirteenth Street, N.W., Washington, D.C. 20005.
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee, pursuant to the authority delegated to it by the Board,
selects the independent public accountants to audit the financial statements of
the Company. Price Waterhouse LLP acted as the Company's independent public
accountants for the fiscal year ended June 30, 1996. Price Waterhouse LLP will
continue to provide this service to the Company for the fiscal year ended June
30, 1997. Representatives of Price Waterhouse LLP are not expected to attend the
Annual Meeting; however, Price Waterhouse LLP will report to the Secretary of
the Company the results of the Proxy vote tally immediately prior to the Annual
Meeting.
MANNER IN WHICH THE PROXIES WILL BE SOLICITED AND VOTED
The cost of soliciting proxies will be borne by the Company. In addition to the
distribution of the proxies by Office Administrators, proxies may be solicited
with the assistance of associates of the Company personally, by telephone, or by
facsimile. Also, the Company has made arrangements with its independent
auditors, Price Waterhouse LLP, for assistance with the solicitation process.
Price Waterhouse LLP will solicit proxies by telephone and by electronic
communication at an estimated cost of $11,000.
All properly executed proxies received by Management will be voted. In the
absence of contrary direction, Management proposes to vote the proxies FOR the
election of each of the above-named Nominees to the Board and FOR the amendments
to Article 9 of the Company's Bylaws to modify certain aspects of the method of
calculating the share price of the Company's Common Stock and change the Bylaw
references from Net Book Value to Formula Book Value.
<PAGE>
Management knows of no other matter which may come up for action at the meeting.
However, if any other matter properly comes before the meeting, the proxies
named on the Proxy form enclosed will vote in accordance with their judgment
upon such matter. Individual proxies will be counted by Price Waterhouse LLP in
an effort to ensure the confidentiality and anonymity of each shareholder's
votes. Whether or not you expect to be present at the meeting, you are urged to
date, sign and promptly return the enclosed Proxy to your office administrator
by October 28, 1996 for forwarding to Price Waterhouse LLP. Please return your
Proxy in accordance with the directions on the bottom of the Proxy form.
SHAREHOLDER PROPOSALS
Any shareholder wishing to present a proposal at the 1997 Annual Meeting of the
Company, currently expected to be held on November 13, 1997, may submit such
proposal in writing to Watson Wyatt & Company, Office of the Secretary, 601
Thirteenth Street, N.W., Suite 900, Washington, D.C. 20005. Such proposals must
be received no later than June 15, 1997.
EXHIBITS INCORPORATED BY REFERENCE
Financial Statements meeting the requirements of Regulation S-X, Supplementary
Financial Information, Management's Discussion and Analysis of Financial
Condition and Results of Operations, and Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure are incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1996 (File No. 0-20724), filed on September 27, 1996.
By Order of the Board of Directors,
-----------------------------------------
Walter W. Bardenwerper, Secretary
Washington, D.C.
October 14, 1996
<PAGE>
Exhibit A
Deleted language bracketed and new language set out:
Section 9.9 Definitions.
(a) The term "Eligible Purchasers", as used herein, shall mean any of
the following persons or entities:
(i) full-time employees or regular part-time employees of the
Corporation or its subsidiaries who satisfy criteria approved
from time-to-time by the Board of Directors;
(ii) a partner engaged full-time in a partnership practice of
any affiliate or subsidiary, if applicable, of the Corporation;
(iii) a director of the Corporation or any subsidiary of the
Corporation;
(iv) a corporation, partnership, association, or other entity
with which the Corporation has an affiliated business
relationship, as designated from time to time by the Board of
Directors; or
(v) full-time employees or regular part-time employees of any
corporation, partnership, association, or other entity with
which the Corporation has an affiliated business
relationship as designated from time to time by the Board of
Directors and who satisfy criteria approved from time to
time by the Board of Directors.
The Board of Directors shall designate which persons in the categories
of persons set forth above shall be deemed to be Eligible Purchasers
with respect to any particular transaction. Designation as an Eligible
Purchaser in connection with any offer and sale shall not create or
imply any right to be so designated in connection with any other offer
or sale or, if so designated, to be designated on the same terms and
conditions.
(b)
Net Book Value of Common Stock as used herein shall mean the consolidated net
book value of the Common Stock of the Corporation determined, on an accrual
basis, by generally accepted accounting principles except that in computing such
Net Book Value as of June 30, 1984, or any subsequent fiscal year end,
consolidated assets of the Corporation consisting of subscriber lists, computer
software and data banks used principally in compensation survey or related
businesses carried on by the Corporation or any subsidiary shall be valued at
50% of the Consolidated income received by the Corporation in respect of such
business during the fiscal year then ended.
