Tech Data 2013 Annual Report Download - page 116

Table of Contents
In order for targeted total direct compensation to be competitive, the equity granted needs to provide additional realizable value. The Committee
balances the targeted equity grant with the targeted total cash compensation to motivate each NEO to achieve both long-term and short-term
objectives and to promote retention. The CEO’s allocation is structured to ensure an equal or near-equal balance between short-term performance
and long-term shareholder value. The allocation of elements of compensation for the next tier of executives is more heavily weighted toward the
annual business goals, but with a reasonable amount tied to long-term shareholder value. Multi-year vesting also adds weight to the long-
term value
aspect of the equity grants. These allocations are also evaluated versus the market information the Committee reviews from its compensation
consultant.
Base Salary
- The Committee focuses on setting an adequate base salary that, when combined with the bonus, will attract and retain its NEOs and
act as a barrier for a competitor to easily draw these key employees away from the Company. The Company’s strong consideration for controlling
costs is achieved partially by its philosophy of setting compensation targets in the middle range of its peers, so the benchmarking target is typically
viewed as the 50
th
percentile.
Variable/At-Risk Compensation - The variable/at-risk short-term compensation for the Company’s NEOs consists of an annual cash incentive
bonus. The target bonus amount for each NEO is determined as a percentage of base salary depending on the level of the NEO. Payment of the
bonus is conditioned on achievement of performance targets for specified performance measures for each NEO. The target bonus amount is subject
to acceleration or deceleration depending on the level of over- or under-achievement. Performance targets and measurement of achievement are
calculated using non-GAAP measures with carefully discussed exclusions for unusual or infrequent occurrences, such as share repurchases (which
were excluded again this year as with prior years), and dispositions or restructuring charges that are not indicative of ongoing results. The
Committee believes that the bonus payment should provide upside and downside potential to reflect an appropriate amount at risk, balanced against
a target that is challenging to achieve, in order to drive and reward short-term superior participation and performance. Consistent with our pay-for-
performance philosophy, the performance targets and the acceleration/deceleration table are directly tied to the Company’s financial results in
relation to its Board-
approved annual operating plan for the fiscal year. Achievement is not considered an entitlement, but must be the result of hard
work that stretches the normal effort, and must demonstrate success vis-à-vis the established targets. It is the Company’
s practice to set target bonus
percentages, performance targets and the acceleration/deceleration table for the coming year at its March Board meeting that follows the end of our
fiscal year. For fiscal 2013, for example, this was done at the March 2012 Board meeting. At the same March Board meeting, the Committee
generally decides if the performance targets were achieved for the just-completed fiscal year, and the extent to which there was over- or under-
achievement for purposes of the deceleration/acceleration table; for fiscal 2013, however, these decisions were not finalized until the restatement
was completed in February 2014.
The performance measures for which performance targets are set include both corporate and regional metrics that are approved by the Committee
from a listing in the Bonus Plan. The performance measures we have customarily used for our NEOs, including fiscal 2013, are EPS, ROIC,
regional profitability measured in dollars or euros, and regional profitability as a percentage of sales. The Committee believes that at present these
metrics are the best measures of performance and the best drivers of shareholder value. For each NEO, a combination and weighting of these
performance measures is chosen based on the span of the NEO’s control and the relationship of that control to the performance measures. In order
to align goals and maintain a cohesive team, all the NEOs, along with other top executives, have the performance measures of EPS and ROIC. We
believe that these particular measures reflect metrics that are measurable and most positively affect shareholder value through shorter-term goals.
EPS and ROIC are the only measures for our NEOs with global responsibility. For our NEOs with primarily regional responsibilities - our
President, Europe and President, the Americas - ROIC is calculated for their respective regions instead of globally. Our President, Europe and
President, the Americas also have two additional performance measures: regional profitability measured in dollars or euros and regional
profitability as a percentage of sales. The Committee believes the measures of profitability as a percentage of sales and ROIC provide motivation to
concentrate on achieving profitable revenue for the Company and its shareholders. These approaches align the measures with the Company’s
strategy of focusing on profitable vendor and customer relationships and with the compensation philosophy of setting goals that are challenging to
achieve.
ROIC is a non-GAAP metric and for fiscal 2013 was calculated as follows:
(Adjusted Operating Income or Contribution Margin / Net Sales * (1 - Estimated Effective Tax Rate for Year)) divided by (Net Cash
Days / 365)
The main adjustments we made to GAAP measures in our audited financial statements were with respect to adjusted operating income and earnings
per share. Under the Bonus Plan, we started with operating income on a GAAP basis and made adjustments for (a) the add-back of stock
compensation expense (which is considered a non-cash expense), (b) expenses related to the Company's deferred compensation plan and (c) certain
unusual or one-time occurrences, including the net gain associated with a legal settlement in the Americas, a charge in relation to an assessment,
penalties and interest for various value added tax matters in one of the Company's subsidiaries in Spain and the operating results of the SDG
acquisition. For earnings per share, we started with net income and weighted average shares outstanding on a GAAP basis. We made adjustments
for certain unusual or one-time
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