TripAdvisor 2013 Annual Report Download - page 161

substantial uncertainty when established. Based on data provided by management, the Compensation Committees
exercise negative discretion in making the annual cash bonus awards. By setting a high amount that can be
reduced, TripAdvisor is advised by legal counsel that TripAdvisor’s annual incentive plan meets the
requirements of Section 162(m) of the Code. As a result, while performance targets are used in setting
compensation under this plan, ultimately the levels of those targets and the Compensation Committees’ use of
negative discretion typically result in the award of compensation as if the annual incentive plan were operating as
a discretionary plan.
Equity Awards
The Compensation Committees use equity awards to align executive compensation with our long-term
performance. Equity awards link compensation to financial performance because their value depends on
TripAdvisor’s share price. Equity awards are also an important employee retention tool because they generally
vest over a multi-year period, subject to continued service by the award recipient.
Equity awards are typically granted to our named executive officers upon hire or promotion and annually
thereafter. Management generally recommends annual equity awards in the first quarter of each year when the
Compensation Committees meet to make determinations regarding annual bonuses for the last completed fiscal
year and to set compensation levels for the current fiscal year. The practice of the Compensation Committees is
to generally grant equity awards to our named executive officers only in open trading windows.
Typically, equity awards have been in the form of awards of restricted stock units (“RSUs”) or options to
purchase shares of TripAdvisor common stock or some combination of the two. Stock options have an exercise
price equal to the market price of TripAdvisor common stock on the date of grant, and, therefore, provide value
to our named executive officers only if our stock price increases. Stock options generally vest over a period of
four years. We believe stock options incentivize our named executive officers to sustain increases in stockholder
value over extended periods of time. RSUs are a promise to issue shares of our common stock in the future
provided the named executive officer remains employed with us through the award’s vesting period. RSUs
generally vest over a period of four years. RSUs provide the opportunity for capital accumulation and long-term
incentive value and are intended to assist in satisfying our objectives.
The Compensation Committees review various factors considered by management when they establish
TripAdvisor’s equity grant pool including, but not limited to, the following:
• TripAdvisor’s business and financial performance, including year-over-year performance,
• dilution rates, taking into account projected headcount growth and employee turnover,
• non-cash compensation as a percentage of earnings before interest, taxes, depreciation and amortization,
• equity compensation utilization by peer companies,
• general economic conditions, and
• competitive compensation market data regarding award values.
For specific awards to our named executive officers, management makes recommendations to the Section 16
Committee based on a variety of factors including, but not limited to, the following:
• TripAdvisor’s business and financial performance, including year-over-year performance,
• individual performance and future potential of the executive,
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