LeapFrog 2008 Annual Report Download - page 135

Compensation Methodology
The compensation committee of our board of directors is responsible for the design, implementation and
oversight of the executive compensation programs for our executive officers and reports to the full board of
directors its discussions and actions. Typically, our CEO makes recommendations to the compensation
committee regarding short- and long-term compensation for our named executive officers as well as our other
executive officers based on company results, an individual executive’s contribution toward these results,
performance toward goal achievement, market surveys and input from our Human Resources department and our
independent compensation consultant. The compensation committee also recommends to the full board for
approval all compensation matters related to our CEO. The compensation committee’s recommendations to the
full board regarding CEO compensation are based on the compensation committee’s assessment of company and
CEO performance, input from our outside compensation consultant, and other factors such as prevailing industry
trends.
The compensation committee has engaged and uses the services of an outside compensation consultant to
provide it with advice and guidance on design of our compensation programs and policies and relevant
information regarding executive compensation at similarly situated companies, as well as relevant information
about other market practices and trends. In July 2008, the compensation committee replaced our former
compensation consultant, Towers Perrin, with a new compensation consultant, Compensia, Inc. Prior to the
replacement, Towers Perrin had served as advisor to our compensation committee for approximately five years,
and the committee believed it would be appropriate to engage a new firm as a matter of good corporate
governance. Compensia is retained directly by the compensation committee and works under the direction of the
compensation committee. We have not engaged Compensia for any other services, though it is possible that
Compensia could be retained by the nominating and corporate governance committee to provide advisory
services relating to board compensation. Compensia provides comment and guidance to the compensation
committee and management in advance of compensation committee meetings on compensation proposals,
including changes to compensation levels for any executive officers, the design of equity programs, and the
design of compensation programs, such as severance and change-in-control policies, perquisites and other
executive benefit programs. In addition, Compensia, reviews compensation materials prepared by management in
advance of compensation committee meetings.
Annually, under the direction of the compensation committee, our compensation consultants have conducted
reviews of the effectiveness and competitiveness of our total executive compensation packages, which includes
reviewing base salaries, short- and long-term incentives, including cash bonuses and equity awards, and other
executive benefits, by conducting benchmarking studies of our compensation peer group described below and
analyzing the results of these studies, as well as data from third-party compensation surveys. The information
provided is used to determine if the total compensation packages of our executive officers are competitive and if
each element of those compensation packages is aligned with reasonable and responsible practices in our
industry and geographic marketplace.
In early 2008, Towers Perrin and the compensation committee established a compensation peer group to
determine competitive compensation levels for our executive officers. Previously, in 2007, Towers Perrin
reviewed a cross section of competitors and related industries with a focus on toy, gaming and educational
products and identified 18 companies from the toy, education, consumer goods, and prepackaged software
industries as our “compensation peer group.” Based on a subsequent review of the 2007 peer group, Towers
Perrin determined that the 2007 peer group should remain unchanged. The compensation committee reviewed
and approved the 18 companies recommended by Towers Perrin at its February 28, 2008 meeting. The
compensation peer group was composed of the following companies:
Activision, Inc. CNET Networks, Inc. Educate, Inc.
Electronic Arts Inc. The Gymboree Corporation Hasbro, Inc.
JAKKS Pacific, Inc. Mattel, Inc. McAfee, Inc.
McGraw-Hill Companies Midway Games Inc. Palm, Inc.
RC2 Corporation Renaissance Learning, Inc. Scholastic Corporation
Take-Two Interactive Software THQ Inc. John Wiley & Sons, Inc.
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