UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy
Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Preliminary Proxy Statement |
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Definitive Proxy Statement |
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Soliciting Material under §240.14a-12 |
SYNCHRONOSS TECHNOLOGIES, INC. | ||||
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant) |
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Dear Stockholder:
I am pleased to invite you to our 2015 Annual Meeting of Stockholders, which will be held on May 11, 2015, at 10:00 a.m. (local time), at the offices of Synchronoss Technologies, Inc., 200 Crossing Boulevard, Bridgewater, New Jersey.
At the meeting, we will be electing two members of our Board of Directors, ratifying the appointment of Ernst & Young LLP as our independent registered public accountants for the 2015 fiscal year, approving the Company's 2015 Equity Incentive Plan, holding an advisory vote on executive compensation, and acting upon such other matters as may properly come before the meeting or any adjournments or postponements thereof.
Enclosed are the following materials: (i) our Notice of Annual Meeting of Stockholders and Proxy Statement for 2015; (ii) our Annual Report on Form 10-K for 2014; and (iii) a proxy card with a return envelope to record your vote. We encourage you to read these materials carefully.
It is important that your shares be represented and voted at the Annual Meeting. As discussed in the Proxy Statement, voting by proxy does not deprive you of your right to attend the Annual Meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY OR VOTING INSTRUCTION CARD IN THE PRE-ADDRESSED ENVELOPE PROVIDED, OR VOTE VIA THE INTERNET OR TELEPHONE ACCORDING TO THE INSTRUCTIONS IN THE PROXY STATEMENT, AS SOON AS POSSIBLE TO ASSURE THAT YOUR SHARES WILL BE REPRESENTED AND VOTED AT THE ANNUAL MEETING. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE YOUR SHARES IN PERSON EVEN THOUGH YOU HAVE PREVIOUSLY VOTED BY PROXY IF YOU FOLLOW THE INSTRUCTIONS IN THE PROXY STATEMENT.
If you have any questions concerning the annual meeting or the proposals, please contact our Investor Relations department at (800) 575-7606. For questions regarding your stock ownership or voting, you may contact our transfer agent, American Stock Transfer & Trust Co., by e-mail through their website at www.amstock.com or by phone at (800) 937-5449 (within the U.S. and Canada) or (718) 921-8124 (outside the U.S. and Canada).
On behalf of the Board of Directors, I would like to express our appreciation for your continued interest in the affairs of Synchronoss Technologies.
Sincerely,
Stephen
G. Waldis
Chairman and Chief Executive Officer
April 1, 2015
The use of cameras at the Annual Meeting is prohibited and they will not be allowed into the meeting or any other related areas, except by credentialed media. We realize that many cellular phones have built-in digital cameras, and while these phones may be brought into the venue, the camera function may not be used at any time.
Synchronoss Technologies, Inc.
200 Crossing Boulevard
Bridgewater, New Jersey 08807
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OF SYNCHRONOSS TECHNOLOGIES, INC.
Date: May 11, 2015
Time: 10:00 a.m.
Place: Synchronoss Corporate Headquarters
200 Crossing Boulevard, Bridgewater, NJ 08807
AGENDA:
Record date: You can vote if you were a stockholder of record on March 16, 2015.
The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice. The stock transfer books will not be closed between the record date and the date of the Annual Meeting. A list of stockholders entitled to vote at the Annual Meeting will be available for inspection at Synchronoss' corporate headquarters at the address listed above for the ten-day period prior to the Annual Meeting.
By order of the Board of Directors,
Ronald
J. Prague
Executive Vice President, General Counsel and Corporate Secretary
April 1, 2015
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be held on May 11, 2015: The proxy statement and annual report to stockholders and the means to vote by Internet are available at www.synchronoss.com.
TABLE OF CONTENTS
Proxy Summary |
Proposals to be Voted On:
The following proposals will be voted on at the Annual Meeting of Stockholders.
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For More Information |
Board Recommendation |
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Proposal 1: Election of two directors | Pages 59 to 62 |
For Nominees |
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William J. Cadogan | ||||||
Stephen G. Waldis | ||||||
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Proposal 2: | Pages 63 to 64 |
For |
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Ratification of appointment of Ernst & Young LLP as independent registered public accountants | ||||||
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Proposal 3: | Pages 65 to 75 |
For |
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Approval of the Company's 2015 Equity Incentive Plan | ||||||
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Proposal 4: | Pages 76 to 77 |
For |
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Advisory vote on executive compensation |
You may cast your vote in any of the following ways:
Internet | Phone | In Person | ||||
Visit www.voteproxy.com to complete an electronic proxy card by following the instructions on the website. You will be asked to provide the eleven-digit number beneath the account number on the enclosed proxy card. | Call the toll-free telephone number noted on your proxy card. Telephone voting is available 24 hours a day. Easy-to-follow voice prompts allow you to vote your shares and confirm that your instructions have been properly recorded. | Complete, sign and date the enclosed proxy card and return it promptly in the envelope provided. |
Attend the Annual Meeting at our Headquarters located at 200 Crossing Blvd., 8th Floor, Bridgewater, NJ 08807. |
Attendance at the Annual Meeting
If you plan to attend the Annual Meeting, you must be a stockholder on the record date. On the day of the meeting, each stockholder will be required to present valid picture identification such as a driver's license. Seating will begin at 9:00 a.m. and the meeting will begin at 10:00 a.m. Use of cameras (including cell phones with photographic capabilities), recording devices and other electronic devices will not be permitted at the meeting.
2015 PROXY STATEMENT HIGHLIGHTS
This summary highlights information contained elsewhere in our proxy statement. This summary does not contain all of the information that you should consider. You should read the entire proxy statement carefully before voting.
Voting matters and vote recommendation
See "Proposals" starting on page 59 for more information.
Matter | | Board vote recommendation | ||
Management proposals | ||||
Election of directors | For the director nominees | |||
Ratification of Ernst & Young LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2015 | | For | ||
Approval of our 2015 Equity Incentive Plan | For | |||
Advisory vote on Executive Compensation | | For |
Board Nominee
The following table provides summary information about William J. Cadogan and Stephen G. Waldis, the two nominees for election.
Name | | Age | |
Director Since |
| Occupation | |
Inde- pendent |
| Committee memberships | ||||||||||||||||||||||
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| | | | | | | | | AC | | CC | | NGC | | BD | |||||||||||||||||
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William J. Cadogan | | 66 | | 2005 | | Retired, Senior Managing Director, Vesbridge Partners, LLC | | Yes | | M | | C | | M | | M | ||||||||||||||||
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Stephen G. Waldis | 47 | 2001 | Chairman and CEO of Synchronoss Technologies, Inc. | No | M |
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AC | Audit Committee | BD | Business Development Committee | |||
CC | Compensation Committee | C | Chair | |||
NGC | Nominating/Corporate Governance Committee | M | Member |
Advisory Vote on Executive Compensation
Business Highlights
In 2014, we delivered strong financial results and continued to move our business forward including:*
* These financial measures are non-GAAP measures and should not be reviewed in isolation or as substitutes for our financial results as reported in accordance with GAAP. Please see Appendix A for an explanation of and reconciliation of these non-GAAP financial measures to the applicable GAAP financial measures.
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Executive Compensation Advisory Vote
Our Board of Directors (our "Board") recommends that stockholders vote to approve, on an advisory basis, the compensation paid to our Named Executive Officers ("NEOs"), as described in this proxy statement. At our 2014 Annual Meeting, 98% of the shares voted were in favor of the advisory vote on executive compensation. Our Board continuously evaluates our executive compensation program each year to ensure it is in line with our stockholders' interests. Our Compensation Committee reviewed our executive compensation programs based on views obtained through our stockholder outreach program and other market data and made the following changes to our programs for our 2014 executive compensation:
During 2014, our Compensation Committee again reviewed our executive compensation programs and agreed to include all of the revisions from 2014. In addition, the long-term equity incentive plan for our executives was
further revised to base the new 2015 plan on our Company's three-year business plan, rather than a one-year business plan. These revisions were effective beginning January 1, 2015.
We encourage stockholders to take into account these significant changes to our executive compensation program over the past few years in considering the advisory vote.
Fiscal 2014 Compensation
The following material decisions were approved by our Compensation Committee regarding the 2014 compensation of our NEOs:
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amounts for each metric, by 26%, 36% and 50%, respectively. As a result, our NEOs whom we employed on February 1, 2014 were issued an aggregate of 112,650 restricted shares of our Common Stock, or the maximum number of performance-based restricted shares that they were eligible to receive under the 2014 performance-based restricted stock awards.
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QUESTIONS AND ANSWERS ABOUT THIS PROXY MATERIAL AND VOTING |
A:
Stockholder of Record.
Shares Registered in Your Name
If on March 16, 2015 your shares were registered in your name with the Company's transfer agent, American Stock Transfer & Trust Company, then you are a stockholder of record and may vote in person at the Annual Meeting or vote by proxy. Whether or not you plan to attend the Annual Meeting, we urge you to fill out and return the enclosed proxy card or vote by proxy on the Internet or via telephone as instructed below to ensure your vote is counted.
Beneficial Owner: Shares Registered in the Name of a Broker or Bank
If on March 16, 2015 your shares were held in an account at a brokerage firm, bank, dealer or other similar organization, then you are the beneficial owner of shares held in "street name" and these proxy materials are being forwarded to you by that organization. The organization holding your account is considered the stockholder of record for purposes of voting at the Annual Meeting. As a beneficial owner, you may direct your broker or other agent on how to vote the shares in your account. You are also invited to attend the Annual Meeting, provided you have proof of your share ownership (such as a brokerage statement showing that you owned shares as of March 16, 2015) and a form of photo identification. However, since you are not the stockholder of record, you may not vote your shares in person at the Annual Meeting unless you request and obtain a valid proxy from your broker or other agent.