NEW LANGUAGE:
Formula Book Value as used herein shall mean the Net Book Value of the Company's
Common Stock as of June 30, 1996, increased or decreased by net income or
losses, and all other GAAP basis increases or decreases to Net Book Value
occurring after June 30, 1996, adjusted to (i) spread the economic impact of
certain real estate sublease losses over the remaining life of the sublease; and
(ii) eliminate annual changes in the Currency Translation Adjustment ("CTA")
occurring after June 30, 1996. [Such consolidated Net Book Value]
NEW LANGUAGE: Formula Book Value
shall be determined by the independent certified public accountants of the
Corporation from the Company's consolidated financial statement prepared on an
accrual basis in accordance with generally accepted accounting principles as
certified by such accountants, except as described above. Such determinations
shall be conclusive and binding upon the Corporation and all holders of
stock.
Section 9.5 Purchase Price.
(a) The Purchase Price for any Stock of the Corporation shall be determined
in accordance with this Section 9.5, excepting that if a Disposition
Notice given under Section 9.1 indicates an intention to make a bona
fide sale of Stock for value, then the Purchase Price for any Stock
which is the subject of such notice (including Stock which is being
offered pursuant to the terms of Section 9.2 or 9.3) shall equal the
price set forth in such notice, if such price is lower than the Purchase
Price determined hereunder.
<PAGE>
(b) Except as provided in subparagraph (a) hereof and subject to
subparagraph (e) hereof, the Purchase Price for any Stock purchased by
an Eligible Purchaser on or after [July 1, 1990]
NEW LANGUAGE: July 1, 1996
shall be the [Net Book Value]
NEW LANGUAGE: Formula Book Value
of such Stock as of the last day of
the Corporation's fiscal year coincident with or next preceding the
Closing Date with respect to such purchase.
(c) Except as provided in subparagraph (a) hereof, the Purchase Price for
any Stock purchased by the Corporation hereunder shall be determined as
follows (subject to appropriate adjustment to reflect stock splits,
stock dividends, combinations of shares and similar recapitalizations):
The Purchase Price (P) per share for purchases by the
Corporation with a date of Disposition Notice or a Determination
Date on or after July 1, 1990 shall be determined by the
following formula:
P = [B x (1 + (r x n/12))] + (d x n/12)
B = [Net Book Value]
NEW LANGUAGE: Formula Book Value
of such Stock as of the last day of the Corporation's fiscal
year coincident with or next preceding the date of Disposition
Notice under Section 9.1 or a Determination Date under
Section 9.4, whichever is applicable;
r = the actual percentage increase, if any, in the [Net
Book Value]
NEW LANGUAGE: Formula Book Value
of such Stock as of the last day of the Corporation's fiscal
year during which such Disposition Notice or Determination
Date occurs over the [Net Book Value]
NEW LANGUAGE: Formula Book Value
as of the last day of the Corporation's prior fiscal year;
n = the number of completed months between (1) the last
day of the Corporation's fiscal year coincident with or next
preceding such Disposition Notice or Determination Date, and (2)
the date of such Disposition Notice or such Determination Date,
whichever is applicable; and
d = The dividend, if any, per share declared for such
Stock for the fiscal year during which such Disposition Notice or
Determination Date occurs (unless the shareholder actually
receives the dividend for such year, in which case d = 0).
(d) If, and only if, the Closing Date for the purchase by the Corporation or
an Eligible Purchaser of any Stock under Section 9.4 hereof is more than
thirty (30) days after the Determination Date, the Corporation will pay
the selling shareholder interest on the amount of the [Net Book
Value]
NEW LANGUAGE: Formula Book Value
denoted as "B" in the formula set forth in subparagraph (c)
hereof at the Loan Rate (as described in Section
9.6(b)(iii) hereof) from the Determination Date to the Closing Date.
(e) Except as provided in subparagraph (a) hereof, with respect to any
purchases of Stock by an Eligible Purchaser from a shareholder other
than the Corporation, the Corporation will pay the selling shareholder
an amount which is equal to "P" minus "B" in the formula set forth in
subparagraph (c) hereof.
Section 9.6 Payment.
(a) The Purchase Price for Stock of the Corporation purchased hereunder by
an Eligible Purchaser shall be paid in cash on the Closing Date, subject
to Section 9.5(e) hereof, except as the purchaser and seller may
otherwise agree.
(b.i) Payments by the Corporation of the portion of the Purchase Price
representing the pro rata increase, if any, in the [Net Book Value]
NEW LANGUAGE: Formula Book Value
of the Stock and the pro rata dividend may be made in multiple
installments as may be determined by the President or Secretary
from time-to-time, but no such installment shall be made later than
eighteen (18) months after the Closing Date except as provided in
subparagraph (b)(ii) hereof.
