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NeuStar, Inc.

(Name of Registrant as Specified in Its Charter)

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Fellow Stockholders:

 

We are pleased to invite you to attend the 2011 Annual Meeting of Stockholders of Neustar, Inc. to be held on Wednesday, June 22, 2011 at 5:00 p.m. local time, at the Hyatt Regency Reston, located at 1800 Presidents Street, Reston, Virginia 20190.

 

Details regarding admission to the Meeting and the business to be conducted are more fully described in the accompanying Notice of Annual Meeting of Stockholders and proxy statement.

 

Your vote is important. Whether or not you plan to attend the Meeting, we hope you will vote as soon as possible. You may vote over the Internet, by telephone or by mailing a proxy or voting instruction card. Voting over the Internet, by phone or by written proxy will ensure your representation at the Meeting regardless of whether you attend in person. Please review the instructions on the proxy or voting instruction card regarding each of these voting options.

 

Thank you for your ongoing support of and continued interest in Neustar.

 

Sincerely,

 

 

Lisa A. Hook

President and Chief Executive Officer

 

NEUSTAR, INC.
21575 RIDGETOP CIRCLE,
STERLING, VIRGINIA 20166

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

June 22, 2011

 

 

By order of the Board of Directors,

 

 

Martin K. Lowen

Senior Vice President, General Counsel and Secretary

 

Important Notice Regarding the Availability of Proxy Materials
for the Stockholders Meeting to Be Held on June 22, 2011.

 

This 2011 Proxy Statement and 2010 Annual Report are available
at http://www.amstock.com/ProxyServices/ViewMaterial.asp?CoNumber=25439.

 

TABLE OF CONTENTS

 

NEUSTAR, INC.
21575 RIDGETOP CIRCLE
STERLING, VIRGINIA 20166

 

PROXY STATEMENT

 

Why did I receive these proxy materials?

 

We are sending you this proxy statement as part of a solicitation by the Board of Directors of NeuStar, Inc. for use at our 2011 Annual Meeting of Stockholders and at any adjournment or postponement that may take place. Unless the context otherwise requires, the terms “us,” “we,” “our,” “Neustar,” and the “Company” include NeuStar, Inc. and its consolidated subsidiaries.

 

This Notice of Annual Meeting of Stockholders, proxy statement, form of proxy and voting instructions and our 2010 Annual Report are first being mailed starting on or around May 11, 2011.

 

Why did I receive a one-page notice in the mail regarding the Internet availability of proxy materials?

 

Pursuant to the “notice and access” rules adopted by the Securities and Exchange Commission, we have elected to provide stockholders access to our proxy materials over the Internet. Accordingly, we sent a Notice of Internet Availability of Proxy Materials (the “Internet Notice”) to all of our stockholders as of April 26, 2011 (the “Record Date”). The Internet Notice includes instructions on how to access our proxy materials over the Internet and how to request a printed copy of these materials. In addition, we have elected to send a full set of the printed proxy materials for your convenience.

 

Do I need a ticket to attend the Meeting?

 

You will need an admission ticket or proof of ownership to enter the Meeting. An admission ticket is attached to your proxy card if you hold shares directly in your name as a stockholder of record. If you plan to attend the Meeting, please vote your proxy but keep the admission ticket and bring it with you to the Meeting.

 

If your shares are held beneficially in the name of a bank, broker or other nominee and you plan to attend the Meeting, you must present proof of your ownership of Neustar stock, such as a bank or brokerage account statement, to be admitted to the Meeting. If you would rather have an admission ticket, you can obtain one in advance by mailing a written request, along with proof of your ownership of Neustar stock, to:

 

Neustar, Inc.
Attn: Corporate Secretary
21575 Ridgetop Circle
Sterling, Virginia 20166

 

All stockholders also must present a form of personal identification in order to be admitted to the Meeting.

 

No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the Meeting.

 

Who is entitled to vote at the Meeting?

 

Holders of Neustar common stock at the close of business on the Record Date are entitled to receive this Notice and to vote their shares at the Meeting. As of the Record Date, there were 73,723,384 shares of Class A common stock outstanding and entitled to vote and 3,082 shares of Class B common stock outstanding and entitled to vote. All holders of common stock shall vote together as a single class, and each holder of common stock is entitled to one vote per share of Class A common stock and one vote per share of Class B common stock on each matter properly brought before the Meeting.

What is the difference between holding shares as a stockholder of record and as a beneficial owner?

 

If your shares are registered directly in your name with Neustar’s transfer agent, American Stock Transfer & Trust Company, LLC, you are considered, with respect to those shares, the “stockholder of record.” The Internet Notice, Notice of Annual Meeting of Stockholders, proxy statement and proxy card and our 2010 Annual Report have been sent directly to you by Neustar.

 

If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the “beneficial owner” of shares held in street name. The Internet Notice, Notice of Annual Meeting of Stockholders, proxy statement and proxy card and our 2010 Annual Report have been forwarded to you by your broker, bank or other nominee who is considered, with respect to those shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote your shares by using the voting instruction card included in the mailing or by following their instructions for voting by telephone or on the Internet (if available).

 

How do I vote?

 

You may vote using any of the following methods:

 

By Mail

 

To vote by mail, please complete, sign and date the proxy card or voting instruction card and return it in the prepaid envelope. If you are a stockholder of record and you return your signed proxy card but do not indicate your voting preferences, the persons named in the proxy card will vote the shares represented by that proxy as recommended by the Board of Directors.

 

If you are a stockholder of record and the prepaid envelope is missing, please mail your completed proxy card to Neustar, Inc., 21575 Ridgetop Circle, Sterling, Virginia 20166, Attn: Corporate Secretary.

 

By Telephone or on the Internet

 

The telephone and Internet voting procedures established by Neustar for stockholders of record are designed to authenticate your identity, allow you to give your voting instructions and confirm that those instructions have been properly recorded.

 

You can vote by calling the toll-free telephone number on your proxy card. Please have your proxy card in hand when you call. Easy-to-follow voice prompts allow you to vote your shares and confirm that your instructions have been properly recorded. If you are located outside the U.S., see your proxy card for additional instructions.

 

The website for Internet voting is www.voteproxy.com. Please have your proxy card in hand when you go online. As with telephone voting, you can confirm that your instructions have been properly recorded. If you vote on the Internet, you also can request electronic delivery of future proxy materials.

 

Telephone and Internet voting facilities for stockholders of record will be available 24 hours a day, and will close at 11:59 p.m. Eastern Daylight Time on June 21, 2011.

 

The availability of telephone and Internet voting for beneficial owners will depend on the voting processes of your broker, bank or other nominee. Therefore, we recommend that you follow the voting instructions in the materials you receive.

 

If you vote by telephone or on the Internet, you do not need to return your proxy card or voting instruction card.

 

In Person at the Meeting

 

All stockholders may vote in person at the Meeting. You may also be represented by another person at the Meeting by executing a legal proxy designating that person. If you are a beneficial owner of shares, you must obtain a legal proxy from your broker, bank or other nominee and present it to the inspectors of election with your ballot to be able to vote at the Meeting.

What can I do if I change my mind after I vote my shares?

 

If you are a stockholder of record, you can revoke your proxy before it is exercised by:

 

 

If you are a beneficial owner of shares, you may submit new voting instructions by contacting your bank, broker or other nominee. You may also vote in person at the Meeting if you obtain a legal proxy as described in the answer to the previous question.

 

All shares that have been properly voted and not revoked will be cast as votes at the Meeting.

 

What shares can I vote?

 

You can vote all shares that you owned on the Record Date (April 26, 2011). These shares include (1) shares held directly in your name as the stockholder of record; and (2) shares held for you as the beneficial owner through a broker, bank or other nominee.

 

Is there a list of stockholders entitled to vote at the Meeting?

