ADT 2014 Annual Report Download - page 35

COMPENSATION OF EXECUTIVE OFFICERS—CONTINUED
•the composition of the Company’s peer group;
•feedback regarding the total targeted compensation for our CEO;
•newly hired Executive Officer compensation packages; and
•an evaluation of whether the pay programs encourage our
executives to take undue risks.
Farient provides no services to the Company other than consulting
services provided to the Compensation Committee.
Role of Management
In making determinations with respect to executive compensation, the
Compensation Committee considers input from a number of sources,
including management. Specifically, the CEO and CHRO provide
insight to the Compensation Committee on specific decisions and
recommendations related to the compensation of our NEOs. The
Compensation Committee believes that the input of the CEO and
CHRO with respect to the assessment of individual performance,
succession planning and retention is a key component of the
process. The CHRO also supervises the development of materials for
each Compensation Committee meeting, including individual and
Company performance metrics, competitive market data and, in
conjunction with the CEO, individual compensation recommendations
for the Company’s executives. No member of management, including
the CEO, has a role in determining his or her own compensation.
Benchmarking
The Compensation Committee considers a number of factors in
determining target total compensation for each of the Company’s
Executive Officers. These factors include, but are not limited to,
position specific market data, the executive’s experience and
performance, and internal pay equity. While the Compensation
Committee strives to generally target executive compensation at the
median of the Company’s competitive market (including both
selected peer companies and the broader competitive market) in the
aggregate, they also apply discretion based upon their review of the
factors noted above to make individual compensation decisions for
the Company’s Executive Officers. In addition, the Compensation
Committee may target above-median market compensation for
specific individuals for a variety of reasons, including:
•specific organizational considerations, for example, because the
role is considered critical to delivering on our overall business
strategy;
•the need for specific expertise in building new or improving upon
existing business functions, particularly in the process of hiring
candidates from external sources; and
•the retention of key executives we believe are critical to our
success.
Peer company data were utilized to benchmark pay levels for the
CEO and CFO positions and to provide insights on pay practices at
the executive level. General industry data from third party providers
were used as secondary data sources for the CEO and CFO
positions and as a primary source for the other executive positions.
Neither the Compensation Committee nor management has any input
into the companies included in these general industry surveys.
Peer Group Development
The Compensation Committee, with the assistance of our external
advisor, Farient, has developed a peer group for compensation
purposes that aligns with the Company’s business model and size
characteristics. Public companies were screened on whether they
have a similar range of revenues and are generally focused on
generating subscription-based recurring revenue, primarily in the
business-to-consumer (B2C) arena, with a focus on operations and
revenues primarily in the United States and Canada. The
Compensation Committee reviews the peer group periodically to
determine whether any significant changes to the business condition
of the Company or any of its peers would warrant any changes to the
peer group.
In its review of the peer group for use in reviewing the Company’s
fiscal year 2014 compensation programs and its determination of
individual executive compensation decisions, the Compensation
Committee approved a number of changes from the peer group
utilized in fiscal year 2013. Those changes included:
•the removal of Equinix, Inc. and STARZ from the peer group;
•the addition of Allegion plc, Cincinnati Bell, Inc. and EarthLink
Holdings Corp. to the peer group; and
•the addition of T-Mobile US, Inc. as a reference peer. Reference
peers are utilized only for purposes of assessing compensation
design and practices. While the companies in our reference peer
group meet a number of our screening criteria, particularly the
subscription-based recurring revenue business model and B2C
focus, their annual revenues are outside of the range employed in
the screening process for assessing CEO and CFO
compensation levels. As a result, inclusion of specific
compensation data would have the potential to skew comparative
statistics.
Equinix and STARZ, which were both included in the original peer
group developed prior to the Company’s separation from Tyco, were
removed from the peer group as neither primarily operates in the B2C
space. Additionally, Equinix is focused primarily on enterprise
solutions, while STARZ has a focus on selling programming to
distributors, neither of which is a business model comparable to the
Company’s.
The three additions to the peer group all provide services to
residential consumers: Allegion provides security and safety-related
products and services, Cincinnati Bell offers voice and data services,
as well as home security, and EarthLink provides network,
communication and IT services. T-Mobile US was included as a
reference peer due to its acquisition of a former member of the
Company’s peer group (MetroPCS), as well as its subscriber-based
recurring revenue business model. Its revenue size, however, is
outside the range of the screening criteria used to identify peer
companies.
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