LeapFrog 2008 Annual Report Download - page 138

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percentile. The market data consisted of published survey data and direct peer data from proxy statements. The
decline in value of stock awards granted in 2008 contributed to the decrease in the market percentile from the
2008 survey.
The specific compensation elements are described below with discussion of compensation decisions for
each element with respect to the named executive officers.
Base Salary
The compensation committee reviews and determines the base salaries of our executive officers, including
our CEO, on an annual basis, and it makes these determinations on a case-by-case basis upon the hiring of any
new executive officers. In determining the total compensation package for a new executive officer, the
compensation committee reviews market data for the position, the experience and skills of the candidate, total
compensation at the candidate’s former employer, including any compensation that will be forfeited upon
departure from the candidate’s former employer. For its annual review of compensation, with respect to
determining base salaries, the compensation committee considers individual and company performance, potential
of the executive officer to contribute to the long-term success of the company, scope of responsibilities and
experience, and competitive salary practices. The study conducted by Compensia for 2009 indicated that our
executive base salaries align with the market 55th percentile overall, although there was significant variation by
individual.
Based on the overall performance of the company in 2007 and the comparative position of our executives’
salaries relative to the external market, the compensation committee determined in February 2008 that no base
salary increases for our named executive officers were warranted with the exception of a 9.1% increase for
Ms. MacIntyre, our Executive Vice President, Product, Innovation and Marketing, who joined us in January
2007. This increase was approved by the compensation committee in February 2008 and brought
Ms. MacIntyre’s base salary to $300,000 from $275,000 annually. This salary change was recommended based
on competitive data from our compensation peer group (the Towers Perrin list) as well as to address internal
equity issues.
Due to business conditions, including the global economic crisis and the pervasive uncertainty surrounding
2009 revenue expectations, and based on the overall performance of the company in 2008, the compensation
committee determined in February 2009 that no base salary increases for named executive officers were
warranted for 2009.
Performance-Based Annual Bonus Awards
Annual performance bonuses are intended to motivate executives to achieve LeapFrog’s short-term goals
and are designed to reward company performance and individual performance. The compensation committee
approved executive goals for 2008 performance-based bonuses at its February 2008 meeting and determined
executive bonus awards for 2008 performance at its February 2009 meeting. To determine bonus awards, the
compensation committee first calculated the extent of the funding of the bonus pool. The potential size of the
bonus pool is generally based upon the aggregate of the target bonuses (typically expressed as a percentage of
salary) for which each employee is eligible. Funding is calculated by assessing company performance against the
pre-determined financial measures described below to determine the amount of the company component of the
bonus pool, which is then added to a pre-set individual portion of the bonus pool. After the bonus pool is
calculated, the overall pool is generally allocated among employees, including executive officers, based on
individual performance, using a multiplier percentage against their allocated portion of the bonus pool. However,
for 2008, as discussed below, the committee determined that no bonuses would be paid to any of our executive
officers from the bonus pool, either from the individual component or from the company performance
component. For 2009, Compensia reviewed the bonus targets of our executive officers and determined that target
bonus percentages were generally between the market 25th and 50th percentiles overall.
34