Performance-Driven Culture

Critical to building a culture of personal growth and engaging talented people is a disciplined performance management system. We are committed to cultivating a performance-driven culture that rewards results. That's why we have a rigorous performance management process.

Employees develop and review their goals annually with their managers, defining expectations that meet and exceed the objectives. During performance reviews, the results of how well goals were or were not met are discussed and evaluated, which feeds into salary actions. This criteria-driven system is all about improving performance and developing people. As part of the process, employees create individual development plans. Salaried employees use the performance management system, while hourly employees use a goal-setting process. Although the systems differ in some ways, the end objective is the same—to align individuals' work to company and unit business goals.

In 2006, more than 95 percent of North American exempt employees engaged in performance and career development reviews with their managers. About 50 percent of North American nonexempt production and maintenance employees developed team-based goals that are reflected in their sites' gain-sharing plans.

Employee Compensation Tied to Performance

In January 2006, Weyerhaeuser implemented a new compensation program for salaried employees, including executive officers. The new program was the result of a year-long review and redesign undertaken in 2005 by the board of directors' compensation committee working with its compensation consultant, Mercer Human Resource Consulting. The focus of the review was to assess the effectiveness of the existing incentive programs in implementing the company's compensation philosophy and to establish key compensation principles for designing and administering compensation.

Weyerhaeuser's compensation philosophy is to tie each employee's interests to the interests of shareholders and stakeholders. Compensation programs are designed to:

• Focus decision-making and behavior on goals—including goals relating to environmental, safety, diversity and other social performance measures—consistent with overall business strategy.
• Reinforce a pay-for-performance culture through a balance of fixed and incentive pay opportunities.
• Allow the company to attract and retain employees with the skills critical to its long-term success.

Employee compensation consists of base salary, annual cash incentives and long-term equity incentives, plus retirement, medical and other benefits.

Employees complete an annual performance management plan as described above, including specific goals relating to economic, social and environmental performance as appropriate. Similar goals are established for each business unit and for the company as a whole. Employee compensation is tied to the performance of the company, the business unit and the individual employee against these goals.