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Stockholder of Record: Shares Registered in Your Name
If you are a stockholder of record and received a printed copy of the proxy materials by mail, you may vote in person at the Annual Meeting or by one of the following methods:
Please note that the Internet and telephone voting facilities for stockholders of record is available 24 hours a day and will close at 11:59 p.m., Eastern Time on May 10, 2015. The individuals named as proxies on the proxy card will vote your shares in accordance with your instructions.
We provide Internet proxy voting to allow you to vote your shares on-line, with procedures designed to ensure the authenticity and correctness of your proxy vote. However, please be aware that you must bear any costs associated with your Internet access, such as usage charges from Internet access providers and telephone companies.
Beneficial Owner: Shares Registered in the Name of a Broker or Bank
If you are a beneficial owner of shares registered in the name of your broker, bank, or other agent,
you should have received instructions for granting proxies with these proxy materials from that organization rather than from the Company. A number of brokers and banks participate in a program provided through Broadridge Financial Services which enables beneficial holders to grant proxies to vote shares via telephone or the Internet. If your shares are held by a broker or bank that participates in the Broadridge program, you may grant a proxy to vote those shares telephonically by calling the telephone number on the instructions received from your broker or bank, or via the Internet at Broadridge's website at www.proxyvote.com. To vote in person at the Annual Meeting, you must obtain a valid proxy from your broker, bank, or other agent. Follow the instructions from your broker, bank or other agent included with these proxy materials, or contact your broker, bank or other agent to request a proxy form.
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If you are a beneficial owner of your shares, you must contact the broker, bank or other agent holding your shares and follow their instructions for changing your vote.
stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that they will be "householding" communications to your address, "householding" will continue until you are notified otherwise or until you revoke your consent. If, at any time you no longer wish to participate in "householding" and would prefer to receive a separate proxy statement and annual report, please notify your broker and direct your written request to Synchronoss Technologies, Inc., 200 Crossing Boulevard, Bridgewater, NJ 08807 Attn: Secretary or contact Ronald J. Prague, Secretary at (866) 620-3940. Stockholders who currently receive multiple copies of the proxy statement at their address and would like to request "householding" of their communications should contact their broker.
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Statement requires a "For" vote from the majority of all of the outstanding shares that are present in person or represented by proxy and cast affirmatively or negatively at the Annual Meeting. Abstentions and broker non-votes will not be counted "For" or "Against" this proposal and will have no effect on this proposal. Because this proposal is a non-routine matter, broker non-votes are expected to exist in connection with this proposal.
If there are insufficient votes to approve any of the matters, your proxy may be voted by the persons named in the proxy to adjourn the Annual Meeting in order to solicit additional proxies in favor of the approval of such proposal(s). If the Annual Meeting is adjourned for any reason, at any subsequent reconvening of the meeting, your proxy will be voted in the same manner as it would have been voted at the original Annual Meeting unless you revoke or withdraw your proxy. Your proxy may be voted in this manner even though it may have been voted on the same or any other matter at a previous session of the Annual Meeting.
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or by proxy to have a quorum. Your shares will be counted towards the quorum only if you submit a valid proxy vote (or one is submitted on your behalf by your broker, bank or other agent) or vote at the Annual Meeting. Abstentions and broker non-votes will be counted towards the quorum requirement.
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Corporate Governance at Synchronoss |
CORPORATE GOVERNANCE GUIDELINES |
Synchronoss is committed to excellent corporate governance which we believe helps us to sustain our success and build long-term value for our stockholders. Our Board of Directors has adopted Corporate Governance Guidelines which set forth the framework within which our Board can effectively function and govern our affairs. The Guidelines address, among other things, the composition and responsibilities of our Board, director independence, management succession and review, target ownership by and remuneration of our directors, Board committees, and selection of new directors. We have also adopted a Code of Business Conduct that applies to all of our employees, officers (including our principal executive officer, principal financial officer, principal accounting officer, or those serving similar functions) and directors. The Guidelines and Code of Business Conduct are available on the Investor Relations section of our website at www.synchronoss.com.
Our Board regularly reviews legal and regulatory requirements, evolving best practices, and other developments and may modify, waive, suspend or repeal the Corporate Governance Guidelines or Code of Business Conduct from time to time as it deems necessary or appropriate in the exercise of our Board's judgment or in the best interests of our stockholders. If we make any substantive amendments to the Guidelines or the Code of Business Conduct, we will promptly disclose the nature of the amendment or waiver on our website to the extent required by applicable law or regulations.
BOARD LEADERSHIP STRUCTURE |
Our Board believes it is important to retain its flexibility to allocate the responsibilities of the Chief Executive Officer ("CEO") and Chairman of the Board in any way that is in the best interests of our Company based on the circumstances existing at a particular point in time. Our Board believes that it should periodically assess who should serve these roles, and whether the offices should be served independently or jointly, and that our Board should not be restricted by any strict policy directive when making these decisions. Currently, our Board has determined that the Company and its stockholders are best served by having Mr. Waldis, one of our founders, serve as both Chairman of the Board and CEO. Mr. Waldis' combined role as Chairman of the Board and CEO promotes unified leadership and direction for our Board and executive management and allows for a single, clear focus for the chain of command to execute our strategic initiatives and business plans. As the individual with primary responsibility for managing our day-to-day operations and with in-depth knowledge and understanding of our Company, Mr. Waldis is best positioned to chair regular Board meetings as we discuss key business and strategic issues.
INDEPENDENCE OF OUR BOARD OF DIRECTORS |
Each year, our Nominating/Corporate Governance Committee and our full Board conducts a review of the financial and other relationships between each director, or any of their immediate family members, and our Company, our senior management, companies with whom we have business dealings with, and our independent registered public accounting firm as part of its assessment of director independence. Our Board also consults with our legal counsel to ensure that its determinations are
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consistent with all relevant laws and regulations regarding the definition of independent, including those set forth in pertinent listing standards of the Nasdaq Global Market ("Nasdaq"), in effect from time to time. Consistent with those considerations, after review of all relevant transactions or relationships, our Board has affirmatively determined that all of our directors are independent directors within the meaning of the applicable Nasdaq listing standards except for Stephen G. Waldis, as our CEO. McCormick, as a 10% stockholder. Our independent directors meet in regularly scheduled executive sessions where only independent directors are present. Mr. Cadogan presides over those sessions.
BOARD OVERSIGHT OF RISK MANAGEMENT |
Assessing and managing risk is the responsibility of our management. Our Board oversees management in the execution of its responsibilities and for assessing our approach to risk management. An overall review and assessment of risk is inherent in our Board's consideration of our business plans, strategies, and other significant developments. Additionally, our Board regularly reviews various risks arising out of transactions and other matters that are presented to our Board and when making decisions impacting us. At least annually, our Board also reviews and analyzes the strategic and operational risks and opportunities that face our Company as a whole, as well as those related to specific areas of our business.
Our Board delegates the oversight of certain categories of risk affecting our Company to designated Board committees, who report their findings to our full Board. Our Audit Committee is responsible for overseeing our Board's execution of its risk management oversight responsibility, including discussing guidelines and policies governing the process by which our management and other persons responsible for risk management assess and manage our exposure to major financial risk exposures and the steps management has taken to monitor and control such exposures, based on consultation with our management and independent auditors. Our Audit Committee also annually reviews the audit plan of management, our information technology risks and mitigation strategies, the tax function and treasury operations and conformity with ethics and compliance standards. In addition, our Board has delegated to other Committees the oversight of risks within their areas of responsibility and expertise. For example, our Compensation Committee oversees the risks associated with our compensation practices, including an annual review of our risks assessment of our compensation policies and practices for our employees. Our Board also believes its oversight of risk is enhanced by the current leadership structure discussed above because our CEO, who is ultimately responsible for our management of risk, also chairs regular Board meetings, and with his in-depth knowledge and understanding of our Company, is best able to bring key business issues and risks to our Board's attention.
BOARD SELF-EVALUATION |
Our Nominating/Corporate Governance Committee oversees a bi-annual self-evaluation process to analyze and review our Board's performance. The Committee reviews these results and discusses them with the full Board with the intention of utilizing them to enhance our Board's effectiveness and, if necessary, develop action plans.
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STOCKHOLDER COMMUNICATIONS WITH OUR BOARD OF DIRECTORS |
Stockholders may communicate with our management and independent Board of Directors by sending a letter to Synchronoss Technologies, Inc., 200 Crossing Boulevard, Bridgewater, New Jersey 08807, Attention: Secretary. Each such communication should set forth (i) the name and address of such stockholder as they appear on our books and, if the shares of our Common Stock are held by a broker, bank or other agent, the name and address of the beneficial owner of such shares and (ii) the number of shares of our Common Stock that are owned of record by such record holder and beneficially by such beneficial owner. The Secretary will review all communications from stockholders and has the authority to disregard any inappropriate communications or take other appropriate actions with respect to any inappropriate communications. If deemed an appropriate communication, the Secretary will forward it, depending on the subject matter, to the chairperson of a Committee of our Board or a particular director, as appropriate.