 

The names of stockholders of record entitled to vote at the Meeting will be available at the Meeting and for ten days prior to the Meeting for any purpose germane to the Meeting, between the hours of 8:45 a.m. and 4:30 p.m., at our principal executive offices at 21575 Ridgetop Circle, Sterling, Virginia 20166, by contacting the Corporate Secretary of the Company.

 

How many votes are required to approve each proposal?

 

The presence of the holders of a majority of the outstanding shares of Class A common stock and Class B common stock entitled to vote at the Meeting, present in person or represented by proxy, is necessary to constitute a quorum.

 

With regard to the election of directors (Item 1), in the case of an uncontested election, our bylaws require that each director be elected by a majority of the votes cast, meaning that the number of shares voted “FOR” a director’s election must exceed the number of shares voted “AGAINST” that director’s election. In the case of a contested election (i.e., an election in which the number of candidates exceeds the number of directors to be elected), directors will be elected by plurality vote. As discussed under “Director Elections” below, our Board has adopted a policy providing that any director who is not reelected under our majority voting standard must tender his or her resignation to the Nominating and Corporate Governance Committee within 30 days of certification of the stockholder vote.

 

The ratification of Ernst & Young LLP as our independent registered public accounting firm (Item 2) and the advisory vote on executive compensation (Item 3) require the affirmative vote of a majority of the votes cast, meaning that the number of shares voted “FOR” a matter must exceed the number of shares voted “AGAINST” that matter. For the advisory vote on the frequency of future votes on executive compensation (Item 4), there is no required voting standard. The Board will review the voting results for Item 4 when evaluating the frequency of future votes on executive compensation.

 

How are votes counted?

 

With regard to the election of directors (Item 1), the ratification of Ernst & Young LLP as our independent registered public accounting firm (Item 2), and the advisory vote on executive compensation (Item 3), you may vote “FOR,” “AGAINST” or “ABSTAIN.” For the advisory vote on the frequency of future votes on executive compensation (Item 4), you may vote for holding an advisory vote every “ONE YEAR,” “TWO YEARS,” “THREE YEARS” or “ABSTAIN.” If you abstain from voting on these proposals, your shares will be counted as present for purposes of establishing a quorum at the Meeting. An abstention will not count as a vote “FOR” or

“AGAINST” Item 1, 2 or 3 or for any particular frequency in Item 4, however, and will have no effect on the outcome of the election of our directors or the outcome of the vote on the remaining proposals.

 

If you sign your proxy card or voting instruction card with no further instructions, your shares will be voted in accordance with the recommendations of the Board (“FOR” each of Items 1-3 and for holding an advisory vote every “ONE YEAR” for Item 4).

 

What are broker non-votes, and how are they counted at the Meeting?

 

Broker non-votes occur when brokers do not receive voting instructions from their customers and do not have discretionary voting authority with respect to a particular proposal. Broker non-votes are counted as present for purposes of establishing a quorum at the Meeting, but they will not be counted for purposes of the election of directors (Item 1), the advisory vote on executive compensation (Item 3), or the advisory vote on the frequency of future votes on executive compensation (Item 4). If you are a beneficial owner, your bank, broker or other nominee is permitted to vote your shares on the ratification of Ernst & Young LLP as our independent registered public accounting firm (Item 2) even if the bank or broker does not receive voting instructions from you.

 

Could other matters be decided at the Meeting?

 

At the date of this proxy statement, we did not know of any matters to be raised at the Meeting other than those referred to in this proxy statement.

 

If other matters are properly presented at the Meeting for consideration, the proxy holders named on the proxy card will have the discretion to vote on those matters for you.

 

Who will pay for the cost of this proxy solicitation?

 

We will pay the cost of soliciting proxies. Proxies may be solicited on our behalf by directors, officers or employees, acting without special compensation, in person or by telephone, electronic transmission or facsimile transmission.

 

Who will count the vote?

 

Representatives of our transfer agent, American Stock Transfer & Trust Company, LLC, will tabulate the votes and act as inspector of election.

 

How may I obtain Neustar’s Form 10-K and other financial information?

 

Stockholders may request a free copy of our 2010 Annual Report, which includes our 2010 Form 10-K, from:

 

Neustar, Inc.
Attn: Corporate Secretary
21575 Ridgetop Circle
Sterling, VA 20166

 

Alternatively, current and prospective investors can access the 2010 Annual Report, which includes our 2010 Form 10-K, and other financial information on our website at www.neustar.biz under the caption “Investor Relations” or on the Securities and Exchange Commission’s website at www.sec.gov.

 

We also will furnish any exhibit to the 2010 Form 10-K if specifically requested upon payment of charges that approximate our cost of reproduction.

 

The Board of Directors has adopted a set of corporate governance principles as a framework for the governance of the Company. The Nominating and Corporate Governance Committee regularly reviews the principles and recommends changes to the Board as appropriate. Our Principles of Corporate Governance (the “Principles”) are available on our website at www.neustar.biz under the captions “Investor Relations — Principles.” A free printed copy is available to any stockholder who requests it from us at the address on page 4.

 

Among other matters, the Principles contain the following items concerning the Board of Directors:

 

 

 

Neustar currently separates the positions of Chairman of the Board and CEO. Since November 2010, James G. Cullen, one of our independent directors, has served as our Chairman of the Board. Mr. Cullen’s roles and responsibilities as Chairman include:

 

 

Separating the positions of Chairman of the Board and CEO allows our CEO to focus on our day-to-day business, while providing the Board with independent leadership in its central role of advising and overseeing management. The Board believes that having an experienced and engaged independent director as Chairman is the most appropriate structure for the Board at this time. However, the Board regularly reviews Board and Company leadership as part of the succession planning process and retains authority to combine the roles of Chairman and CEO in the future, based on the needs and circumstances of the Company at the time. In the event that these roles are combined in the future, the Board will select an independent Board member to serve as lead independent director.

 

Our Principles of Corporate Governance include the following provisions concerning director independence:

 

 

 

 

The Board undertook its annual review of director independence in February 2011. Based on the standards set forth in our Principles of Corporate Governance and outlined above, the Board affirmatively determined that current directors Gareth C. C. Chang, James G. Cullen, Joel P. Friedman, Ross K. Ireland, Paul A. Lacouture, Kenneth A. Pickar, Michael J. Rowny, and Hellene S. Runtagh are independent. The Board determined that Lisa A. Hook is not independent as a result of her employment with the Company. In evaluating Mr. Lacouture’s independence, the Board considered that Mr. Lacouture’s son-in-law is a non-executive employee of a customer of the Company, and that Mr. Lacouture has continuing financial ties stemming from his own former employment with that customer. In evaluating Mr. Ireland’s independence, the Board considered that Mr. Ireland’s son is a non-executive employee of a different customer of the Company, and that Mr. Ireland receives retirement benefits stemming from his own former employment with that customer. Finally, in evaluating Mr. Friedman’s independence, the Board considered that Mr. Friedman is a director of an entity that provides commercial banking services to the Company. The Board

determined that these relationships were not material and did not preclude independence under the standards outlined above.

 

All members of the Audit, Compensation, and Nominating and Corporate Governance Committees must be independent directors as defined by our Principles of Corporate Governance. Members of the Audit Committee must also satisfy additional, heightened independence requirements under Securities and Exchange Commission and New York Stock Exchange rules, which provide that Audit Committee members may not accept directly or indirectly any consulting, advisory or other compensatory fee from the Company (other than Board and committee fees, pensions or other forms of deferred compensation) and may not be affiliated persons of the Company.

 

Our bylaws provide for majority voting in the election of directors. Specifically, in uncontested elections, directors are elected by a majority of the votes cast, which means that the number of shares voted “for” a director must exceed the number of shares voted “against” that director. The Board also has a policy providing that any director who is not reelected under our majority voting standard must tender his or her resignation to the Nominating and Corporate Governance Committee within 30 days of certification of the stockholder vote. The Nominating and Corporate Governance Committee will recommend to the Board whether to accept or reject the resignation offer.

