LeapFrog 2008 Annual Report Download - page 136

After its engagement, Compensia assisted our compensation committee in an effort to refine and update the
peer group composition, establishing a list of “direct peers” and a separate list of “industry reference peers.” The
direct peer group is intended to include companies whose market position and size more closely match ours.
These companies are the primary companies we use to benchmark our executive officer and board compensation.
These direct peer companies must meet at least three of the following six criteria:
Qualitative Quantitative
Must be: Must be 0.4x to 2.5x LeapFrog’s size in:
• In a related business or industry*, • Revenues,
• A San Francisco Bay Area technology company, or • Market capitalization, or
• A turnaround company • Number of employees
* Toys, educational products, consumer packaged goods for children, games (handheld, electronic, hardware
or software), software or e-commerce
The compensation committee reviewed and approved the following 13 companies recommended by
Compensia for inclusion in our direct peer group:
BlackBoard Build A Bear Workshop CyberSource
iRobot JAKKS Pacific K12
Midway Games Openwave Systems Palm
RC2 Real Networks Renaissance Learning
THQ
An industry reference peer group was established as a secondary reference point for executive and Board
pay program design and trends and best compensation practices. The industry peer group is composed of
companies that provide toys, educational products, consumer packaged goods for children or games (handheld or
electronic, hardware or software). The compensation committee reviewed and approved the following six
companies recommended by Compensia for inclusion in our industry reference peer group: Activision, Electronic
Arts, Hasbro, Mattel, Scholastic Corporation and The McGraw-Hill Companies.
The compensation committee approved these two peer groups after reviewing Compensia’s report and
analyzing and comparing the various peer groups proposed by the two compensation consultants. The committee
determined to eliminate from the peer groups five companies included in the previous peer group (Take Two
Interactive Software, The Gymboree Corporation, Educate, Inc., McAfee, Inc., and John Wiley and Sons, Inc.)
that the committee believed to be less relevant to LeapFrog because of their sizes and business focus. CNET
Networks, Inc. was acquired during 2008 and therefore was removed from the peer groups. The seven new
companies included in the current direct peer group (BlackBoard, Build-A-Bear Workshop, CyberSource,
iRobot, K12, Openwave Systems, and Real Networks) were more similar to LeapFrog in size based on revenues,
market capitalization and number of employees. The compensation committee determined that the remaining
companies in the previous peer group were more appropriately included in the industry peer group than in the
direct peer group because, while they operated in a very similar business or industry, they did not meet two or
more of the other criteria established for the direct peer group. The new peer groups were approved by the
compensation committee at their October 30, 2008 meeting. We believe the companies in our compensation peer
groups represent a good cross-section of the companies against which we compete for talent or that are similar to
us in size and business focus.
In addition to benchmarking studies of the compensation peer group, the compensation committee employs
the collective experience and judgment of its members and advisors in determining the total compensation and
the various components of the packages paid to our executive officers. The compensation committee has also
historically taken into account input from other sources, including other independent members of the board,
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