BOARD OF DIRECTORS AND COMMITTEE DUTIES |
Our Board oversees, counsels and directs management in the long-term interests of our Company and our stockholders. Our Board, individually and through its Committees, is responsible for:
BOARD STRUCTURE AND COMMITTEES |
During 2014, our Board of Directors met eleven times and acted once by written consent. Each director attended at least 75% of the meetings of our Board and of each Committee of which he served as a member during 2014. Each director other than Mr. Cadogan attended our 2014 Annual Meeting of Stockholders. Our Board of Directors has established an Audit Committee, a Compensation Committee, a Business Development Committee and a Nominating/Corporate Governance Committee. Our Board has delegated various responsibilities and authority to its Committees as generally described below. Our Board has determined that each member of our Audit, Compensation, Business Development and Nominating/Corporate Governance Committees is free of any relationship that would interfere with
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his individual exercise of independent judgment with regard to us. The following table provides membership and meeting information for each of our Board committees during 2014:
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Name |
Audit | Compensation |
Business Development |
Nominating/Corporate Governance |
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Stephen G. Waldis |
| | · | | | ||||||
| | | | | | | | | | | | |
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William J. Cadogan |
· | ·1 | · | · | |||||||
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Charles E. Hoffman |
| · | | ·1 | | ||||||
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Thomas J. Hopkins |
· | · | ·1 | ||||||||
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James M. McCormick |
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| | | | | | | | | | | | |
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Donnie M. Moore |
·1 | · | |||||||||
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Total meetings in year 2014 |
10 | 7 | 6 | 1 | | ||||||
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AUDIT COMMITTEE |
Our Audit Committee of our Board oversees the integrity of our financial statements, compliance with applicable legal and regulatory requirements, effectiveness of our internal controls and audit function currently in place, and the qualifications, independence, and performance of our independent registered public accounting firm. During 2014, senior members of our financial and legal management participated in each of our Audit Committee's meetings. Our Audit Committee also discussed with our independent registered public accounting firm the overall scope and plans for their audit and met with them on a regular basis without members of management. Our Audit Committee consults with our management and our independent registered public accounting firm prior to the presentation of financial statements to stockholders and, as appropriate, initiates inquiries into aspects of our financial affairs. In addition, our Audit Committee:
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Three directors comprise our Audit Committee: Thomas J. Hopkins, William J. Cadogan and Donnie M. Moore. Our Audit Committee met ten times during 2014. Our Board annually reviews the Nasdaq listing standards definition of independence for Audit Committee members and has determined that all members of our Audit Committee are independent (as independence is currently defined in Rule 5605(a)(2) and 5605(c)(2) of the Nasdaq listing standards). In addition to qualifying as independent under the Nasdaq rules, each member of our Audit Committee can read and has a working understanding and comprehension of fundamental financial statements. Our Board has determined that each of Donnie M. Moore, Chairman of the Audit Committee, and Thomas J. Hopkins is an audit committee financial expert as defined by Item 407(d) of Regulation S-K of the Securities Exchange Act. Our Board has made a qualitative assessment of each of their level of knowledge and experience based on a number of factors, including their respective formal education and experience. The designation does not impose on either Mr. Moore or Mr. Hopkins any duties, obligations or liability that are greater than are generally imposed on them as a member of our Audit Committee and our Board, and their designation as an Audit Committee financial expert pursuant to this SEC requirement does not affect the duties, obligations or liability of any other member of our Audit Committee or Board. Our Audit Committee charter can be found on the Investor Relations section of our website at www.synchronoss.com.
COMPENSATION COMMITTEE |
Our Compensation Committee of our Board is comprised of three directors: William J. Cadogan, Charles E. Hoffman and Thomas J. Hopkins, each of whom is independent, as currently defined in Rule 5605(a)(2) and 5605(d)(2) of the Nasdaq listing standards. Our Compensation Committee met six times and acted once by written consent during 2014. Our Compensation Committee is charged by our Board to:
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In accordance with Nasdaq listing standards, our Compensation Committee under its charter has the authority and responsibility to retain or obtain the advice of compensation consultants, legal counsel and other compensation advisers, the authority to fund such advisers, and the responsibility to consider the independence factors specified under applicable law and any additional factors the compensation committee deems relevant. A more detailed description of our Compensation Committee's functions can be found in our Compensation Committee charter which can be found on the Investor Relations section of our website at www.synchronoss.com. Our Compensation Committee has also established a Key Employee Equity Awards Committee, with our CEO as the sole member, whose purpose is to approve stock option and restricted stock grants to our newly hired and current employees, subject to guidelines previously approved by our Compensation Committee. Our Key Employee Equity Awards Committee acted fourteen times in 2014.
Our Compensation Committee may select and retain, and is directly responsible for the appointment, compensation and oversight of, compensation consultants or any other third party to assist in the evaluation of director and officer compensation as well as any other compensation matters. Our Compensation Committee considers these analyses as a factor in making decisions with respect to compensation matters along with information it receives from management and its own judgment and experience. Its compensation consultant generally attends regular Compensation Committee meetings and meets with our Compensation Committee without management present. Since July 2013, our Compensation Committee has retained Deloitte Consulting LLP ("Deloitte") as its compensation consultant. The compensation consultant serves at the discretion of our Compensation Committee and the compensation consultant's fees are approved by our Compensation Committee. In 2014, Deloitte did not perform any services for us other than its services to our Compensation Committee and received no compensation from our Company other than its fees in connection with its retention as our Compensation Committee's compensation consultant. Our Compensation Committee assessed the independence of Deloitte pursuant to applicable SEC rules and Nasdaq listing standards and concluded that the work of Deloitte has not raised any conflict of interest.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION |
None of the members of our Compensation Committee was an officer or employee of our Company at any time during 2014. No executive officer serves as a member of the board of directors or compensation committee of any other entity that has one or more executive officers serving as a member of our Board or Compensation Committee. In 2014, we did not make any loans to directors or executive officers relating to purchases of our Common Stock or for any other purpose.
NOMINATING/CORPORATE GOVERNANCE COMMITTEE |
The members of our Nominating/Corporate Governance Committee are: William J. Cadogan, Charles E. Hoffman and Donnie M. Moore. Our Nominating/Corporate Governance Committee met once in 2014. All members of our Nominating/Corporate Governance Committee are independent (as independence is currently defined in Rule 5605(a)(2) of the Nasdaq listing standards). In addition, our Nominating/ Corporate Governance Committee:
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Our Nominating/Corporate Governance Committee charter can be found on the Investor Relations section of our website at www.synchronoss.com. Our Nominating/Corporate Governance Committee also reviews and makes recommendations to our Board regarding the size and composition of our Board and the appropriate qualities and skills required of our directors in the context of the then current make-up of our Board and our business. Our Nominating/Corporate Governance Committee has established procedures for the nomination process and leads the search for, selects and recommends candidates for election to our Board. Consideration of new director candidates typically involves a series of committee discussions, the review of information concerning candidates and interviews with selected candidates. Candidates for nomination to our Board typically have been suggested by other members of our Board or by our executive officers. From time to time, our Nominating/Corporate Governance Committee may engage the services of a third-party search firm to identify director candidates. Our Nominating/Corporate Governance Committee also considers candidates proposed in writing by stockholders, provided such proposal meets the eligibility requirements for submitting stockholder proposals under our amended and restated bylaws and is accompanied by certain required information about the candidate. Candidates proposed by stockholders will be evaluated by our Nominating/Corporate Governance Committee using the same criteria as for all other candidates. In considering nominees for our Board, our Nominating/Corporate Governance Committee considers each candidate's independence, personal and professional integrity, financial literacy or other professional or business experience relevant to an understanding of our business, ability to think and act independently and with sound judgment and ability to serve our stockholders' long-term interests. These factors, along with others considered useful by our Nominating/Corporate Governance Committee, are reviewed in the context of an assessment of the perceived needs of our Board at a particular point in time. As a result, the priorities and emphasis of our Nominating/Corporate Governance Committee and of our Board may change from time to time to take into account changes in our business and other trends, and the portfolio of skills and experience of current and prospective directors. Our Nominating/Corporate Governance Committee has not adopted a formal policy regarding the consideration of diversity in identifying director nominees or in searching for new directors, it does, however, have several initiatives in an attempt to attract diverse candidates.
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BUSINESS DEVELOPMENT COMMITTEE |
Our Business Development Committee reviews certain strategic business development and growth opportunities and recommends those that it determines are in line with our short-term and long-term strategic goals. Our Business Development Committee charter can be found on the Investor Relations section of our website at www.synchronoss.com. The members of our Business Development Committee are: William J. Cadogan, Thomas J. Hopkins and Stephen G. Waldis. All members of our Business Development Committee other than Mr. Waldis are independent (as independence is currently defined in Rule 5605(a)(2) of the Nasdaq listing standards). Our Business Development Committee met six times during 2014.