 

In deciding whether to recommend that the Board accept the resignation offer, the Nominating and Corporate Governance Committee will consider all factors deemed relevant, including the stated reasons why stockholders who cast “against” votes did so, any actions taken to address those stated reasons, the qualifications of the director, and whether the director’s resignation from the Board would be in the best interests of the Company and its stockholders.

 

The Board will act on the Nominating and Corporate Governance Committee’s recommendation within 90 days of certification of the stockholder vote and will promptly disclose its final decision and, if applicable, the reasons for rejecting the tendered resignation. Any director who tenders his or her resignation under this policy will not participate in the proceedings of either the Nominating and Corporate Governance Committee or the Board with respect to his or her own resignation offer. If the Board accepts a director’s resignation under the policy, the Nominating and Corporate Governance Committee will recommend to the Board whether to fill such vacancy or reduce the size of the Board.

 

Our Board of Directors currently has nine seats, divided into three classes: Class I (three seats), Class II (three seats) and Class III (three seats).

 

The Board met 15 times during 2010. During 2010, each of our directors attended 75% or more of the aggregate of (a) the total number of meetings of the Board held while a director and (b) the total number of meetings held by all committees on which the director served (during the period in which the director served on such committees). Our Board has adopted a policy that our directors are expected and strongly encouraged to attend each Annual Meeting of Stockholders absent compelling circumstances. All of our directors then on the Board attended our 2010 Annual Meeting of Stockholders.

The table below provides current membership information for the Board and each standing committee of the Board.

 

 

 

 

The Audit Committee

 

Under the terms of its Charter, the Audit Committee meets at least four times per fiscal year, including periodic meetings in executive session with each of our management, our principal internal auditor, our independent registered public accounting firm (independent auditors), and our General Counsel, and reports regularly to the full Board with respect to its activities. The Audit Committee represents and assists the Board in overseeing the accounting and financial reporting processes of the Company and the audits of our financial statements, including the integrity of the financial statements; our compliance with legal and regulatory authority requirements; the independent auditors’ qualifications and independence; the performance of our internal audit function and independent auditors; and the preparation of a report of the Audit Committee to be included in our annual proxy statement. The Audit Committee is responsible for:

 

 

 

The Audit Committee has the authority to retain, at Neustar’s expense, such outside counsel, experts, and other advisors as it determines appropriate to assist it in the full performance of its functions.

 

The Audit Committee met 11 times during 2010.

 

The members of the Audit Committee as of the date of this proxy statement are Messrs. Cullen (Chair), Lacouture and Rowny and Ms. Runtagh.

 

The Board has determined that each of the members of the Audit Committee is independent, as defined by the Company’s director independence standards and the rules of the New York Stock Exchange and the Securities and Exchange Commission, that each such member also meets the heightened standards for Audit Committee independence described under the heading “Director Independence” above, and that each of Messrs. Cullen and Rowny is an “audit committee financial expert” as defined by the Securities and Exchange Commission.

 

The report of the Audit Committee is included on pages 54 to 55. A copy of the Audit Committee Charter is available on our website at www.neustar.biz, under the captions “Investor Relations — Committee Composition.” A free printed copy is available to any stockholder who requests it from us at the address on page 4.

 

The Nominating and Corporate Governance Committee

 

Under the terms of its Charter, the Nominating and Corporate Governance Committee is responsible for identifying individuals qualified to become Board members, recommending to the Board director candidates for election at the annual meeting of stockholders, developing and recommending to the Board a set of corporate governance principles and undertaking a leadership role in shaping corporate governance. Specifically, the Committee is responsible for:

 

 

 

The Nominating and Corporate Governance Committee has the authority to retain, at the Company’s expense, such outside counsel, experts, and other advisors as it determines appropriate to assist it in the full performance of its functions. The Committee has sole authority to retain and terminate any search firm to be used to identify director candidates, including sole authority to approve the search firm’s fees and other retention terms.

 

The Nominating and Corporate Governance Committee met six times during 2010.

 

The members of the Nominating and Corporate Governance Committee as of the date of this proxy statement are Ms. Runtagh (Chair) and Messrs. Cullen, Lacouture and Rowny.

 

The Board has determined that each of the members of the Nominating and Corporate Governance Committee is independent, as defined by the Company’s director independence standards and the rules of the New York Stock Exchange.

 

A copy of the Nominating and Corporate Governance Committee Charter is available on our website at www.neustar.biz, under the captions “Investor Relations — Committee Composition.” A free printed copy is available to any stockholder who requests it from us at the address on page 4.

 

The Nominating and Corporate Governance Committee is responsible for recommending candidates for election to the Board and believes that director candidates should have certain minimum qualifications, including the highest level of integrity, maturity of judgment based on a record of senior-level experience, commitment to

serving the interests of our stockholders, and a reputation and background that demonstrate that Neustar has a Board with experience that is appropriate and consistent with our long-term vision. Candidates must also have a commitment to devote the time necessary to be active on the Board and the desire and ability to work collegially and as a team with the Board and senior management. Pursuant to our Principles of Corporate Governance, the Committee considers the number of other boards on which the candidate serves. Additionally, as part of the neutrality requirements to which we are subject under Federal Communications Commission rules and orders and certain of our contracts, directors cannot be employees or directors of a telecommunications service provider (“TSP”) or own more than 5% of the voting stock of a TSP.

 

The Committee believes that the Board, as a whole, should include members who collectively bring the following strengths and backgrounds to the Board:

 

 

While the Nominating and Corporate Governance Committee has not adopted a formal policy with regard to diversity, the Committee seeks to achieve a diversity of strengths and backgrounds on the Board, particularly in the areas described above. The Committee further aims to have gender and racial diversity on the Board. The Committee believes that the inclusion of diversity as one of many factors considered in selecting director nominees is consistent with our goal of maintaining a Board that best serves the needs of the Company and the interests of our stockholders.

 

The Nominating and Corporate Governance Committee uses a variety of methods to identify and evaluate nominees for director. Candidates may come to the attention of the Committee through current and former Board members, management, professional search firms (to whom we pay a fee), stockholders or other persons. The Committee evaluates candidates for the Board on the basis of the standards and qualifications set forth above. The Committee and the Board also evaluate the Board’s collective qualifications (including diversity) as part of the Board’s annual self-evaluation process. Additional information about the skills and qualifications of our current directors is set forth on pages 48-51.

 

The Nominating and Corporate Governance Committee has in the past retained, and may in the future retain, a third-party search firm to assist the Committee in identifying and evaluating potential nominees for the Board. The Committee will also consider candidates for director recommended by our stockholders. Any stockholder recommendations proposed for consideration by the Committee should include the candidate’s name and qualifications for Board membership and should be addressed to the Nominating and Corporate Governance Committee, care of our Corporate Secretary, at Neustar, Inc., 21575 Ridgetop Circle, Sterling, VA 20166. Properly submitted candidates who meet the criteria outlined above will be evaluated by the Committee in the same manner as candidates recommended by other sources.

 

In addition, our bylaws permit stockholders to nominate individuals for election at annual stockholder meetings and to solicit proxies in favor of such nominees. The process for nominating directors in accordance with our bylaws is discussed below under the heading “Requirements, Including Deadlines, for Submission of Proxy Proposals, Nomination of Directors and Other Business of Stockholders.”

The Compensation Committee

 

Under the terms of its Charter, the Compensation Committee is to assist the Board in discharging its responsibilities relating to compensation of our executive officers and to produce the annual report on executive compensation to be included in our proxy statement. The Compensation Committee is specifically responsible for:

 

 

The Compensation Committee has the authority to retain, at Neustar’s expense, such outside counsel, experts and other advisors as it determines appropriate to assist it in the full performance of its functions.

 

The Compensation Committee met 11 times in 2010.

 

The members of the Compensation Committee as of the date of this proxy statement are Messrs. Friedman (Chair), Chang and Ireland and Dr. Pickar.

