ADT 2014 Annual Report Download - page 37

COMPENSATION OF EXECUTIVE OFFICERS—CONTINUED
Annual Incentive Compensation
Executive Officers of the Company are eligible to earn annual incentives under the Officer Bonus Plan. Under the Officer Bonus Plan, which is
intended to comply with Section 162(m) of the Code, annual incentives are based upon achievement against an Operating Income target, which
is determined annually by the Compensation Committee. For fiscal year 2014, each of the Company’s Executive Officers was eligible for a
maximum bonus under the Officer Bonus Plan equal to 0.5% of the Company’s Operating Income.
After determining the Company’s performance against the Operating Income criterion, the Compensation Committee applies negative discretion
to the calculated maximum incentive amount. The Compensation Committee generally utilizes a guideline formula in applying its negative
discretion. This guideline formula is based upon the Company’s AIP, which is the plan upon which a majority of incentive-eligible employees’
annual incentives are based.
The guideline formula for purposes of the Officer Bonus Plan in effect for fiscal year 2014 reflects the Company’s focus as a subscriber-based
business with significant recurring monthly revenues, and the metrics utilized in the AIP were selected to drive results in those categories which
have the most significant impact on the success of our business. Officer Bonus Plan payouts are based upon the Company’s performance
against a variety of predetermined financial goals, as well as specific individual objectives (other than for the CEO).
The following table provides a basis for the rationale behind the selection of the AIP metrics:
Measure Rationale for Inclusion in AIP
Recurring Revenue Growth Supports our strategy of increasing recurring revenue through customer additions,
retention of existing customers and increased Average Revenue Per User (“ARPU”)
Steady State Free Cash Flow Key measure in assessing the economic potential of the Company’s existing
subscriber base; also aligns to metrics reported by key industry competitors
Net Attrition Focuses efforts on reducing customer attrition, which is a key value driver and
significantly impacts our operations
Individual Objectives (excluding CEO) Provide individual line-of-sight to employees in supporting the strategic goals of the
Company
Fiscal 2014 Annual Incentive Compensation Design Summary
The financial performance measures and targets utilized in the fiscal year 2014 AIP and in the Officer Bonus Plan guideline formula, as well as the
actual performance against the targets, are summarized in the table below. Actual Performance figures below exclude the impact of the
acquisition of Reliance Protectron, Inc.
Performance Measure Weighting Performance Target Actual Performance
%of
Target
Attained
Mr. Gursahaney
Recurring Revenue Growth* 37.5% 5.1% 2.7% 52.9%
Steady State Free Cash Flow (1)*37.5% $ 1,050M $ 948M 90.3%
Net Attrition 25% 13.9% 13.5% 102.9%
Messrs. Geltzeiler, Ferber and Bleisch and Ms. DeVard
Recurring Revenue Growth* 30% see above see above see above
Steady State Free Cash Flow (1)*30% see above see above see above
Net Attrition 20% see above see above see above
Individual Objectives (2) 20% various various various
(1) For compensation purposes, SSFCF is adjusted to exclude the effects of events that the Compensation Committee deems would not reflect the performance of the NEOs. The categories of
special items were identified at the time the performance measure was approved at the beginning of the fiscal year, although the Compensation Committee may in its discretion make
adjustments during the fiscal year. For fiscal year 2014, the approved categories of adjustments included adjustments related to (i) business acquisitions and divestitures; (ii) debt
refinancing; (iii) legacy legal and tax matters; (iv) goodwill and intangible asset impairments for business acquired prior to 2002; (v) certain unbudgeted capital expenditures and pension
contributions; (vi) significant unbudgeted restructuring or other one-time charges; (vii) charges related to the separation into a stand-alone public company; and (viii) realignments of
segment and corporate costs.
(2) Individual objectives typically vary by NEO, but in general are related to performance against key strategic goals and value drivers for the Company, including, but not limited to, growing the
core business, improving customer attrition through the implementation of customer non-pay initiatives and improved credit screening, and strengthening of business platforms to support
efficiencies and process improvements.
* For further definition of non-GAAP financial measures and a reconciliation to GAAP measures, see “Reconciliation of Non-GAAP Measures to GAAP Measures and Selected Definitions” on
page 49 of this Proxy Statement.
The ADT Corporation 2015 Proxy Statement 29
PROXY STATEMENT