DIRECTOR COMPENSATION |
This section provides information regarding the compensation policies for our non-employee directors and cash amounts paid and equity awarded to these directors in 2014. Any director who is an employee of our Company does not receive any additional compensation for their service as a director. For 2014, our non-employee director compensation program consisted of:
| | | | | | |
Compensable Position / Event | Compensation | | ||||
| | | | | | |
| Initial Equity Grant | 30,000 non-qualified stock options(1) | | |||
| | | | | | |
Annual Cash Retainer | $50,000 | |||||
| | | | | | |
| Annual Equity Grant |
7,500 non-qualified stock options(1) 3,335 restricted shares(1) |
| |||
| | | | | | |
Committee Chairperson Retainer | $20,000 (Audit) $15,000 (Compensation) $10,000 (Nominating/Corporate Governance) $10,000 (Business Development) |
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| | | | | | |
| Committee Member Retainer |
$10,000 (Audit) $7,500 (Compensation) $5,000 (Nominating/Corporate Governance) $5,000 (Business Development) |
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| | | | | | |
The annual retainer fees are paid to our directors quarterly in advance. All of the annual equity grants to non-employee directors under our director compensation program are granted on the first Tuesday of every year, and the options have an exercise price equal to the closing price reported on Nasdaq of our Common Stock on the grant date. In addition, we currently have a policy of reimbursing directors for travel, lodging and other reasonable expenses incurred in connection with their attendance at our
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Board and Committee meetings. The following table sets forth all of the compensation awarded to, earned by, or paid to each person who served as a non-employee director during 2014.
| | | | | | | | | | | | |
|
Name |
Fees Earned or Paid in Cash ($) |
Restricted Stock Awards ($)(1) |
Option Awards ($)(2) |
Total ($) |
| ||||||
|
William J. Cadogan |
85,000 | 103,018 | 117,527 | 305,545 | | ||||||
| | | | | | | | | | | | |
|
Charles E. Hoffman |
67,500 | 103,018 | 117,527 | 288,045 | |||||||
| | | | | | | | | | | | |
|
Thomas J. Hopkins |
77,500 | 103,018 | 117,527 | 298,045 | | ||||||
| | | | | | | | | | | | |
|
James M. McCormick |
50,000 | 103,018 | 117,527 | 270,545 | |||||||
| | | | | | | | | | | | |
|
Donnie M. Moore |
75,000 | 103,018 | 117,527 | 295,545 | | ||||||
| | | | | | | | | | | | |
DIRECTOR STOCK OWNERSHIP GUIDELINES |
We have established stock ownership guidelines for our directors to retain an equity stake in the Company to more closely align their interests with those of our stockholders. Each director is required to own the number of shares of our Common Stock with a value equal to three times the annual cash retainer for our directors. Ownership is calculated annually based on the closing sales price of our Common Stock on Nasdaq for the last trading day in the prior year. Each of the directors has until July 2016 or, for future directors, three years from the date of his or her election to our Board, to achieve the targeted equity ownership level. As of December 31, 2014, each of our directors met these guidelines.
LIMITATION OF LIABILITY AND INDEMNIFICATION |
As permitted by Section 145 of the Delaware General Corporation Law, our amended and restated bylaws provide that we are authorized to (i) enter into indemnification agreements with our directors and officers and (ii) purchase directors' and officers' liability insurance, which we currently maintain to cover our directors and executive officers. The form of indemnification agreement with our directors provides that we will indemnify each director against any and all expenses incurred by that director because of his status as one of our directors, to the fullest extent permitted by Delaware law, our
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restated certificate of incorporation and amended and restated bylaws. In addition, the form agreement provides that, to the fullest extent permitted by Delaware law, but subject to various exceptions, we will advance all expenses incurred by our directors in connection with a legal proceeding. Our restated certificate of incorporation and bylaws contain provisions relating to the limitation of liability and indemnification of directors. The restated certificate of incorporation provides that our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability:
Our restated certificate of incorporation also provides that if Delaware law is amended, after the approval by our stockholders of our restated certificate of incorporation, to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of our directors will be eliminated or limited to the fullest extent permitted by Delaware law. The foregoing provisions of the restated certificate of incorporation are not intended to limit the liability of directors or officers for any violation of applicable federal securities laws. As permitted by Section 145 of the Delaware General Corporation Law, our restated certificate of incorporation provides that we may indemnify our directors to the fullest extent permitted by Delaware law and the restated certificate of incorporation provisions relating to indemnity may not be retroactively repealed or modified so as to adversely affect the protection of our directors.
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RISK MANAGEMENT CONSIDERATIONS |
Each year, our Compensation Committee reviews our compensation practices and policies for all employees, including our NEOs, and assesses whether they have the potential to incentivize employees without taking risks that are reasonably likely to have a material adverse effect on our Company. Since our annual performance-based bonus and equity programs are designed to align our employees' compensation with our long-term business objectives and performance, and therefore enhance stockholder value, our Compensation Committee believes that our compensation practices and policies discourage behavior that leads to excessive risk. Therefore, our Compensation Committee does not believe these practices and policies will have a material adverse effect on our Company. Set forth below are the key risk-balancing elements of our compensation practices and policies:
| | | | | | | | |
Financial Performance Measures |
The ranges set for financial performance measures are designed to reward success without encouraging excessive risk taking. | |||||||
| | | | | | | | |
|
Equity Vesting Periods |
| Time-based and performance-based restricted shares typically vest over three years, while stock options typically vest over four years. The vesting of the equity awards is designed to reward tenure with us. | | ||||
| | | | | | | | |
Equity Retention Guidelines |
NEOs are required to acquire within five years of becoming an executive officer, and hold while they are officers, shares (vested and unvested) having a value of at least three times their base salary, or five times in the case of our CEO. | |||||||
| | | | | | | | |
| No Hedging | | NEOs are not permitted to enter into any transaction designed to hedge, or having the effect of hedging, the economic risk of owning our securities. | | ||||
| | | | | | | | |
Financial Restatement and Related Policies |
As part of our Ethics and Business Conduct Policy, we will investigate all reported instances of questionable or unethical behavior of a director, NEO or other employee and, where improper behavior is found to have occurred, will take appropriate action up to and including termination. If an investigation uncovers that such individual commits fraud or other improper acts which causes our financials to be restated or otherwise affected, we would take immediate and appropriate disciplinary action with respect to such individual up to and including termination, We would also take whatever legal remedies are available to prosecute such individual to the fullest extent of the law and seek to recover any amounts he or she inappropriately received as a result of such actions, including but not limited to any annual or long term incentives that he or she received to the extent the individual would not have received such amount had such act not be taken. | |||||||
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Compensation of Executive Officers
Compensation Discussion and Analysis
This section discusses our compensation philosophy, summarizes our compensation programs and reviews compensation decisions for the following named executive officers ("NEOs"):
| | | | | | |
Named Executive Officer |
Title | | ||||
| Stephen G. Waldis | Chairman of the Board of Directors and Chief Executive Officer | | |||
| | | | | | |
Karen L. Rosenberger | EVP, Chief Financial Officer and Treasurer(1) | |||||
| | | | | | |
| Robert E. Garcia | President and Chief Operating Officer | | |||
| | | | | | |
Christopher Halbard | EVP, International(2) | |||||
| | | | | | |
| Daniel Rizer | EVP, Business Development and Product Management | | |||
| | | | | | |
Lawrence R. Irving | Former EVP, Chief Financial Officer and Treasurer(3) | |||||
| | | | | | |
(1) Ms. Rosenberger was elected EVP, Chief Financial Officer and Treasurer effective April 1, 2014.
(2) Mr. Halbard was hired as our EVP, International in February 2014.
(3) Mr. Irving resigned as EVP, Chief Financial and Treasurer effective April 1, 2014 and remained employed by the Company through December 31, 2014.
Executive Summary
Our executive compensation philosophy and programs are designed to attract, retain and motivate high-quality executives who possess diverse skills and talents required to help us achieve our short and long-term financial and strategic goals. We believe that the programs foster a performance-oriented culture that aligns our executives' interests with those of our stockholders over the long term. We believe that the compensation of our NEOs is both appropriate for and responsive to the goal of improving stockholder value. Specifically, in 2014, the majority of each NEOs' compensation was at-risk or variable compensation.
The following provides an overview of the key financial and strategic highlights for the year.
2014 Business Highlights
| | | | | | |
Key Financial Metric | Fiscal 2014 Achievements | | ||||
| Non-GAAP Revenue* | $458.6 million, compared to $352.5 million in 2013, an increase of 30% | | |||
| | | | | | |
Non-GAAP Gross Profit* | $280.2 million, representing a non-GAAP gross margin of 61% | |||||
| | | | | | |
| Non-GAAP Operating Income* | $118.1 million, compared to $81.5 million in 2013, an increase of 45% | | |||
| | | | | | |
Diluted Non-GAAP EPS* | $1.79, compared to $1.33 in 2013, an increase of 35% | |||||
| | | | | | |
| Strategic Business Milestones | Acquired VoxMobili SA, Clarity, Inc. and DigiData Corporation to expand our product offerings and global presence Strengthened our management team by hiring Christopher Halbard, former executive at British Telecom Global Services as EVP, International Enhanced our financial flexibility by issuing $230 million of convertible notes |
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| | | | | | |
* These financial measures are non-GAAP measures and should not be reviewed in isolation or as substitutes for our financial results as reported in accordance with GAAP. Please see Appendix A for an explanation of and reconciliation of these non-GAAP financial measures to the applicable GAAP financial measures.
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2014 Compensation Program Highlights
We design our executive compensation program to attract, retain and motivate high-quality executives and drive the creation of long-term stockholder value by providing a significant portion of compensation through programs tied to performance goals. We have adopted the following approach to achieve these objectives:
| | | | | | | | |
Pay for Performance |
Provide a strong relationship of pay for performance through: Performance-based cash bonus tied primarily to achievement of corporate short-term financial goals and individual performance. Equity awards that deliver value based on our stock performance and, in the case of performance-based stock awards, the achievement of pre-determined, objective financial and business goals. |
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| | | | | | | | |
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Emphasis on Variable Compensation |
| Total compensation is heavily weighted toward variable compensation (i.e., annual bonus and long-term equity incentives). We use the annual performance-based cash bonuses to focus our NEOs on key short-term financial goals. We use stock options, time-based and performance-based restricted shares to incentivize our NEOs to focus on sustainable, long-term stockholder value creation. The value realized by our NEOs depends substantially on our long-term performance, achievement of our strategic goals and the value of our Common Stock, which we believe aligns our NEOs' interests with the long-term interests of our stockholders. |
| ||||
| | | | | | | | |
Fixed Compensation Component |
Provide base salary based on our Compensation Committee's general understanding of current competitive compensation practices, corporate achievement, the NEO's role and responsibilities, length of tenure, internal pay equity and individual performance. |
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| | | | | | | | |
The following highlights some of the key components of our pay for performance policies and practices:
| | | | | | | | |
At-Risk Compensation | | A majority of the compensation of the CEO and other NEOs is "at-risk" and tied to Company performance over the short- and/or long-term | | |||||
| | | | | | | | |
Incentive Award Metrics | Establish and approve stretching objective incentive award metrics tied to key company performance indicators | |||||||
| | | | | | | | |
| Equity Vesting | | Vest equity awards over three or four years to promote retention | | ||||
| | | | | | | | |
Stock Ownership Guidelines | Maintain stock ownership guidelines to support the alignment of interests between executives and stockholders | |||||||
| | | | | | | | |
| No Hedging | | Prohibition of hedging exposure of, or interest in, our stock | | ||||
| | | | | | | | |
Our Compensation Committee oversees our compensation program covering all our employees, with an enhanced focus on the compensation of our NEOs. It also oversees the administration of our cash and equity-based incentive plans. Mr. Waldis, in his role as CEO, assesses the performance of our NEOs (other than himself), consults with other members of management and makes recommendations to our Compensation Committee regarding the amount and the form of the compensation of the NEOs and other key employees, including the performance goals, weighting of goals, and equity compensation awards of NEOs. Mr. Waldis is not present during discussions regarding his compensation.