<PAGE>
APPENDIX 1
Net Book Value of Common Stock is calculated as follows (in thousands):
<TABLE>
<CAPTION>
FY92 FY93 FY94 FY95 FY96
<S> <C> <C> <C> <C> <C>
Redeemable Common Stock, $1 par $ 75,462 $ 82,557 $ 87,612 $ 86,275 $ 90,214
Redemption value greater than (43,053) (36,255) (37,866) (35,179) (37,549)
paid-in by Shareholders
Beginning Retained Earnings 52,228 33,060 29,650 30,344 26,887
plus: Net Income (Loss) (10,807) 963 5,636 849 9,355
less: repurchase of shares (8,361) (4,373) (4,942) (4,306) (5,565)
Cumulative translation gain 3,680 192 694 1,730 1,040
________ _______ ______ ______ ______
Consolidated Net Worth 69,149 76,144 80,784 79,713 84,382
Adjustment for Compensation 6,313 6,314 6,757 6,524 5,915
Survey and Subscription Lists
Net Book Value of Common Stock $ 75,462 $ 82,458 $ 87,541 $ 86,237 $ 90,297
</TABLE>
<PAGE>
DEFINITIVE COPIES
MANAGEMENT PROXY WATSON WYATT & COMPANY
The undersigned hereby appoints A. W. Smith, Jr., Paul R. Daoust and Walter W.
Bardenwerper, and each of them, as his or her proxies, each with full power of
substitution, to vote all of the undersigned's shares of capital stock of the
Company at the Annual Meeting of Shareholders of Watson Wyatt & Company to be
held on Wednesday, November 6, 1996, and at any adjournments thereof, with the
same authority as if the undersigned were personally present, as specified
below:
THE DIRECTORS OF THE COMPANY RECOMMEND A VOTE "FOR" ALL NOMINEES BELOW
I. \_\ FOR all fifteen Nominees listed below (except as otherwise
directed below);
\_\ WITHHOLD AUTHORITY TO VOTE FOR all fifteen nominees listed
below:
Walter W. Bardenwerper Ira T. Kay
Charles A. Clemens Brian E. Kennedy
Paul R. Daoust Robert D. Masding
John J. Gabarro R. Michael McCullough
John J. Haley A. W. Smith, Jr.
Gary T. Hallenbeck John A. Steinbrunner
Daniel B. Holmes A. Grahame Stott
Angela H. Watson
INSTRUCTIONS: To withhold authority to vote for any individual nominee(s),
write the individual(s) name(s) on the following blank line:
_____________________________________________________.
THE DIRECTORS OF THE COMPANY RECOMMEND A VOTE "FOR" THE FOLLOWING PROPOSAL
II. \_\ FOR \_\ AGAINST \_\ ABSTAIN regarding the
proposed amendments to Article 9 of the Company's Bylaws to
modify certain aspects of the method of calculating the share
price of the Company's Common Stock and change the Bylaw
references from Net Book Value to Formula Book Value.
III. In their discretion, the proxies are authorized to consider and
act upon all other matters that may properly come before the
meeting or any and all postponements or adjournments thereof.
UNLESS A CONTRARY SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF THE NAMED NOMINEES FOR DIRECTOR OF THE COMPANY, AND FOR THE PROPOSED
AMENDMENTS TO ARTICLE 9 OF THE COMPANY'S BYLAWS TO MODIFY CERTAIN ASPECTS OF THE
METHOD OF CALCULATING THE SHARE PRICE OF THE COMPANY'S COMMON STOCK AND CHANGE
THE BYLAW REFERENCES FROM NET BOOK VALUE TO FORMULA BOOK VALUE. THE
UNDERSIGNED HEREBY REVOKES ANY PROXY HERETOFORE GIVEN AND ACKNOWLEDGES RECEIPT
OF THE NOTICE AND PROXY STATEMENT FOR THE ANNUAL MEETING.
When signing in any representative capacity, please insert your title and attach
papers showing your authority unless already on file with the Company.
__________________________ _______________________
Signature of Shareholder Watson Wyatt Office
__________________________ _______________________
Please Print Shareholder Name Date Signed
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. Shareholders must
deliver their signed Proxy (in the envelope provided) to their Office
Administrator for forwarding to Price Waterhouse LLP, 1301 K Street, N.W., Suite
800 West, Washington, DC 20005-3333 (attn: Kim Wooding). Please mark, sign,
date and return this Proxy to your Office Administrator on or before OCTOBER 28,
1996.
