iRobot 2012 Annual Report Download - page 25

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COMPENSATION AND OTHER INFORMATION
CONCERNING EXECUTIVE OFFICERS AND DIRECTORS
Compensation Discussion & Analysis
Overview
Our compensation philosophy is based on a desire to balance retention of executive talent with pay for performance
incentive compensation, which is designed to reward our named executive officers for continued service and our sustained
financial and operating performance. We believe that the compensation of our named executive officers should align our
executives' interests with those of our stockholders and focus executive behavior on the achievement of both near-term
corporate targets as well as long-term business objectives and strategies. It is the responsibility of the compensation committee
of our board of directors to administer our compensation practices to ensure that they are competitive and include incentives
that are designed to appropriately drive our performance, including our Adjusted EBITDA, revenue and individual objectives.
Our compensation committee reviews and approves all of our executive compensation policies, including executive officer
salaries, cash incentives and equity awards.
Our performance in 2012 was mixed. Full year revenue of $436 million was down 6% from the historic high in 2011,
and earnings per share of $0.61 were well off earnings per share of $1.44 in 2011. These results were driven by the vastly
different results in our two operating business units. Home robot revenue increased 28% over the prior year while our defense
& security business was impacted by troop withdrawals in Afghanistan, a continuing resolution and uncertainty around
sequestration. As a result, defense & security revenue decreased $107 million from the prior year, which negatively impacted
earnings. Despite the challenges, we took significant steps to increase our long-term outlook, including restructuring our
business to be supported by centralized engineering and operations functions and reduce headcount, acquiring Evolution
Robotics, Inc. and integrating its products into our product portfolio and roadmap.
Based on 2012 performance, and taking into account our significant change in business strategy, our named executive
officers received lower cash compensation in 2012 than they did in 2011, while maintaining a significant portion of their
compensation in the form of long-term incentives. We believe our compensation philosophies, as described below, have
aligned executive compensation with Company performance.
Objectives of Our Compensation Programs
Our compensation programs for our executive officers are designed to achieve the following objectives:
• to provide competitive compensation that attracts, motivates and retains the best talent and the highest caliber
executives to help us to achieve our strategic objectives;
• to connect a significant portion of the total potential compensation paid to executives to our annual financial
performance;
• to align management's interest with the interests of stockholders through long-term equity incentives; and
• to provide management with performance goals that are directly linked to our annual plan for growth and profit.
We believe the compensation of our named executive officers should reflect their success as a management team, rather
than as individuals, in attaining key operating objectives, such as improved Adjusted EBITDA performance and revenue
growth, as well as longer-term strategic objectives, such as invention, product development and evaluation of potential
acquisitions. We define Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, merger and
acquisition expenses, net intellectual property litigation-related activity, restructuring-related expense and non-cash stock
compensation.
We also believe that their compensation should not be based on the short-term performance of our stock, whether
favorable or unfavorable, but rather that the price of our stock will, in the long-term, reflect our operating performance, and
ultimately, the management of the company by our named executive officers. We seek to have the long-term performance of
our stock reflected in executive compensation through our equity incentive programs.
Methodologies for Establishing Executive Compensation
The compensation committee, which is comprised entirely of independent directors, reviews the compensation packages
for our named executive officers, including an analysis of all elements of compensation separately and in the aggregate. In
determining the appropriate compensation levels for our chief executive officer, the compensation committee meets outside the
presence of all our executive officers with the exception of the senior vice president, human resources. With respect to the
compensation levels of all other named executive officers, the compensation committee meets outside the presence of all
Proxy Statement