 

The Board has determined that each of the members of the Compensation Committee is independent, as defined by the Company’s director independence standards and the rules of the New York Stock Exchange.

 

Additional information regarding the processes and procedures of the Compensation Committee, the scope of the Committee’s authority, and the role of executive officers and compensation consultants in determining or recommending compensation is set forth below under the heading “Compensation Discussion & Analysis.”

 

A copy of the Compensation Committee Charter is available on our website at www.neustar.biz, under the captions “Investor Relations — Committee Composition.” A free printed copy is available to any stockholder who requests it from us at the address on page 4.

The Neutrality Committee

 

Under Federal Communications Commission rules and orders and certain of our contracts, we are required to comply with neutrality regulations and policies. We are examined periodically on our compliance with these requirements by independent third parties. The Neutrality Committee is responsible for receiving reports from the Company’s Neutrality Officer with respect to his or her neutrality functions; reviewing the quarterly attestation reports of the accountants who perform the neutrality procedures; reviewing and approving, as necessary, specific corrective actions based on the findings of the accountants; and reviewing and approving any changes or amendments to the Company’s neutrality compliance procedures.

 

The members of the Neutrality Committee as of the date of this proxy statement are Dr. Pickar (Chair), Ms. Hook and Mr. Ireland. Jeffrey E. Ganek was a member of the Neutrality Committee until his resignation from the Board on November 15, 2010. The Neutrality Committee met four times during 2010.

 

Executive Sessions

 

Neustar’s independent directors meet in executive session without management present at least quarterly. Our independent Chairman of the Board, James G. Cullen, chairs these executive sessions.

 

Enterprise Risk Management, or ERM, is a company-wide initiative that involves identifying, assessing and managing risks that could affect our ability to meet business objectives or execute our corporate strategy. As part of our ERM process, the Board receives regular reports from management on a broad range of potential risks (including operational, financial, legal and regulatory, human capital, and strategic and reputational risks) and the steps management is taking to manage those risks.

 

While the full Board has general oversight responsibility for ERM, the Board has allocated and delegated certain responsibilities to its committees. Consistent with New York Stock Exchange rules, the Audit Committee reviews and discusses with management and our independent auditors the Company’s major risk exposures and the steps management has taken to monitor and control such exposure. The Audit Committee also discusses guidelines and policies governing the ERM process. In addition, the Compensation Committee and the Nominating and Corporate Governance Committee receive reports from management and assist the Board in evaluating risks within their purview, as set forth in their charters. When a committee receives a report on material risk, the chair of the relevant committee reports on the discussion at the next full Board meeting. This enables the Board and its committees to coordinate the risk oversight role, particularly with respect to risk interrelationships.

 

The Board’s allocation of risk oversight responsibility, and our overall ERM process, may change from time to time based on the evolving needs of the Company.

 

Stockholders and other interested parties may communicate with the Board by writing c/o the Corporate Secretary, Neustar, Inc., 21575 Ridgetop Circle, Sterling, Virginia 20166. Communications intended for a specific director or directors, including the Chairman of the Board or the independent directors as a group, should be addressed to the attention of the relevant individual(s) c/o the Corporate Secretary at the same address. Our Corporate Secretary will review all correspondence intended for the Board and will regularly forward to the Board a summary of such correspondence and copies of correspondence that, in the opinion of the Corporate Secretary, is of significant importance to the functions of the Board or otherwise requires the Board’s attention. Directors may at any time review a log of all correspondence received by the Corporate Secretary that is intended for the Board and request copies of any such correspondence.

 

In addition, the Audit Committee of our Board has established a procedure for parties to submit concerns regarding what they believe to be questionable accounting, internal accounting controls, and auditing matters. Concerns may be reported through our Compliance Hotline at (888) 396-9033, by email to the Audit Committee at CorporateCode@neustar.biz, or through a confidential web form, available at www.neustar.biz under the captions

“Investor Relations — Contact the Board.” To the extent permitted by applicable law, concerns may be submitted anonymously and confidentially.

 

Our Board has adopted a Corporate Code of Business Conduct applicable to all of our directors, officers, employees and contractors providing services to or on behalf of the Company.

 

The Code embodies general principles such as compliance with laws, acting with honesty and integrity, avoidance of conflicts of interest, maintenance of accurate and timely financial and business records, use of the Company’s assets, working with customers, suppliers and governments, and protecting the Company’s information and information regarding other companies. All directors, officers, employees and contractors are obligated to report violations and suspected violations of the Code in accordance with the reporting procedures described in the Code.

 

Our Corporate Code of Business Conduct is available on our website at www.neustar.biz under the captions “Investor Relations — Code of Conduct.” We intend to disclose on this website any amendments to the Corporate Code of Business Conduct or grants of waivers from provisions of the Code that require disclosure under applicable Securities and Exchange Commission rules. A free printed copy is available to any stockholder who requests it from the address on page 4.

 

The current members of our Compensation Committee, who also served as the only members of the Committee in 2010, are Messrs. Chang, Friedman and Ireland and Dr. Pickar. No member of the Compensation Committee has been an officer or employee of Neustar or any of our subsidiaries at any time. None of our executive officers serves as a member of the board of directors or compensation committee of any other company that has one or more executive officers serving as a member of our Board or our Compensation Committee.

 

 

Overview

 

Executive Compensation Programs

 

Our executive compensation programs have a strong pay-for-performance orientation and are designed to create value for our stockholders by supporting the achievement of our business and financial objectives. To this end, we have formulated our programs for executives (including our named executive officers, as defined below) to reward superior financial and operating performance, to align executives’ interests with those of our stockholders, and to encourage talented individuals to join and remain with the Company and contribute to our growth and success.

 

Our executive compensation programs are intended to be both competitive and fair. In determining the types and amount of compensation for each executive, we focus on the executive’s performance and potential, level of responsibility, and current compensation and equity ownership levels, as well as our retention needs and competitive practice. The material elements of our executive compensation programs consist of base salary, annual cash incentive compensation, and equity awards.

 

Finally, our executive compensation programs are intended to be consistent with corporate governance best practices. This is demonstrated by our:

 

 

 

2010 Named Executive Officers

 

Our named executive officers for 2010 are our President and Chief Executive Officer, Lisa Hook; our former Chief Executive Officer, Jeffrey Ganek; our Chief Financial Officer, Paul Lalljie; our former Chief Strategy Officer, John Dziak; our Senior Vice President of Carrier Services and Carrier Services North America (CSNA) Sales, Steven Edwards; and our Senior Vice President of Human Resources, Douglas Arnold.

 

2010 Performance and Compensation

 

The Company achieved strong revenue growth and cash generation in 2010. Our consolidated revenue for the year increased 9.7% to $526.8 million, as compared to $480.4 million in 2009. Excluding corporate transactions and charges related to restructuring and realigning our business in 2010, we also exceeded our profitability target for the year. (The Company’s financial results for 2010 are discussed in more detail in the Management’s Discussion & Analysis section of our Annual Report on Form 10-K for 2010, as filed with the SEC.)

 

The Company achieved these strong results in a year of management transition and change. In October 2010, Ms. Hook succeeded Mr. Ganek as our Chief Executive Officer, and Mr. Ganek stepped down as Chairman of the Board shortly thereafter. Mr. Dziak also left the Company in 2010.

 

Taking these factors into account, we believe the compensation paid to our named executive officers for 2010 was consistent with our pay-for-performance philosophy. Our executives received annual cash incentive awards near target for 2010, with a 98.5% Company payout due to solid financial performance. Selected executives also received individual payouts recognizing their contributions through the management transition. In addition, the performance share units granted to our executives in 2009 will pay out above target due to strong execution and cost management over the 2009-2010 performance period. At the same time, our executives received no payout on the performance share units granted to them in 2007 and 2008, due primarily to the January 2009 renegotiation of our contracts to provide number portability administration services in the United States. As a result, actual equity compensation for our executives over the longer term has been well below reported target (grant date) values.