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2014 Executive Compensation Program |
In 2013, our Compensation Committee performed a "clean slate" review of our executive compensation practices and policies and, as a result made the following changes to our executive compensation program for 2014:
| | | | | | | | |
Compensation Philosophy | | Designed and approved a new, updated compensation philosophy for our executives where there is greater emphasis on the pay for performance components of executive compensation | | |||||
| | | | | | | | |
Higher Stock Ownership Guidelines | Enhanced stock ownership guidelines for NEOs and directors to provide for greater alignment of interests with our stockholders | |||||||
| | | | | | | | |
| Fixed Weighting of Performance- based Components | | Fixed the weighting of each component of the cash bonus and long-term incentives regardless of our non-GAAP revenue or operating income | | ||||
| | | | | | | | |
Strategic Performance Metric | To differentiate between the metrics used for our short-term cash incentive plan and long-term equity incentive plan, added Cloud Revenue as a strategic performance measure to our long-term equity incentive plan. | |||||||
| | | | | | | | |
The above changes were made in response to feedback we received as part of our stockholder outreach program and to further enhance the alignment of our NEOs' interests with those of our stockholders. At our 2014 Annual Meeting, approximately 98% of the shares voted were in favor of the advisory vote on executive compensation. We continuously strive to improve the level of stockholder support for our executive compensation program and expanded our stockholder outreach program by meeting with a greater number of our largest stockholders in 2014. Our Compensation Committee plans to continuously evaluate our executive compensation program each year with the goal of ensuring it is in line with our stockholders' interests. We encourage stockholders to take into account these significant changes to our executive compensation program over the past year in considering the advisory vote presented below.
Revisions for 2015 Executive Compensation Program |
In 2015, we will be further revising our executive compensation program based, in part, on suggestions from our stockholders during our meetings as part of our shareholder outreach program, by basing our long-term equity incentive plan on our financial and strategic performance during the three year period from 2015 through 2017, rather than one year as we have done in the past. In addition, in connection with 2015 executive compensation decisions, our Compensation Committee approved the following performance metrics for the performance share component of our NEOs' Long-term Incentive Equity Compensation: (a) three-year average annual revenue growth of our Company from 2015 to 2017, (b) three-year average annual Earnings Before Interest Taxes, Depreciation and Amortization ("EBITDA") as a percentage of revenue for the three year period from 2015 to 2017 and (c) three-year annual revenue growth in our Cloud business from 2015 to 2017. For our NEOs' Annual Cash Incentive Bonus, in addition to an individual component, our Compensation Committee approved the following financial metrics: (a) fixed annual revenue of our Company for 2015 and (b) fixed EBITDA for 2015. Our Compensation Committee believes that these additional enhancements to our executive compensation program will further align our executives' objectives with the long-term interests of our stockholders.
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Compensation Consultant |
Our Compensation Committee's compensation consultant generally attends regular Compensation Committee meetings and meets with our Compensation Committee without management present. Our Compensation Committee considers various analyses prepared by its compensation consultant when making decisions with respect to compensation matters, along with information it receives from management and its own judgment and experience in an effort to gain a better understanding of the competitive landscape. Since July 2013, our compensation consultant has been Deloitte Consulting LLP.
Peer Group |
Our Compensation Committee generally reviews executive compensation survey and proxy data from technology companies that have similar software/services business models or operate in the mobile networking space, are of similar financial size and with whom we compete for our executive talent. Our Compensation Committee identified the following companies that fit some or all of these criteria as our peer group for purposes of 2014 executive compensation decisions:
| | | | | | | | |
Aruba Networks, Inc. | Informatica Corporation | Nuance Communications, Inc. | | |||||
Broadsoft, Inc. | Interactive Intelligence Group, Inc. | Progress Software Corp. | ||||||
| Bottomline Technologies, Inc. | J2 Global Inc. | Smith Micro Software, Inc. | | ||||
CommVault Systems, Inc. | LogMeIn, Inc. | Sourcefire, Inc. | ||||||
| Concur Technologies, Inc. | MicroStrategy Inc. | Verifone Systems, Inc. | | ||||
Digital River, Inc. | NeuStar, Inc. | |||||||
| | | | | | | | |
Our peer group was updated in 2014 to reflect that BrightPoint, Inc., Comverse Technologies, Inc., RightNow Technologies, Inc. and Opnet Technologies, Inc. were acquired in 2013. Bottomline Technologies, Inc., LogMeIn, Inc., Broadsoft, Inc., Interactive Intelligence Group, Inc., j2 Global Inc., Progress Software Corp. and Sourcefire, Inc. were added to offset the removal of these four companies. Although several of these companies are larger in market capitalization or have higher revenues than our Company, we believe the peer group utilized for purposes of 2014 executive compensation decisions was representative of companies that we compete with for talent. When making compensation decisions for our NEOs, our Compensation Committee reviews both published survey and peer group compensation data for other software/services companies as part of its decision-making process. As we continue to grow as a company, competitive market practices become an increasingly important factor in our Compensation Committee's decision-making process, although its decisions are not primarily based upon these factors and it does not target specific compensation levels as derived from peer group data. Rather, our Compensation Committee reviews and considers the peer group and other survey data to obtain a general understanding of current competitive compensation practices. Utilization of the peer group and survey data to gain a general understanding of competitive pay practices allows us to accomplish our goal of paying our NEOs what is appropriate to achieve our corporate goals while conserving cash and equity.
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Elements of Compensation
Our executive compensation program has the following principal elements: base salary, annual cash incentive bonus, equity awards and severance and change in control protection. The following table sets forth these elements and the objectives of each element:
| | | | | | | | | | |
| Base Salary | | Objective: | | ||||||
| | | Our Compensation Committee sets base salaries with the intent to attract and retain executives, reward satisfactory performance and provide a minimum, fixed level of cash compensation to compensate him or her for their day-to-day responsibilities. | | ||||||
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Key Features: |
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| | | | Minimum, fixed level of cash compensation. Base salaries are initially determined as a result of negotiation between the executive and our management in consultation with, and subject to the approval of, our Compensation Committee. | | |||||
| | | | Our Compensation Committee reviews base salaries annually and has discretion to provide increases based on our Compensation Committee's understanding of current competitive pay practices, promotions, our CEO's recommendation (except his own salary), changes in responsibilities and performance, annual budget for increases, our overall financial and operational results, the general economy, length of tenure and internal pay equity and other factors our Compensation Committee deems appropriate. | | |||||
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Process: |
|
|||||||
| | | | At the end of each calendar year, the CEO recommends salaries for executives other than himself for the following calendar year. | | |||||
| | | | Our Compensation Committee reviews proposed salary changes with input from its compensation consultant. | | |||||
| | | | Our Compensation Committee determines annual salaries for NEOs. | | |||||
| | | | Our Compensation Committee reports determinations to the full Board. | | |||||
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| | | | | | | | | | |
Annual Cash | Objective: | |||||||||
Incentive Bonus | The annual cash incentive bonus is a performance-based compensation program designed to align the interests of our NEOs and stockholders by providing compensation based on the achievement of pre-determined corporate and/or business goals and individual performance. | |||||||||
Key Features: |
||||||||||
| The target bonus for each NEO is set by our Compensation Committee early in the year based on employment agreement provisions, our Compensation Committee's general understanding of current competitive pay practices, our CEO's recommendation (except his own), internal pay equity and other factors our Compensation Committee deems appropriate. | |||||||||
| At least 90% of the target incentive is determined by performance against certain financial objectives established at the start of the year. | |||||||||
| If we achieve results that are below certain threshold levels, our NEOs receive no cash incentive bonus, while results that are above certain threshold levels result in larger cash incentive bonuses. | |||||||||
Process: |
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| Our Compensation Committee participates in our Board of Director's review of our annual operating plan at the beginning of the year. | |||||||||
| Our CEO recommends bonus targets as a percentage of base salary for each executive other than himself. | |||||||||
| Our management recommends financial and other performance measures, weightings and ranges. | |||||||||
| Our Compensation Committee reviews proposed bonus targets, performance measures and ranges with input from its compensation consultant and determines bonus targets, performance measures and ranges that it believes establish appropriate stretch goals. | |||||||||
| After the end of the fiscal year, our management presents financial results to our Compensation Committee. | |||||||||
| Our CEO recommends the individual component award for our NEOs other than himself. | |||||||||
| Our Compensation Committee reviews the results and determines whether to make any adjustments, and determines other performance factor multipliers and establishes the bonus award. | |||||||||
| Our Compensation Committee reports determinations to the full Board. | |||||||||
| | | | | | | | | | |
| Equity Awards | | Objectives: | | ||||||
| | | Our Compensation Committee structures equity awards to retain NEOs, motivate them to achieve our financial, strategic and operational goals, and align their interests with those of our stockholders. Equity awards include stock options and time-based and performance-based restricted shares. | | ||||||
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Key Features: |
|
|||||||
