LeapFrog 2005 Annual Report Download - page 135

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. In addition, the Compensation Committee approves and administers
LeapFrog’s company-wide equity and bonus plans. The Compensation Committee is composed exclusively of
non-employee, independent directors.
Overview
The Compensation Committee sets the salaries of LeapFrog’s executive officers (as that term is defined in
Section 16 of the Exchange Act and Rule 16a-1 thereunder, and who will be referred to in this report as “Section
16 officers”) and other key employees, establishes the annual executive and employee bonus plans and ongoing
equity grant program, approves specific company-wide and individual Section 16 officer performance objectives
and Section 16 officer bonus payments, and makes equity award grants to Section 16 officers. 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 provides a balanced mix of cash and equity-based compensation that we believe is suitable to
motivate executives to achieve company goals and align their short- and long-term interests with those
of the stockholders.
• LeapFrog pays base salaries that are competitive with levels in effect at companies with which the
company competes for talent.
• LeapFrog provides annual bonus opportunities intended to motivate executives and employees to achieve
specific operating results and to generate rewards that maintain total compensation at competitive levels.
• LeapFrog provides equity-based incentives for executives and other key employees to ensure they are
motivated over the long-term to respond to the company’s business opportunities and challenges as
owners and not just as employees.
• LeapFrog generally targets the key elements of executive compensation (base salary, annual bonus
opportunity and equity) to deliver compensation to each Section 16 officer and all of them as a group at
approximately the 50th percentile of the market.
In examining total executive compensation, we compare it to current compensation data from competitive
data provided by Towers Perrin, which includes comparative information of 15 companies we have identified as
our peer group. The peer group includes toy, education, consumer packaged goods and fast-growth/high-
technology companies that LeapFrog competes with for executive talent. The Compensation Committee has
engaged and uses the services of an independent compensation consultant to conduct its periodic review of the
effectiveness and competitiveness of LeapFrog’s total executive compensation.
Elements of Executive Compensation
In examining total executive compensation, the Compensation Committee reviews the following elements
that make up the total cash compensation LeapFrog pays to its Section 16 officers.
Base Salary. The Compensation Committee reviews and determines the base salaries of the Section 16
officers, including the Chief Executive Officer, on an annual basis. Compensation decisions made by the
Compensation Committee regarding the Chief Executive Officer also require approval by the entire board. The
Compensation Committee considers individual and company performance, future potential, scope of
responsibilities and experience, and competitive salary practices. In early 2006, the competitive analysis
indicated that the salaries we pay our Section 16 officers were generally at or near the median competitive salary
level based upon the competitive market data.
(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 the 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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