 

For 2011 and beyond, our focus will remain on pay-for-performance, and we intend to continue linking a significant portion of executive pay to achievement of Company financial objectives.

 

Compensation Objectives

 

Performance

 

The primary objective of our compensation programs is to motivate and reward superior performance. Elements of executive compensation that depend upon performance include:

 

 

We have attempted, and will seek in the future, to remain flexible as to the form of equity compensation that we use. Our equity awards have included stock options, restricted stock and performance share units.

Alignment of Interests

 

We seek to align the interests of our executives with those of our stockholders. Elements of compensation that align executive and stockholder interests include:

 

 

As discussed below, we also maintain management stock ownership guidelines and compensation recovery provisions (also known as clawbacks) to align executives’ interests more closely with those of our stockholders.

 

Retention

 

Our executive compensation programs are designed to help us attract and retain key management talent. Elements of compensation that encourage our executives to maintain a long-term commitment to Neustar include:

 

 

Implementing Compensation Objectives

 

Determining Compensation

 

In making compensation decisions, we review the performance of the Company and each executive. We also consider the executive’s level of responsibility, the importance of the executive’s role in achieving our corporate objectives, and the executive’s long-term potential, while taking into account his or her current compensation, realized and unrealized equity gains and stock ownership levels, and our stock selling restrictions for executives. Finally, we weigh competitive practice, relevant business and organizational changes, retention needs and internal pay equity.

 

In order to attract and retain the best management talent, we believe we must provide a total compensation package that is competitive relative to our peers. For this purpose, we consider the practices of specific companies that we have identified as our peers. These public companies are selected annually by the Compensation Committee on the basis of industry (technology), similar business models and comparable financials (including revenues, profitability, market capitalization and growth profiles). The peer companies used for 2010 executive compensation planning purposes were:

 

 

In developing this list, the Compensation Committee focused on companies meeting at least two of the following four financial criteria: revenues ranging from $250 million to $1 billion; three-year revenue growth (compounded annual growth rate, or CAGR) of at least 20%; earnings before interest, taxes, depreciation and amortization (“EBITDA”) margin of at least 40%; and market capitalization ranging from $1 billion to $5 billion. To minimize year-over-year churn in the peer group, the Compensation Committee retained one company from our

2009 peer group (SAVVIS, Inc.) that met only one of the specified criteria; three other 2009 peers (Crown Castle International, MEMC Electronic Materials and Polycom) were removed due to differences in business model and/or size. As a result, the peer group for 2010 consisted of eleven companies that were used for benchmarking purposes in 2009 and four additional companies that met the above criteria. At the time the Compensation Committee evaluated the 2010 peer group, Neustar’s revenue and market capitalization approximated the 25^th percentile of the peer group, EBITDA approximated the median of the peer group, and three-year revenue growth was between the median and 75^th percentile of the peer group.

 

In addition to specific peer company data, we consider compensation surveys conducted by Radford, Culpepper and IPAS, nationally recognized consulting firms, with a focus on surveys of companies in the technology/software and communications business service sectors that have revenues comparable to ours.

 

After reviewing the survey and peer group data described above, we determine the approximate range within which to target total direct compensation for our executives. Within any range, we incorporate flexibility to respond to and adjust for the evolving business environment and our specific hiring and retention needs. For 2010, we set overall target total direct compensation for our executives to fall between the median and 75^th percentile of competitive practice. As described below, individual levels may vary from the targeted competitive position based on factors such as individual performance, executive responsibilities relative to benchmark position responsibilities, skill set and experience, and tenure in a particular position.

 

Our compensation programs are designed to strike a balance between cash and equity and between annual and long-term incentives that the Compensation Committee considers appropriate. Our mix of compensation elements is designed to reward near-term results (in the form of annual cash incentive compensation) and motivate long-term performance (in the form of equity awards that vest over multi-year periods and which are based, in the case of performance share units, on the achievement of Company financial objectives). For 2010, excluding severance for Messrs. Ganek and Dziak, approximately one-half to two-thirds of total target compensation for our named executive officers was composed of long-term equity compensation, with the balance being primarily base salary and target annual cash incentive compensation.

 

Role of Compensation Committee and Management

 

The Compensation Committee has primary responsibility for overseeing the design and implementation of our executive compensation programs. The Compensation Committee, with input from the other independent directors, evaluates the performance of the CEO. The Compensation Committee then recommends CEO compensation to the independent directors for approval. The CEO and the Compensation Committee together review the performance of our other executive officers, and the Compensation Committee determines their compensation based on recommendations from the CEO and the Senior Vice President, Human Resources. The CEO, CFO and Senior Vice President, Human Resources also provide information and recommendations to the Compensation Committee regarding Company financial targets under our annual incentive plan and our performance share unit awards, and the cost of the executive compensation program. The other named executive officers do not play a role in their own individual compensation determinations, other than discussing individual performance objectives with the CEO.

 

As part of its responsibility for overseeing our compensation programs, the Compensation Committee assists management and the Board of Directors in evaluating risks arising from our compensation policies and practices. Compensation risk is discussed in more detail on page 27 below. Our company-wide enterprise risk management (ERM) process is discussed on page 14 above.

 

Role of Compensation Consultants

 

The Compensation Committee has retained Frederic W. Cook & Co., Inc. (“Cook”) to review market trends and advise the Committee regarding executive compensation. Upon request, representatives from Cook are responsible for preparing and reviewing Committee materials, attending Committee meetings, assisting the Committee with program design, and generally providing advice and counsel as compensation issues arise. The Committee also looks to Cook for assistance in assessing the competitiveness of our executive compensation programs. In 2010, Cook prepared competitive reviews of the Company’s executive and non-employee director compensation programs, presented an overview of executive compensation trends and regulatory developments,

reviewed management’s recommendations for changes to the peer group, and provided competitive compensation data on non-executive chairman compensation levels and practices.

 

Cook reports directly to the Committee, although the Committee has instructed Cook to work with management to compile information and gain an understanding of the Company and any issues for consideration by the Committee. The Committee may contact Cook at any time, without interaction or involvement by Company management. Cook did not receive professional fees from Neustar in 2010 other than in connection with advising the Committee on executive and director compensation matters, as described above.

 

Equity Grant Process

 

All equity grants to our employees, including our named executive officers, are approved by the Compensation Committee. The Committee grants equity awards on a periodic basis to employees at an appropriate level of seniority within the Company whose performance and potential contributions warrant such consideration. New hires at this level of seniority are generally granted equity awards upon or after hire. On occasion, special retention and recognition grants are made to individuals deemed critical to retain, difficult to replace or high-potential employees.

 

The exercise price of each stock option awarded to our employees is the closing price of our common stock on the date of grant. If the Committee meets after the release of our quarterly or annual earnings information, the grant date is set as the date of the meeting. If the Committee meets prior to the release of earnings information, the Committee designates a grant date that is several days after the release of earnings information, in order to allow for dissemination of earnings information to the public.

 

Clawbacks

 

Neustar will seek to recover incentive compensation granted to any executive as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or any other clawback provision prescribed by law or New York Stock Exchange listing standards. Under our current clawback policy, all equity grants to executives include provisions under which the Company can claw back shares (or the value thereof) in the event that an executive engages in fraud, dishonesty, willful misconduct or any other activity deemed detrimental to the Company (including any violation of the non-compete, non-solicit, confidentiality and other obligations set forth in grant agreements).

 

Stock Ownership Guidelines

 

The Compensation Committee adopted stock ownership guidelines for executives effective January 1, 2008. The guidelines are designed to increase executives’ equity stakes in the Company and to align executives’ interests more closely with those of our stockholders. The guidelines provide that, within five years, the CEO should attain an investment position in Neustar stock equal to at least four times her base salary, and all other current executive officers should attain an investment position equal to at least two times their base salary. The number of shares needed to be owned is calculated annually based on the executive’s salary and an average of the prior year’s quarter-end closing stock prices.

