LeapFrog 2003 Annual Report Download - page 122

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REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION(2)
The Compensation Committee of the board of directors is responsible for setting and administering the
policies that govern executive compensation. The committee is composed of Dr. Munitz and Messrs. Berg and
Resnick, each of whom is a non-employee director within the meaning of Section 16 of the Securities and
Exchange Act of 1934 and an “outside director” within the meaning of Section 162(m) of the Internal Revenue
Code, or the Code.
Compensation Philosophy
The Compensation Committee sets the salaries of the executive officers, establishes the annual executive
and employee bonus plans, approves specific company-wide and individual executive performance objectives-
and executive bonus payments, and makes stock option and equity compensation grants. The Compensation
Committee ensures competitive alignment of executive compensation packages to enable LeapFrog to attract and
retain high quality executive officers and other key employees, reward them for LeapFrog’s success and motivate
them to enhance long-term stockholder value. Key elements of the philosophy are:
•LeapFrog pays base salary that is competitive with levels in effect at companies in the San Francisco
Bay Area with which the company competes for talent. We look at published compensation survey
salary data for comparable companies similar in size and scope of operations and establish salary targets
at the 50th percentile.
•LeapFrog maintains annual incentive opportunities sufficient to provide motivation to achieve specific
operating results and to generate rewards that maintain total compensation at competitive levels.
•LeapFrog provides sufficient equity-based incentives for executives and other key employees to ensure
that they are motivated over the long-term to respond to the company’s business challenges and
opportunities as owners and not just as employees.
Executive Compensation
Base Salary. The Compensation Committee annually reviews each executive officer’s base salary,
considering individual and company performance, levels of responsibility, past experience and skills and
competitive pay practices.
Executive Bonuses. The Executive Bonus Plan, an annual award plan, is a variable pay program for
officers and vice presidents of LeapFrog to earn additional annual compensation. The actual incentive award
earned depends on the extent to which LeapFrog and individual performance objectives are achieved. The
Compensation Committee reviews and approves the target bonus opportunity and the annual performance
objectives for the company and individual officers. In addition, certain executive officers have minimum
incentive payments guaranteed in their employment agreements. In 2003, company performance objectives were
based on the achievement of specified net sales and net income targets.
These net sales and net income targets were not achieved in 2003. The Chief Executive Officer evaluated
each participant and recommended to our board of directors that no 2003 bonus payments be made to executives.
Messrs. Wood, Kalinske, and Rioux waived their contractual right to their respective 2003 bonuses.
(2) The material in this report is not “soliciting material,” is not deemed “filed” with the SEC, and is not to be
incorporated by reference into any filing of LeapFrog under the 1933 Act or 1934 Act, whether made before
or after the date hereof and irrespective of any general incorporation language contained in such filing.
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