LeapFrog 2011 Annual Report Download - page 146

Compensation Design and Mix
The overall composition of an executive’s total compensation package is determined initially based on the
competitive market data for the position described above and then adjusted to reflect the specific performance,
contributions and experience of the individual. Each year, the compensation committee evaluates the total
compensation of our executives with respect to our overall company performance, individual performance,
changes in scope of responsibility and any changes in the competitive market for each position. The
compensation committee does not have a pre-established policy or target for the allocation between cash and
non-cash compensation or short-term and long-term incentive compensation. Rather, the compensation
committee uses the compensation data provided by Compensia to determine the appropriate level and mix of
incentive compensation, taking into consideration how that mix creates or awards incentives that might lead to
excessive risk-taking. In general, the level of an executive’s variable compensation opportunity (short-term and
long-term incentive compensation) increases with his or her level of responsibility. However, the compensation
committee is careful (i) not to increase the variable compensation component to such an extent so as to
unduly increase the associated level of risk-taking behavior by our executives and (ii) to select performance
criteria for the variable compensation component that aligns individual performance with long-term
stockholder interest.
Economic and Risk Considerations
Members of our senior management, including the CEO, CFO and General Counsel, along with members
of our Human Resources Department, with oversight by the compensation committee, conducted an
assessment of our compensation programs and policies to determine whether the incentives provided by these
programs and policies were appropriate or had the potential to encourage excessive risk-taking by our
employees. The results of this assessment were discussed at and in conjunction with board and compensation
committee meetings held in February and March 2011, and at a special risk review session of the board of
directors in July 2011.
The assessment focused on the key terms of the Company’s equity compensation and variable cash
compensation programs, such as bonus plans. Our compensation programs were analyzed to determine
whether they introduced or encouraged excessive risk-taking or other behaviors that could have an adverse
impact on our business and whether existing risk mitigation features were sufficient in light of the overall
structure and composition of our compensation programs. In particular, the assessment focused on the ability
of participants to affect the level of the variable component of their compensation and the controls over
participant action and variable compensation. For more general information regarding the features of our
compensation plans and programs that have been identified as discouraging or potentially mitigating excessive
risk-taking behavior, see the information discussed under the heading ‘‘Compensation Committee’’ earlier in
this proxy statement.
The compensation committee determined that, for all employees, our compensation programs do not
encourage excessive risk-taking and instead encourage behaviors that support sustainable value generation.
Advisory Vote on Executive Compensation
At our 2011 annual meeting of stockholders, our stockholders had the opportunity to provide an advisory
vote on the compensation paid to our named executive officers, or a ‘‘say-on-pay’’ vote, and on the frequency
with which they believed we should hold future say-on-pay votes. Over 99% of the votes cast by our
stockholders approved the compensation of our named executive officers, as disclosed in our 2011 proxy
statement. The board of directors and compensation committee reviewed these final vote results and
determined that such results affirmed stockholder support of our approach to executive compensation and
thus we did not believe any changes to our executive officer compensation program in response to the
vote was necessary.
In addition, over 90% of the votes cast by our stockholders at the 2011 annual meeting of stockholders
selected three years as the preferred frequency of future say-on-pay votes. Accordingly, our board of directors
currently plans on holding its next say-on-pay vote at our 2014 annual meeting of stockholders.
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