iRobot 2014 Annual Report Download - page 25

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COMPENSATION AND OTHER INFORMATION
CONCERNING EXECUTIVE OFFICERS AND DIRECTORS
Compensation Discussion and 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 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 they are competitive and include incentives designed to appropriately
drive our performance, including revenue, Adjusted EBITDA, and, when appropriate, individual objectives, including business unit
contribution margin. Our compensation committee annually reviews and approves elements of executive compensation, including
executive officer base salaries, cash incentives and equity awards.
Our performance as a Company in 2014 was excellent. Full year revenue of $557 million represented an increase of 14%
from full year revenue in 2013, and earnings per share of $1.25 in 2014 increased from earnings per share of $0.94 in 2013. In
particular, our home robot business revenue grew 19% over the prior year, while our defense & security business revenue delivered
results consistent with our expectations. In addition, we began selling Ava 500 business collaboration robots in the first half of
2014.
Based on our 2014 performance, our named executive officers achieved and were paid significant short-term incentive cash
compensation in 2014, while maintaining a significant portion of their compensation in the form of long-term incentives, a new
instrument added to our long-term incentives in 2014. The long-term incentives granted in 2014 included performance-based
equity. 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:
• Provide competitive compensation that attracts, motivates and retains the best talent and the highest caliber executives to
help us to achieve our strategic objectives;
• Connect a significant portion of the total potential compensation paid to executives to our annual financial performance;
• Align management's interest with the interests of stockholders through long-term equity incentives; and
• Provide management with performance goals directly linked to our annual longer-term 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, improved operating income
as a percentage of revenue and revenue growth. We define Adjusted EBITDA as earnings before interest, taxes, depreciation and
amortization, merger and acquisition expenses, net intellectual property litigation expense, restructuring expense and non-cash
stock compensation.
We also believe that the compensation of our named executive officers 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.
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 with only itself
and the senior vice president, human resources. With respect to the compensation levels of all other named executive officers, the
compensation committee meets with our chief executive officer and, as needed, our executive vice president, human resources and
corporate communications. Our chief executive officer annually reviews the performance of each of the other named executive
officers with the compensation committee.
The compensation committee has engaged an independent compensation consultant to work with them in addition to our
human resources department and the chief executive officer to assist us in developing recommendations regarding base salary
levels, target incentive awards and actual payouts, performance goals for incentive compensation and equity awards for named
executive officers. In conjunction with the annual performance review of each named executive officer in February of each year,
the compensation committee carefully considers the recommendations of the chief executive officer when setting base salary,
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