Priceline 2010 Annual Report Download - page 27

25
The Committee used the data of the Compensation Peer Group primarily to ensure that the
priceline.com executive compensation program as a whole is competitive. The Compensation Peer Group
provides the Committee with guidance and information, but does not dictate the setting of the named executive
officers’ compensation and is not a substitute for the Committee’s own business judgment in establishing
compensation for the named executive officers.
Components of Executive Compensation in 2010
The Committee annually reviews each named executive officer’s total direct compensation, which
consists of base pay, performance based cash bonus opportunity, and equity incentives. In addition to these
primary compensation elements, the Committee reviews any other compensation, to the extent applicable, and
payments that would be required under various severance and change-in-control scenarios. In making
compensation decisions, the Committee also takes into consideration historical compensation, including the
vested and unvested value of unexercised stock options and the unvested value of other outstanding equity
(restricted stock, restricted stock units and performance share units) under different scenarios and at different
prices.
Before giving final approval to the annual compensation initiatives, the Committee reviews a
presentation of total compensation, a “tally sheet,” prepared by Mercer. The tally sheet generally summarizes
each officer’s total “target” compensation for the applicable year and, using a current stock price, estimates the
payments to be made to the officer under certain termination of employment and change of control scenarios. In
2010, the Committee made no adjustments as a result of the tally sheet analysis based on its assessment that the
program continued to meet the objectives described above.
Base salary
Base salary ranges for named executive officers are determined based on, among other things:
x information from the Compensation Peer Group described above;
x individual performance of the executive, including level of responsibility and breadth of
knowledge; and
x internal review of the executive’s total compensation, both individually and relative to other senior
executives.
The relative importance of these factors varies depending on the individual whose salary is being
reviewed. Salary levels are typically considered annually as part of the Company’s performance review process
as well as upon a promotion or other change in job responsibility. Generally, base salaries for the Company’s
named executive officers are towards the low end of the Compensation Peer Group.
In 2010, the Committee made no changes to the annual base salaries of the named executive officers.
Performance based cash bonus
Overview. Priceline.com’s financial and operational performance was excellent in 2010 (pre-bonus
non-GAAP EBITDA growth of more than 63% year-over-year) and the funding of the Company’s bonus pools
and the payment of individual bonus amounts reflected this performance and the Company’s overall market-
leading growth.
The fundamental principal underlying the Company’s 2010 performance based cash bonus plan (the
“2010 Bonus Plan”) was that the bonus pools for named executive officers would only be meaningfully funded if
the Company had significant year-over-year earnings growth. The Compensation Committee believed at the
time of adoption of the 2010 Bonus Plan that the year-over-year growth rates required to fund the named
executive officers’ 2010 “target” bonuses would need to exceed the projected growth rates which would be
achieved by the Company’s significant competitors in 2010. Put another way, based on projections of the
performance of the Company’s competitors publicly available at the time of adoption of the plan, the Committee
believed that meaningful funding of the 2010 Bonus Plan would only occur if the Company out-performed its
significant competitors based on non-GAAP EBITDA targets. The Committee believed that requiring the
Company to achieve what it believed to be higher growth rates than the Company’s peers before there was
meaningful funding available for payment of bonuses to the named executive officers constituted a significant
hurdle and meant that each named executive officer’s bonus was at significant risk.