LeapFrog 2007 Annual Report Download - page 162

Under the 2007 bonus program, the individual bonuses awarded to our named executive officers, which
were awarded out of the total available bonus pool representing 84% of aggregate target bonuses of all bonus-
eligible employees, could have ranged between 0% and 200% of their respective bonus targets. Mr. Katz had a
target bonus opportunity equal to 100% of his base salary; all of the other named executive officers had target
bonus opportunities of 50% of their respective base salaries. The compensation committee previously approved
these target bonus levels based on its review of bonuses granted to the compensation peer group, as well as the
circumstances surrounding the hire or performance of each named executive officer and the judgment and
experience of the compensation committee members and its advisors.
In February 2008, the compensation committee approved bonuses under our 2007 bonus plan to Messrs.
Chiasson, Pidel and Dodd and Ms. MacIntyre of $130,011, $75,000, $170,050, and $150,000, respectively. The
board, upon recommendation by the compensation committee, approved a bonus under our 2007 bonus plan to
Mr. Katz of $600,000.
Highlights of the 2007 achievements taken into account by our board and compensation committee in the
bonus decision-making process include the following:
•Development of new products for 2008: We far exceeded product development goals by driving from
concept to manufacturing several new innovative products that are receiving critical acclaim from
industry experts and our key retailers. We also re-engineered our product development process to
achieve cost efficiencies.
•Core financial metric and inventory improvements: Despite lower than targeted operating margins,
we improved overall gross margin by 9.2 percentage points, or an 18% improvement compared to
2006. We reduced our inventory balance by 28% from $73 million at the end of 2006 to $52.4 million
at the end of 2007, and we reduced the year-end inventory balances of our key retailers by
approximately 20%. Further, we demonstrated strong balance sheet management, including
achievement of better than expected year-end cash balances and lower days sales outstanding as of the
end of 2007.
•Strong retailer scorecard performance: We made improvements in measures upon which our key
customers evaluate our performance, such as in-stock levels, fill rates and retailer gross margin.
•Strengthened organization: Throughout the organization, including on the senior management team,
we hired, retained and developed strong talent, particularly in the areas of product management,
marketing, game development, international toy marketing, web commerce, software engineering and
finance. These actions resulted in better leadership, skills and talent in areas that are key to
achievement of our long-term strategy and an improved culture of performance and accountability.
As part of the bonus decision-making process, the individual performance of each named executive officer
was assessed in relation to his or her individual performance factors for 2007 and the performance of the
department or function for which he or she is accountable. These goals are a combination of objective and
subjective measures and are taken into account as part of the overall evaluation of performance in determining
the ultimate bonus award. The CEO and Senior Vice President of Human Resources report on these individual
performance measures and make bonus recommendations to the compensation committee for bonuses relative to
target for each of the named executive officers (other than our CEO). The compensation committee assesses our
CEO’s performance against individual and company performance measures and provides a recommendation to
the board of our CEO’s bonus relative to his target bonus.
Mr. Katz was awarded a 2007 bonus at approximately 100% of his target bonus based on a performance
assessment that included his performance in leading our development of a new product line for 2008 in a manner
that exceeded targets, strengthening our management team in a manner that exceeded targets, leading
improvements to core financial metrics, such as our gross margin and year-end inventory balances for our retailer
customers and for us, and successfully developing processes to assess, identify and develop high-potential
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