| | | | Our Compensation Committee grants stock options, time-based and performance-based restricted shares to NEOs with the grant date value based on our Compensation Committee's general understanding of current competitive pay practices, our CEO's recommendation (except his own), internal pay equity, evaluation of the executive's performance, and other factors our Compensation Committee deems appropriate. | | |||||
| | | | | | | | | | |
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| | | | | | | | | | |
| | | | Long-term incentive awards are allocated as follows, based on grant date award value (with vesting terms that generally extend up to four years): | | |||||
| | | | o One-third stock options | | |||||
| | | | o One-third time-based restricted shares | | |||||
| | | | o One-third performance-based restricted shares | | |||||
| | | | Our Compensation Committee believes this mix provides NEOs with a balanced retention and performance opportunity, and serves to closely align their long-term objectives with those of our stockholders. | | |||||
| | | | Each performance-based restricted share award has a target number of shares to be issued following completion of a fiscal year based on the achievement of certain Company performance criteria. Performance-based restricted shares are issued following the completion of our fiscal year. | | |||||
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Process: |
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| | | | In the first fiscal quarter, our CEO recommends grant date fair value of awards for executives other than himself. | | |||||
| | | | Our Compensation Committee reviews proposed award with input from its compensation consultant. | | |||||
| | | | Our Compensation Committee determines the number of stock options and restricted shares based on the price of our Common Stock. | | |||||
| | | | Our Compensation Committee reports determinations to the full Board. | | |||||
| | | | | | | | | | |
Severance and | Objectives: | |||||||||
Change in Control Benefits |
Severance and change in control benefits are included in each NEO's employment agreement in order to promote stability and continuity of our senior management team in the event of a potential change in control and/or any involuntary termination. Our Compensation Committee believes these provisions help to appropriately align the NEO's interests with those of our stockholders in such scenarios. | |||||||||
Key Features: |
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| Events triggering payment require a termination of the NEO's employment by us "without cause" or by the executive for "good reason". Executives are entitled to enhanced benefits if the foregoing occurs following a change in control. | |||||||||
| Our Compensation Committee has determined it appropriate to have these termination-related benefits in place to preserve productivity and encourage retention in the face of potentially disruptive circumstances that might cause an executive to be concerned that his or her employment is in jeopardy or that might involve an actual or rumored change in control of our Company. | |||||||||
| Each NEO will only be eligible to receive severance payments if he or she signs a general release of claims following an eligible termination. | |||||||||
| Each NEO's outstanding options and restricted shares will vest and become exercisable in full if his or her employment is involuntarily terminated within twelve (12) months following a change in control. | |||||||||
| | | | | | | | | | |
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Chief Executive Officer Compensation
As our Chairman and CEO, Mr. Waldis' responsibilities are much greater than those of the other NEOs, as he is informed and involved in a detailed manner with each department's progress toward our shared Company goals. As such, his total base salary and his total compensation opportunity are greater than our other NEOs. In addition, his equity holding requirements under our Executive Stock Ownership Guidelines are five times his base salary as opposed to one and one-half times for Mr. Rizer and three times for the other NEOs. In our industry, the CEO must be deeply aware of a company's strengths and obstacles, and have sharp strategic vision for our future while maintaining our ability to adapt to changing circumstances and prospects quickly and thoughtfully. The successful progress of our research and development programs and success of our customer engagements bring value to our financial performance and our stockholders, and we believe Mr. Waldis' direction in the decisions and actions that drive this progress and merit the compensation that he receives.
Pay Mix
In keeping with our results-driven culture, our Compensation Committee expects our NEOs to deliver superior performance in a sustained fashion and believes that a substantial portion of their overall compensation should be at-risk and tied to our short-term and long-term performance. As shown below, 78% of our CEO's targeted compensation and 60% of the average targeted compensation of our other NEOs is tied to long-term, equity-based incentives.*
* Excluding Mr. Halbard who joined our Company in February 2014 and special one-time grants to Messrs. Rizer and Garcia and Ms. Rosenberger.
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Target and Realized Pay
As discussed above, our Compensation Committee believes that a program weighted towards variable, performance-based compensation supports the alignment of our NEOs' interests with those of our stockholders. Furthermore, because the equity awards are also subject to time-based vesting, the compensation an NEO realizes in connection with equity awards is spread over a number of years, which our Compensation Committee believes assists in motivating our NEO to drive business growth over the long term. While the amounts shown in the Summary Compensation Table reflect the grant-date value of equity awards received by a NEO (in accordance with FASB ASC Topic No. 718), they do not reflect the impact of the performance of our Common Stock on compensation actually realized by our NEOs. The compensation actually realized by the NEO varies based on actual performance.
The chart below shows the difference between aggregate Target Annual Compensation and Realized Annual Compensation for our CEO for 2012, 2013 and 2014. As illustrated, actual realized pay for 2012 and 2013 is below the grant date value of compensation disclosed in the Summary Compensation table in accordance with FASB ASC Topic No. 718. Realized pay is higher in 2014, reflecting the Company's strong performance against its objective short- and long-term incentive financial performance metrics and strong stock price performance during the year.
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2014 Compensation Decisions
Base Salary
Base salaries for our NEOs are reviewed and adjusted annually. Base salary may also be adjusted during the year upon promotion or based on internal equity or external market conditions. Our Compensation Committee makes these decisions after reviewing the recommendation of our CEO (except as it concerns his own salary) and our Executive Vice President of Human Resources, and consultation with our compensation consultant when needed. Based on this review, in early 2014, our Compensation Committee provided cost of living salary increases of 3% (representing the expected median base salary increase) to each of our NEOs employed by us as of February 1, 2014. In addition, Ms. Rosenberger received an additional increase of approximately 23% upon her promotion in April 2014 to Executive Vice President, Chief Financial Officer and Treasurer.
In February 2014, Mr. Halbard entered into an employment agreement to serve as our Executive Vice President, International pursuant to which we agreed to pay Mr. Halbard a base salary of £285,000(1) annually, subject to adjustment pursuant to our compensation policies in effect from time to time. Mr. Halbard's compensation was negotiated by our management subject to the approval of our Compensation Committee. Our Compensation Committee determined that this was an acceptable base salary for Mr. Halbard based, among other things, on the advice of our compensation consultant, the base salary of our other executive officers, his expected senior role with us and its general understanding of competitive pay practices.
The table below sets forth our NEOs' 2014 base salary compared to their respective 2013 base salary:
Name |
|
2013 Base Salary |
|
2014 Base Salary |
||||
Stephen G. Waldis |
| $557,230 | | $573,947 | ||||
| | | | | | | | |
Karen L. Rosenberger |
| $236,900 | | $300,000 | ||||
| | | | | | | | |
Robert E. Garcia |
| $412,000 | | $424,360 | ||||
| | | | | | | | |
Christopher Halbard |
| N/A | | $442,716 | ||||
| | | | | | | | |
Daniel Rizer |
| $309,000 | | $318,270 | ||||
| | | | | | | | |
Lawrence Irving |
| $386,250 | | $397,838 |
2014 Annual Cash Incentive Bonus Compensation
Our Annual Cash Incentive Bonus Compensation Program promotes our pay-for-performance philosophy by providing all executives and other management-level corporate employees with direct financial incentives in the form of annual cash awards for achieving Company, business and individual performance goals.
(1) Mr. Halbard is based in the United Kingdom and his base salary is denominated in GBP, representing an equivalent of $442,716 based on the December 31, 2014 exchange rate of $1.55339 per GBP.
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Target Percentage
Our Compensation Committee sets each NEO's individual target cash incentive percentage based on its general understanding of competitive pay practices, our CEO's recommendation (except his own) and other factors it deems appropriate. Based on its review of these factors, in February 2014 our Compensation Committee kept the target cash percentage of each of our NEOs at the same percentage as in 2013, except for Mr. Rizer, whose target cash percentage was increased to 60% based on his increased role and Ms. Rosenberger, whose target cash percentage was increased to 60% upon her promotion to Executive Vice President, Chief Financial Officer and Treasurer. For 2014, Mr. Halbard's target bonus was set at 140% of his base salary. Our Compensation Committee determined that this was an appropriate target bonus for Mr. Halbard based, among other things, on the target bonus incentive percentage of our other executive officers, his expected senior role at our Company and its general understanding of competitive pay practices. As such, each of our NEO's 2014 target incentive bonus percentages were as follows:
Name |
|
Target Incentive Bonus Percentage |
||
Stephen G. Waldis |
| 110% of base salary | ||
| | | | |
Karen L. Rosenberger |
| 60% of base salary | ||
| | | | |
Robert Garcia |
| 80% of base salary | ||
| | | | |
Christopher Halbard |
| 140% of base salary | ||
| | | | |
Daniel Rizer |
| 60% of base salary | ||
| | | | |
Lawrence R. Irving |
| 70% of base salary |
Each of Messrs. Waldis, Irving, Garcia, Rizer and Halbard and Ms. Rosenberger may earn in excess of his or her annual target bonus in the event that corporate and individual objectives set by our Compensation Committee are exceeded. Under our 2014 incentive compensation plan, the maximum amount each of Messrs. Waldis, Irving, Garcia, Rizer and Halbard and Ms. Rosenberger could have received was 175% of the product of their respective base salary and his or her target incentive bonus percentage if both their corporate and business, as applicable, goals are met and exceeded and, if applicable, their individual performance met or exceeded expectations.