 

Shares counted toward meeting the guidelines include shares owned outright by the executive or his or her spouse, including shares acquired upon the exercise of stock options and shares delivered upon vesting of restricted stock; performance shares earned by the executive; deferred stock units; shares held in trust that are included in the executive’s ownership reports filed with the SEC; and shares held in the executive’s retirement accounts. Unexercised stock options and unvested restricted stock or performance share units do not count toward meeting the guidelines.

 

Under the guidelines, each executive is expected to retain a percentage of the shares received from the Company’s equity compensation program (for example, upon the exercise of options, vesting of restricted stock, or receipt of shares under performance-based awards) until his or her expected ownership level is achieved. For the

CEO, this retention ratio is 100%; for all other current executive officers, the retention ratio is 50%. The retention ratios only apply to equity awards granted on or after January 1, 2007.

 

Management Stock Selling Restrictions

 

Each year, our Nominating and Corporate Governance Committee and Board of Directors adopt a policy governing sales of Neustar stock by our executives. In 2010 and prior years, the management stock selling restrictions included quarterly volume limitations for executive officers and manner of sale limitations for all senior vice presidents and above. Like the stock ownership guidelines, the stock selling restrictions are intended to align the interests of executives with those of our stockholders by requiring the executives to retain a meaningful percentage of their equity holdings in the Company. The Compensation Committee considers the impact of the stock selling restrictions, together with realized and unrealized equity gains, when evaluating retention needs and executive compensation generally.

 

Transactions in Company Securities

 

It is against Company policy for any employee (including any executive) to engage in short-term or speculative transactions in Company securities. Employees are prohibited from trading in puts or calls in Company securities and from selling Company securities short. Employees are also discouraged from including Company securities in a margin account or pledging Company securities as collateral for a loan.

 

Elements Used to Achieve Compensation Objectives

 

Base Salary

 

Base salaries are intended to be commensurate with each executive’s position and level of responsibility. Decisions regarding salary levels also take into account the executive’s current salary and the amounts paid to his or her peers within and outside the Company.

 

Base salaries are evaluated annually or as necessary in response to organizational or business changes. Although salaries are considered annually, they are not automatically increased if the Compensation Committee (or the independent directors, in the case of the CEO) believes that they are at appropriate levels or that other elements of compensation deserve greater weight in light of our stated objectives. This is consistent with our goal of offering competitive compensation that is tied to the achievement of our performance objectives.

 

Base salaries paid to the named executive officers for 2010 are discussed below and shown in the Summary Compensation Table on page 28. In 2010, we set base salaries for the named executive officers to fall between the median and 75^th percentile of competitive practice. This competitive positioning is consistent with our targeted competitive positioning of median to 75^th percentile and reflects consideration of existing salary levels and executive responsibilities, performance, skill set and experience.

 

Cash Incentive Compensation

 

Annual cash incentive awards provide rewards for achieving short-term or annual performance goals that we consider to be important contributors to stockholder value.

 

At the beginning of each year, the Compensation Committee (with the input of the other independent directors) establishes the performance goals and targets applicable under the relevant incentive plan for awards that our executives are eligible to earn for the year. After the end of the year, the Compensation Committee reviews our full-year results against the performance goals previously established for the year. The Committee (and the independent directors, in the case of the CEO) then determines the extent to which performance goals for the year were met and approves an appropriate payout for each executive. Payouts are generally made in February or early March following the performance year.

 

The cash incentive compensation paid to the named executive officers for 2010 is discussed below and shown in the Summary Compensation Table on page 28.

Equity Compensation

 

Our equity compensation programs are designed to reward contributions to our financial and operational success, motivate future performance, align the interests of our executives with those of our stockholders, and retain key executives through the term of the awards. When making annual equity grant decisions, we consider competitive market data as well as market practice regarding the types of equity to grant. When making special retention and promotion grants, we also consider the value of existing grants and vesting profiles.

 

Our executive equity awards have included stock options, performance share units and restricted stock. In 2010, all three types of awards were used as part of our annual equity compensation program. As discussed above, we have attempted, and will seek in the future, to remain flexible as to the form of equity compensation that we use so that we can properly motivate our executives to enhance stockholder value and achieve specific Company objectives.

 

When determining the appropriate mix of equity grants, we weigh the dilutive impact and cost of these grants with their potential benefits. We believe that providing more than one type of award helps to balance our compensation objectives. For example, stock options are a motivational tool and are supportive of our growth strategy. Performance share units are fully at risk and depend upon key performance measures that drive value for our stockholders, thus aligning the interests of our executives and stockholders. Finally, restricted stock serves both to reward and retain executives over the term of the awards.

 

In managing the overall cost of our equity compensation program, we set an annual budget with respect to total expense and the potential dilutive impact to stockholders. Budgets have been set at levels that we believe are reasonable relative to peer companies, taking into account our compensation objectives, and affordable at various performance levels.

 

The stock options, performance share units and restricted stock awards granted to the named executive officers in 2010 are discussed below and shown in the 2010 Grants of Plan-Based Awards table on page 30.

 

Deferred Compensation

 

Our Deferred Compensation Plan permits employees at the vice president level and above, including the named executive officers, to defer certain elements of compensation in order to delay taxation on such amounts. We believe that this is a standard benefit arrangement commonly offered at companies of our size. Specifically, the Plan permits deferral of up to 75% of base salary and up to 90% of annual cash incentive awards and bonuses. We may elect to provide matching contributions to the extent that deferrals under the Plan have the effect of reducing a participant’s 401(k) compensation (and thus the matching contribution offered to all employees under our 401(k) plan), although we have not done so to date. Amounts deferred or matched under the Plan are credited with investment earnings based on investment options selected by the participants.

 

As shown in the 2010 Nonqualified Deferred Compensation table on page 36, two of our named executive officers elected to participate in the Plan for 2010.

 

Other Compensation

 

In general, our executives receive health and welfare benefits under the same programs and subject to the same eligibility requirements that apply to all Company employees. Likewise, executives participate in our 401(k) plan on the same terms and conditions as apply to other Company employees. We do not provide defined benefit (pension) or supplemental retirement plans for our executives.

 

On occasion, we provide our executives with other benefits that we believe are reasonable, competitive and consistent with our compensation objectives. These benefits, which constitute only a small portion of each named executive officer’s total compensation, are discussed below and shown in the All Other Compensation column of the Summary Compensation Table on page 28.

Severance and Change-in-Control Arrangements

 

As discussed under “Potential Payments upon Termination or Change in Control” below, we maintain severance and equity award arrangements that provide benefits to key management employees, including our named executive officers, if they experience specified termination or change-in-control events.

 

We believe that reasonable severance and change-in-control protections for our named executive officers are necessary in order for us to attract and retain qualified executives. We have defined the events that would trigger payments in a manner that we believe is reasonable and consistent with current market practices. For example, the definition of “good reason” in our severance and change-in-control arrangements is intended to be limited to true circumstances of constructive discharge and includes notice and opportunity-to-cure provisions, so that severance rights are not triggered inadvertently. In addition, the rights in our change-in-control arrangements are “double trigger” — meaning that in order for change-in-control benefits to be payable, there must occur both a change in control and an affirmative action by us or our successor to terminate (or constructively terminate) an executive’s employment. Our change-in-control arrangements also do not provide for excise tax gross-ups. Finally, any payments under our severance plan are conditioned on the executive’s execution of a release of claims and agreement to abide by specific non-compete, non-solicit, confidentiality and other obligations set forth in the plan.

 

We periodically review the necessity and design of our executive severance and change-in-control arrangements. As our needs, the regulatory framework and market practices evolve, we will consider whether changes to our policies are appropriate.