Weighting of Components
Each of our NEOs has both (i) a corporate component and (ii) either (a) a discretionary individual performance component or (b) an objective business component in determining his or her annual cash incentive bonus compensation as follows:
Name |
|
Corporate Component Target Rate* |
|
Individual Component Target Rate* |
|
Business Component Target Rate* |
||||||
Stephen G. Waldis |
| 100% | | 10% | | | ||||||
| | | | | | | | | | | | |
Karen L. Rosenberger |
| 50% | | 10% | | | ||||||
| | | | | | | | | | | | |
Robert E. Garcia |
| 70% | | 10% | | | ||||||
| | | | | | | | | | | | |
Christopher Halbard |
| 35% | | | | 105% | ||||||
| | | | | | | | | | | | |
Daniel Rizer |
| 50% | | 10% | | | ||||||
| | | | | | | | | | | | |
Lawrence R. Irving |
| 60% | | 10% | | | ||||||
| | | | | | | | | | | | |
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2014 Corporate Component
Our Compensation Committee established targeted (i) non-GAAP revenue and (ii) non-GAAP operating income as the corporate components of our NEO's 2014 annual cash incentive bonus compensation under our 2014 internal annual operating plan. Each of the components was weighted at 50%. We utilize these non-GAAP financial measures internally in analyzing its financial results and evaluating our ongoing operational performance because they exclude certain non-cash adjustments required under GAAP. These metrics were selected because based on feedback during our shareholder outreach meetings, these were two key performance metrics shareholders use in evaluating our Company. Our 2014 internal annual operating plan was developed by management and presented by Mr. Waldis, as Chairman and CEO, and Mr. Irving, as CFO at the time, to our Board for its review and approval. The target performance levels under the annual cash incentive our NEOs are expected to achieve are aligned with our annual internal operating plan to motivate performance goals in a manner we believe will increase our stockholder value. Our 2014 internal annual operating plan when it was set, placed expectations greater than what was expected to be shared in our public guidance, and our Compensation Committee had similar expectations when it established the 2014 corporate component that the objectives would be targets that pushed management and our Company to a higher threshold than market expectations. In calculating non-GAAP revenue and non-GAAP operating income we add back the fair value stock-based compensation expense, deferred revenue, acquisition-related costs, restructuring charges, changes in the contingent consideration obligation, deferred compensation expense related to earn-outs and amortization of intangibles associated with acquisitions. Each of the components was separately assigned a "threshold" level which sets the minimum achievement necessary to be satisfied to receive a portion of the applicable bonus amounts and a "maximum" level whereby if achieved or exceeded the NEO's would receive 175% of the target portion attributed to such component.
The corporate component of the 2014 cash incentive compensation plan is set forth below:
| | | | | | | | | | | | |
|
Corporate Component |
Weighting |
Threshold 25% payout |
Target 100% payout |
Maximum 175% payout |
| ||||||
|
Non-GAAP Revenue* |
50% | $390,000,000 | $421,500,000 | $444,000,000 | |||||||
| | | | | | | | | | | | |
|
Non-GAAP Operating Income* |
50% | $88,842,000 | $102,958,000 | $111,000,000 | |||||||
| | | | | | | | | | | | |
In 2014, our non-GAAP revenue was $458,613,000 and our non-GAAP operating income was $118,057,000, which represented 26% and 36% growth, respectively, from 2013. Each of these financial metrics were above the maximum payout level. As a result, our NEOs received the maximum amounts for the corporate component of their respective cash incentive compensation (other than Mr. Halbard whose corporate component was pro-rated based on the time he was employed by us).
|
Corporate Component |
|
Weighting |
|
Achievement |
|
Plan Payout | | |||||
|
Non-GAAP Revenue* |
50% | $ | 458,613,000 | 175% | ||||||||
| | | | | | | | | | | | | |
|
Non-GAAP Operating Income* | 50% | $ | 118,057,000 | 175% | ||||||||
| | | | | | | | | | | | | |
* These financial measures are non-GAAP measures and should not be reviewed in isolation or as substitutes for our financial results as reported in accordance with GAAP. Please see Appendix A for an explanation of and reconciliation of these non-GAAP financial measures to the applicable GAAP financial measures.
33
2014 Individual Component
In 2014, Messrs. Waldis, Garcia, Rizer and Irving's and Ms. Rosenberger's individual component of his or her annual cash incentive compensation was based upon our Compensation Committee's subjective assessment of his or her individual performance. Based on their assessment and Mr. Waldis' recommendations (other than his own), our Compensation Committee awarded the following as the individual component of their annual cash incentive compensation: Mr. Waldis and Mr. Garcia 100% and 90%, respectively, due to our Company's strong performance compared to 2013 which led to a 35% increase in our stock price, Ms. Rosenberger 75% due to her strong performance after being promoted to Chief Financial Officer in maintaining our margins; and Mr. Rizer 90% due to his strong performance leading our acquisitions of VoxMobili, DigiData and Clarity and his promotion to Executive Vice President of Product Management. Mr. Irving did not receive an individual component.
2014 Business Component
The business component of Mr. Halbard's 2014 annual cash bonus was tied to certain financial and strategic objectives of specific International accounts. Specifically, 75% of his target cash incentive bonus was based upon those accounts. Mr. Halbard achieved approximately 66% of his objectives and therefore received $306,026 or 66% of his eligible cash incentive bonus for the business component of his target cash incentive compensation. As such, our NEOs were awarded the following amounts under the 2014 cash incentive bonus:
| | | | | | | | | | | | | | | | | | | | | | | | | |
Executive |
|
Target Bonus for Corporate Component |
|
Percentage of Corporate Component Target Awarded |
|
Actual Corporate Component Awarded |
|
Target Bonus for Individual Component |
|
Individual Component Percentage of Base Salary |
|
Actual Individual Component Awarded |
|
Total Bonus Awarded |
| ||||||||||
| Stephen G. Waldis | $ | 516,552 | | 175% | $ | 903,966 | $ | 57,395 | | 100% | $ | 57,395 | $ | 961,361 | | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Karen L. Rosenberger | $ | 135,000 | 175% | $ | 236,250 | $ | 30,000 | 75% | $ | 22,500 | $ | 258,750 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Robert E. Garcia | $ | 267,347 | | 175% | $ | 467,857 | $ | 42,436 | | 90% | $ | 38,192 | $ | 506,049 | | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Daniel Rizer | $ | 143,222 | 175% | $ | 250,638 | $ | 31,827 | 90% | $ | 28,644 | $ | 279,282 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Lawrence R. Irving | $ | 214,833 | | 175% | $ | 375,957 | $ | 39,784 | | 0% | | -0- | $ | 375,957 | | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Executive |
|
Target Bonus for Corporate Component |
|
Percentage of Corporate Component Target Awarded |
|
Actual Corporate Component Awarded |
|
Target Bonus for Business Component |
|
Percentage of Business Target Awarded |
|
Actual Business Component Awarded |
|
Total Bonus Awarded |
|||||||||||
Chris Halbard | $ | 139,456 | 175% | $ | 244,048 | $ | 464,855 | 66% | $ | 306,026 | $ | 550,074 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
2014 Long-Term Equity Incentive Compensation Plan
Our Compensation Committee awards time-based restricted shares, stock options and performance-based restricted shares to our NEOs as the long-term equity incentive component of their compensation, targeting an annual mix of one-third for each of these equity awards (based on grant date fair value). The number of stock options, target number of performance-based restricted shares and time-based restricted shares to be granted to our NEOs is based on our Compensation Committee's general understanding of competitive pay practices, our CEO's recommendation (except his own) and other factors it deemed appropriate.
34
Time-based Restricted Stock and Stock Options
In February 2014, our Compensation Committee awarded time-based restricted stock, determined the targets for the 2014 performance-based restricted share awards and granted options to purchase shares of our Common Stock to our NEOs whom we employed on such date. The grants were intended to provide incentives for our NEOs to achieve our 2014 goals. The restricted shares vest one-third on each of the first, second and third anniversary of their grant date and the stock options vest one-fourth on the first anniversary of their grant date and monthly thereafter over the next thirty-six months. The time-based vesting helps tie our NEO's variable realizable compensation to our performance and further align their interests with those of our stockholders. See Description of Awards Granted in 2014, below. The number of shares of time-based restricted stock awarded and number of shares subject to the options granted were as follows:
| | | | | | | | |
|
Name |
Number of Time-Based Shares of Restricted Stock |
Number of Shares Subject to Options |
|||||
|
Stephen G. Waldis |
40,493 | 87,413 | | ||||
| | | | | | | | |
|
Karen L. Rosenberger |
2,464 | 5,360 | |||||
| | | | | | | | |
|
Robert Garcia |
27,000 | 55,000 | | ||||
| | | | | | | | |
|
Daniel Rizer |
6,000 | 15,000 | |||||
| | | | | | | | |
|
Lawrence R. Irving |
14,132 | 30,506 | | ||||
| | | | | | | | |
Performance-based Restricted Shares
The actual number of performance-based restricted shares of Common Stock that could be issued pursuant to the 2014 performance-based restricted share awards was based upon our performance against the same non-GAAP revenue and non-GAAP operating income applicable to the 2014 annual cash incentive compensation plan discussed under "2014 Annual Cash Incentive Bonus Compensation" plus a third component based on cloud revenue. These metrics were selected because based on feedback during our shareholder outreach meetings, revenue and operating income were two key performance metrics shareholders use in evaluating our Company. In addition, based on feedback from these meetings, growth in our cloud business is of particular interest to our shareholders and therefore our Compensation Committee added it as a separate component in our determination of performance-based restricted shares to be granted to our NEOs. The weighting of the various components was 35% for each of non-GAAP revenue and non-GAAP operating income and 30% for cloud revenue. Each of the components was separately assigned a "threshold" level which sets the minimum achievement necessary to be satisfied to receive a portion of the applicable bonus amounts and a "maximum" level whereby if achieved or exceeded the NEOs would receive 125% of the target portion attributed to such component. The 2014 long-term equity incentive compensation plan is set forth below:
| | | | | | | | | | | | |
|
Corporate Component |
Threshold 25% payout |
Target 100% payout |
Maximum 125% payout |
Weighting | |||||||
|
Non-GAAP Revenue* |
$390,000,000 |
$421,500,000 |
$444,000,000 |
35% |
|
||||||
| | | | | | | | | | | | |
|
Non-GAAP Operating Income* |
$ 88,842,000 | $102,958,000 | $111,000,000 | 35% | |||||||
| | | | | | | | | | | | |
|
Cloud Revenue |
$145,000,000 | $160,000,000 | $175,000,000 | 30% | | ||||||
| | | | | | | | | | | | |
35
In 2014, our non-GAAP revenue was $458,613,000, our non-GAAP operating income was $118,057,000 and our cloud revenue was $211,743,000. Each of the foregoing was above our maximum for each component, even though the maximum represented year-over-year growth of approximately 26% in revenue, 36% in operating income and 50% in cloud revenue. As a result of this strong performance, our NEOs received the maximum number of performance-based restricted shares.