 

Compensation of the Named Executive Officers

 

In determining total compensation for our named executive officers for 2010, we evaluated the financial and operational performance of the Company and considered each executive’s contributions to that performance. For a discussion of the Company’s 2010 performance, see “Overview — 2010 Performance and Compensation” above.

 

Base Salary

 

The Compensation Committee (and the independent directors, in the case of the CEO) approved 2010 base salaries for the named executive officers in February 2010. Base salaries for Ms. Hook and Messrs. Ganek, Lalljie and Arnold were increased based on market competitiveness (median to 75^th percentile). The independent directors approved an additional increase (to $540,000) for Ms. Hook effective October 15, 2010, the date of her appointment as CEO. The following table sets forth the 2010 base salaries for the named executive officers:

 

 

 

 

Cash Incentive Compensation

 

In early 2010, the Compensation Committee set performance goals and targets under our annual cash incentive plan for 2010. For the named executive officers, the Committee determined to base a significant portion of awards (100% for Mr. Ganek, 90% for Ms. Hook, 80% for Messrs. Lalljie and Arnold, 50% for Mr. Dziak, and 20% for Mr. Edwards) on the Company’s achievement of established goals relating to 2010 revenue and EBITDA. For Mr. Edwards, the Committee also placed substantial weight (60%) on the achievement of Carrier Services group revenue targets. The remaining portion, if any, would be based on individual achievement. The Committee elected

to use Company revenue and EBITDA as performance measures for 2010 because we believe these measures focus our executives on profitable growth that is expected to lead to enhanced stockholder value.

 

The Compensation Committee (and the independent directors, in the case of the CEO) agreed to use the following target cash incentive opportunities, presented as a percentage of base salary, for executive awards in 2010. Actual payouts could vary from 0% to 200% of target, depending on Company, group and individual performance as determined by the Committee.

 

 

In early 2011, the Compensation Committee reviewed the Company’s 2010 financial results and evaluated the extent to which business objectives for the year were met. The Committee noted that the Company had achieved 2010 revenue of $526.8 million, versus target revenue of $528.0 million, and 2010 EBITDA of $215.7 million, reconciled from our audited financial statements as follows:

 

 

The Committee then considered the impact of unusual events that occurred in 2010, including charges for restructuring and severance related to the management transition, a non-cash charge for the impairment of long-lived assets, and acquisition-related costs. After adjusting for these events, the Committee determined that the Company had exceeded its EBITDA target of $230.3 million. Taking this into account, the Committee determined to set the Company portion of 2010 awards at 98.5% of target, reflecting full funding for EBITDA achievement (as adjusted) but a reduction for the shortfall in revenue.

 

Next, the Compensation Committee reviewed the performance of each named executive officer to determine individual payouts. In evaluating individual performance, the Committee focused on each executive’s contributions in furthering our strategic objectives through both organic and inorganic growth opportunities. Finally, for Mr. Edwards, the Committee reviewed the achievement of Carrier Services group revenue targets for 2010. These targets reflect our internal, confidential business plan, the disclosure of which we believe would result in competitive harm to us. The targets required a very high level of performance by Mr. Edwards and his group.

 

Following its review, the Committee (and the independent directors, in the case of Ms. Hook) determined to pay the following amounts to the continuing named executive officers for 2010, reflecting a 98.5% payout on the Company portion of awards and calculated group and individual payouts based on the factors described above.

 

 

For Messrs. Lalljie, Edwards and Arnold, the Committee then determined to increase individual payouts by $75,000, $50,000 and $75,000, respectively, in recognition of these executives’ outstanding performance through

the 2010 management transition. Including these amounts, the total incentive awards paid to the continuing named executive officers for 2010 were as follows:

 

 

As discussed under “Severance Arrangements” below, Messrs. Ganek and Dziak also received cash incentive awards for 2010 in accordance with the Company’s Key Employee Severance Pay Plan and their individual status change agreements. These awards were based on Company revenue and EBITDA achievement (described above) and, in the case of Mr. Dziak, individual contributions in the areas of strategy and business development. Mr. Ganek received an award of $591,000 (98.5% of target), and Mr. Dziak received an award of $184,416 (96% of target).

 

Equity Compensation

 

In 2010, the Compensation Committee granted a combination of stock options, performance share units and restricted stock to our named executive officers. This combination reflected a balancing of several of our compensation objectives, including motivating performance, aligning the interests of our executives and stockholders, and retaining key executives.

 

For each of the named executive officers, roughly half of the 2010 equity compensation award value was delivered in stock options, one-quarter was delivered in performance share units, and one-quarter was delivered in restricted stock. This weighting provides a dual focus for our executives on both stockholder value creation and long-term operating performance. We added restricted stock as an element of our annual equity compensation program in 2010, both to improve retention value and to align our program more closely with competitive practice. Even with this change, however, our program maintained a stronger performance orientation than peer average in 2010.

 

The named executive officers’ 2010 stock options and restricted stock vest over four years, and their performance share units vest on January 1, 2013 based upon the achievement of 2010-2011 Company cumulative revenue and EBITDA goals set by the Compensation Committee at the time of grant. The Committee elected to use cumulative revenue and EBITDA for goals because these measures focus our executives on profitable growth that is expected to enhance stockholder value. As in 2009, we used a two-year performance period (with one additional year of vesting) for performance share units in 2010. The 2010 performance share unit goals reflect our internal, confidential business plan (the disclosure of which we believe would result in competitive harm to us) and require a high level of financial performance. All 2010 equity awards are reflected in the 2010 Grants of Plan-Based Awards table on page 30.

 

Over the longer term, actual equity compensation for our executives has been lower than reported target (grant date) values. Although the performance share units granted to our executives in 2009 will pay out above target, our executives received no payout on the performance share units granted to them in 2007 and 2008, due primarily to the January 2009 renegotiation of our contracts to provide number portability administration services in the United States. The 2009 performance share units are scheduled to vest on January 1, 2012 at 133% of target based on 2009-2010 Company cumulative revenue of $1,007.2 million and cumulative EBITDA of $421.3 million, versus target revenue of $1,008.0 million and target EBITDA of $404.0 million. The 2008 performance share units paid out at 0% of target based on 2008-2010 Company cumulative revenue of $1,496.0 million and cumulative EBITDA of

$531.0 million, versus target revenue of $1,881.0 million and target EBITDA of $772.0 million. EBITDA achievement for 2008, 2009 and 2010 was calculated from our audited financial statements as set forth below.

 

 

Severance Arrangements

 

Jeffrey Ganek

 

Our Board appointed Ms. Hook to succeed Mr. Ganek as CEO on October 15, 2010, and Mr. Ganek stepped down as Chairman of the Board shortly thereafter. In connection with these events, the Company entered into a Status Change Agreement and a Consulting Services Agreement with Mr. Ganek on November 15, 2010.

 

Under the Status Change Agreement, Mr. Ganek remained as an employee of the Company until December 31, 2010, after which he became an advisor to the Board and Ms. Hook. The Company provided Mr. Ganek with the following severance benefits under our Key Employee Severance Pay Plan, as modified by an earlier agreement between the Company and Mr. Ganek: (i) 250 percent of Mr. Ganek’s base salary ($1,500,000 total), payable over 18 months; (ii) a cash incentive award for 2010, based on actual results; and (iii) reimbursement for up to 18 months of COBRA continuation coverage under the Company’s medical plan. The Company also agreed to pay Mr. Ganek the difference between his actual incentive award for 2010 and his target award ($600,000). In accordance with this provision, the Company paid Mr. Ganek $9,000 in March 2011. Finally, the Company paid $60,000 in fees for services provided by Mr. Ganek’s attorneys in connection with his status change.

 

During Mr. Ganek’s consulting term, which will extend through January 1, 2012, Mr. Ganek will be paid $500 per hour, plus reasonable expenses, for his services and will work up to eight hours per week. Mr. Ganek’s outstanding equity awards (other than his 2010 performance share units, which were canceled) will continue to vest, be exercisable or be forfeited during the consulting term in accordance with their terms.

 

In exchange for the benefits described above, Mr. Ganek agreed to an extension of his existing Agreement Respecting Noncompetition, Nonsolicitation and Confidentiality with the Company. Under that agreement, as extended, Mr. Ganek will not compete with the Company or solicit Company employees or customers prior to June 30, 2013. In addition, until June 30, 2013, Mr. Ganek will be subject to a standstill arrangement that limits his ability to acquire Neustar stock or seek control of the Company.

 

John Dziak

 

Mr. Dziak’s employment with the Company ended on December 31, 2010, after which he became a consultant to the Company. In connection with these events, the Company entered into a Status Change Agreement and a Consulting Services Agreement with Mr. Dziak on December 15, 2010.

 

Under the Status Change Agreement, the Company provided Mr. Dziak with the following severance benefits in accordance with our Key Employee Severance Pay Plan: (i) 100 percent of Mr. Dziak’s base salary ($320,000), payable over 12 months; (ii) a cash incentive award for 2010, based on actual results; and (iii) reimbursement for up to 12 months of COBRA continuation coverage under the Company’s medical plan. Mr. Dziak also received an additional payment equal to six months’ base salary ($160,000), and the Company paid $10,000 in fees for services provided by Mr. Dziak’s attorneys in connection with his status change. During Mr. Dziak’s consulting term, which ended on March 31, 2011, Mr. Dziak was paid $280 per hour for his services, and his outstanding equity awards continued to vest.

Mr. Dziak is also subject to an Agreement Respecting Noncompetition, Nonsolicitation and Confidentiality with the Company, under which he will not compete with the Company or solicit Company employees or customers prior to June 30, 2012.

 

Other Compensation

 

Other benefits provided to the named executive officers for 2010 include Company contributions to 401(k) plan accounts, which are available to all of our employees, and travel and temporary living expenses for Mr. Edwards, who commutes to our headquarters from his home in another state. These benefits constituted only a small portion of each executive’s total compensation for 2010.

 

Tax Deductibility of Compensation

 

Section 162(m) of the Internal Revenue Code of 1986, as amended, imposes a limit of $1 million on the amount that a public company may deduct for compensation paid to the company’s CEO and to each of the company’s other covered officers. This limitation does not apply to compensation that meets the requirements under Section 162(m) for “qualifying performance-based” compensation (i.e., compensation paid only if performance meets pre-established, objective goals based on criteria approved by stockholders). For 2010, the grants of stock options and performance share units to our named executive officers were designed to satisfy the requirements for deductible compensation under Section 162(m). In addition, the payments described under “Compensation of the Named Executive Officers — Cash Incentive Compensation” above were subject to a threshold performance measure designed to satisfy the requirements for deductible compensation under Section 162(m).

 

 

 

The Compensation Committee has reviewed the Compensation Discussion & Analysis set forth above and has discussed that Analysis with management. Based on its review and discussion with management, the Committee recommended to the Board of Directors that the Compensation Discussion & Analysis be included in the Company’s 2011 proxy statement and incorporated by reference in the Company’s Annual Report on Form 10-K for 2010. This report is provided by the following independent directors, who compose the Committee:

 

Joel P. Friedman (Chair)

Gareth Chang

Ross K. Ireland

Dr. Kenneth A. Pickar

 

The Compensation Committee Report does not constitute soliciting material, and shall not be deemed to be filed or incorporated by reference into any other filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate the Compensation Committee Report by reference therein.

 

 

 

Our compensation programs are designed with a balance of risk and reward in relation to the Company’s overall business strategy. Among the program attributes that discourage inappropriate risk-taking are:

 

 

Summary Compensation Table

 

The following table sets forth all compensation paid by us, for the period shown, to our principal executive officer, our former principal executive officer, our principal financial officer, and our three most highly compensated executive officers other than our principal executive officer and principal financial officer who were serving as executive officers at the end of 2010. We refer to these individuals as the “named executive officers” elsewhere in this proxy statement.

 

 

 

 

All Other Compensation

 

The following table describes the components of All Other Compensation in the Summary Compensation Table for each named executive officer for 2010.

 

 

 

 

2010 Grants of Plan-Based Awards

 

The following table provides information regarding each plan-based award granted to a named executive officer in the last fiscal year. All non-equity incentive plan awards were granted pursuant to the Neustar, Inc. Performance Achievement Reward Plan. All equity awards were granted pursuant to the Neustar, Inc. 2009 Stock Incentive Plan.

 

 

 

 

Notes to Summary Compensation Table and 2010 Grants of Plan-Based Awards Table

 

As discussed under “Compensation Discussion & Analysis” above, the Compensation Committee considers numerous factors, including individual and Company performance, position and level of responsibility, market data, and the recommendations of our CEO, in determining each executive’s salary, performance-based cash award, equity awards and other compensation.

In 2010, with the exception of Mr. Ganek, the base salaries of the named executive officers constituted approximately one-fifth to one-fourth of their total compensation, with the remaining compensation composed principally of performance-based cash and equity awards (and in the case of Mr. Dziak, payments pursuant to a status change agreement). Mr. Ganek’s base salary constituted approximately one-tenth of his total compensation for 2010, with the remaining compensation composed principally of performance-based cash, equity awards and payments pursuant to a status change agreement. The status change agreements with Messrs. Ganek and Dziak are described under “Compensation Discussion & Analysis — Compensation of the Named Executive Officers — Severance Arrangements” above.

 

The performance-based cash awards in the Summary Compensation Table were approved by our Compensation Committee (and in the case of Ms. Hook, by the independent directors) in February 2011 pursuant to the Neustar, Inc. Performance Achievement Reward Plan. The Compensation Committee established the performance goals applicable to these awards in early 2010. Our Performance Achievement Reward Plan goals and payments are discussed in more detail under “Compensation Discussion & Analysis — Elements Used to Achieve Compensation Objectives” and “Compensation Discussion & Analysis — Compensation of the Named Executive Officers” above.

 

The stock option, restricted stock and performance share unit awards in the 2010 Grants of Plan-Based Awards table were granted by the Compensation Committee under the Neustar, Inc. 2009 Stock Incentive Plan. Additional details regarding equity grants made in 2010 are set forth below.

 

Stock options.  Stock options granted in 2010 have a seven-year maximum term. Twenty-five percent of the options granted to our named executive officers in 2010 vested on February 23, 2011, and the remaining options vest in 36 monthly installments thereafter (subject to continued service). Mr. Dziak’s unvested options were canceled after his consulting arrangement ended on March 31, 2011.

 

Performance share units.  All of the performance share units granted to the named executive officers (other than Messrs. Ganek and Dziak) in 2010 vest on January 1, 2013 based on, and subject to, the achievement of Company cumulative revenue and EBITDA goals set by the Compensation Committee in February 2010. Mr. Ganek’s 2010 performance share units were canceled on December 31, 2010 in connection with his termination of employment. Mr. Dziak’s 2010 performance share units were canceled after his consulting arrangement ended on March 31, 2011.

 

Holders of performance share units may receive dividend equivalents, subject to the same restrictions and risk of forfeiture as the underlying performance share units. We did not pay any dividend equivalents in 2010.

 

Restricted shares.  Twenty-five percent of the restricted shares granted to our named executive officers in 2010 vested on February 23, 2011, and the remaining shares vest in three annual installments thereafter (subject to continued service). Mr. Dziak’s unvested shares were forfeited after his consulting arrangement ended on March 31, 2011.

 

Holders of restricted shares may receive dividends, subject (in the case of stock dividends) to the same restrictions as the underlying restricted shares. We did not pay any dividends in 2010.

Outstanding Equity Awards at December 31, 2010

 

The following table provides information regarding unexercised options, unvested stock and equity incentive plan awards outstanding as of December 31, 2010 for each named executive officer.