| | | | | | | | | | |
|
Corporate Component |
Achievement | Plan Payout | Weighting | | |||||
|
Non-GAAP Revenue* |
$458,613,000 | 175% | 35% | | |||||
| | | | | | | | | | |
|
Non-GAAP Operating Income* |
$118,057,000 | 175% | 35% | ||||||
| | | | | | | | | | |
|
Cloud Revenue |
$211,743,000 | 175% | 30% | | |||||
| | | | | | | | | | |
The actual number of performance-based restricted shares awarded is set forth below:
|
Name |
Threshold |
|
Target |
|
Maximum |
|
Performance Shares Awarded |
| ||||||
|
Stephen G. Waldis |
30,370 | | 40,493 | | 50,616 | | 50,616 | | ||||||
| | | | | | | | | | | | | | | |
|
Karen L. Rosenberger |
1,871 | 2,495 | 3,119 | 3,119 | ||||||||||
| | | | | | | | | | | | | | | |
|
Robert E. Garcia |
20,250 | | 27,000 | | 33,750 | | 33,750 | | ||||||
| | | | | | | | | | | | | | | |
|
Daniel Rizer |
4,500 | 6,000 | 7,500 | 7,500 | ||||||||||
| | | | | | | | | | | | | | | |
|
Lawrence R. Irving |
10,599 | | 14,132 | | 17,665 | | 17,665 | |||||||
| | | | | | | | | | | | | | | |
The actual number of shares issued was determined in January 2015 at which time the shares were actually issued to the NEO. One-third of the performance-based restricted shares vested upon issuance and one-third vest on each of February 13, 2016 and February 13, 2017.
Other Grants
In connection with his joining our Company in February 2014, our Compensation Committee (i) granted Mr. Halbard an option to purchase 60,000 shares of our Common Stock at an exercise price equal to $32.26, the closing price per share of our Common Stock on the Nasdaq Global Market on the grant date, with 25% of the shares subject to the option becoming exercisable after 12 months of continuous service and the balance becoming exercisable in equal monthly installments over the next 36 months of continuous service thereafter, (ii) awarded Mr. Halbard 50,000 restricted shares of our Common Stock, with 25% of the shares vesting after 12 months of continuous service and the balance vesting in equal installments each quarter over the next three years of continuous service thereafter and (iii) awarded Mr. Halbard a target of 30,000 performance shares of our Common Stock, with the actual number of shares to be issued to Mr. Halbard in February 2017, based on certain objectives for our International business for the period 2014 through 2016, and all of which shares shall vest immediately upon issuance. Our Compensation Committee based the amount of Mr. Halbard's equity grant on, among other things, the size of the initial equity grants of our other executive officers, his expected senior role at our Company and its general understanding of competitive pay practices.
36
Upon Ms. Rosenberger's promotion to Executive Vice President, Chief Financial Officer and Treasurer effective April 1, 2014, our Compensation Committee (i) granted Ms. Rosenberger an option to purchase 7,640 shares of our Common Stock at an exercise price equal to $35.19, the closing price per share of our Common Stock on the Nasdaq Global Market on April 1, 2014, with 25% of the shares subject to the option becoming exercisable after 12 months of continuous service and the balance becoming exercisable in equal monthly installments over the next 36 months of continuous service thereafter and (ii) awarded Ms. Rosenberger 22,536 restricted shares of our Common Stock, with 25% of the shares vesting after 12 months of continuous service and the balance vesting in equal installments each quarter over the next three years of continuous service thereafter.
On November 17, 2014, our Equity Committee awarded Messrs. Garcia and Rizer (i) 10,000 and 5,000 restricted shares of our Common Stock, respectively, which vested immediately upon issuance and (ii) a target of 5,000 and 2,000 performance-based shares of our Common Stock, respectively, based on certain performance objectives for 2015 based on their respective increased roles, with the actual number of shares to be issued to Messrs. Garcia and Rizer, respectively, at the end of 2015, and all of which shares shall vest immediately upon issuance. Mr. Rizer received these grants upon his promotion to Executive Vice President of Product Management and Mr. Garcia received these grants due to his increased responsibilities for our Company's global operations.
Employment Agreements, Other Benefits and Perquisites
Effective January 1, 2015, we entered into three-year employment agreements with each of our NEOs, other than Mr. Halbard, that expire on December 31, 2017. These agreements replaced the existing employment agreements each NEO had executed which expired December 31, 2014. Upon joining our Company, Mr. Halbard entered into a three-year employment agreement which expires on February 19, 2017. Each employment agreement includes a severance arrangement that provides enhanced benefits in the case of involuntary termination following a change in control which is designed to promote stability and continuity of our senior management. For a description of the terms of the employment agreements, please see "Employment Agreements" on page 38. Our NEOs are eligible to participate in all of our employee benefit plans (other than our employee stock purchase plan), such as medical, dental, vision, group life and disability insurance and our 401(k) plan, in each case on the same basis as our other employees. We lease an automobile (and pay applicable insurance and gas) for Messrs. Waldis and Irving and Ms. Rosenberger and provide a car allowance to Messrs. Garcia and Halbard, each to be used primarily for business purposes. There were no other special benefits or perquisites provided to any NEO in 2014.
In connection with his resignation, we entered into a transition agreement (the "Transition Agreement") with Mr. Irving effective April 1, 2014 pursuant to which he agreed to continue to provide services to us through December 31, 2014 (the "Transition Period"). The Transition Agreement amended certain provisions of his Employment Agreement and provided that during the Transition Period Mr. Irving remained an employee (including receiving his base salary and benefits and his severance benefits under his Employment Agreement). The Transition Agreement also provided that if Mr. Irving remained employed by us through the end of the Transition Period, his outstanding equity grants would continue to vest through February 15, 2015.
Financial Restatement and Related Policies
We maintain a comprehensive Ethics and Business Conduct Policy. As part of this policy, we investigate all reported instances of questionable or unethical behavior, and where improper behavior is found to
37
have occurred, we take appropriate action up to and including termination. In the event that an investigation uncovers that one of our employees, officers or directors commits fraud or other improper act which causes our financials for any period to be restated or otherwise affects such financials, we would take immediate and appropriate disciplinary action against the individual including but not limited to termination. In addition, we would take whatever legal remedies are available to prosecute the individual to the fullest extent of the law and recover any amounts he or she inappropriately received as a result of the fraudulent action, including but not limited to any annual or long-term incentives that he or she received but would not have received had such act not be taken.
Executive Officer Stock Ownership Guidelines
We have instituted stock ownership guidelines for our executive officers with the purpose of ensuring they maintain a meaningful equity stake in our Company to further align our executive officers' interests with those of our stockholders. Each executive officer who is subject to Section 16 of the Securities Exchange Act or directly reports to our CEO (including all our NEOs) is required to own, as of the later of January 1, 2019 or five years from the date such individual begins reporting to our CEO or becomes a Section 16 officer, a number of vested shares of our Common Stock having a value equal to (a) five times the base salary for our CEO; (b) three times the base salary for our President and Chief Operating Officer, Chief Financial Officer, and President of any division (i.e., International) and (c) one and one-half times the base salary for other executive officers. In the event an executive officer is not compliant at the end of such five year period, our Compensation Committee may reduce future equity grants to such executive officer until he or she is compliant. Based on share holdings on April 1, 2015, each of our NEOs exceeded the minimum holding requirements on that date.
Tax Matters
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), places a $1,000,000 limit on the amount of compensation that we may deduct in any one year with respect to our CEO and our three other most highly paid NEOs (other than our CFO). To maintain flexibility in compensating NEOs in a manner designed to promote varying corporate goals, our Compensation Committee may, in its judgment, authorize compensation payments that are not deductible when it believes that such payments are appropriate, including attracting and retaining highly-qualified executive officers.
Compensation Committee Report(1) |
The Compensation Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management and, based on such review and discussions, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement submitted by the following members of the Compensation Committee:
William J.
Cadogan, Chairman
Charles E. Hoffman
Thomas J. Hopkins
38
Summary Compensation Table
The following table sets forth all of the compensation awarded to, earned by, or paid to our "principal executive officer," "principal financial officer" and our three other highest paid executive officers (our "NEOs") for 2014: