LeapFrog 2008 Annual Report Download - page 140

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accomplishments. In the case of the CEO’s bonus award, the compensation committee evaluates CEO
performance and makes a recommendation to the full board. The amount of the bonus awards actually paid to our
named executive officers can be less than or exceed the funded amount per person, as determined through
performance reviews and subject to approval by the compensation committee.
While under the terms of the 2008 bonus plan, the individual component of the bonuses would have been
funded with respect to 20% of the target bonus of each executive officer, the compensation committee
determined at its February 2009 meeting that no bonuses would be paid to the CEO or any of the named
executive officers. (Messrs. Moon and Pidel were not eligible for bonuses under the 2008 bonus plan because of
their departure from the company in December 2008.) This determination was based primarily on our financial
results, uncertainty about our performance in 2009 in light of the current recession, and our focus on cash
management and achieving our goals in reducing our operating loss in 2009.
2009 Bonus Plan
In February 2009, the compensation committee approved a 2009 bonus plan with modifications from prior
years. Taking into account the expected global economic environment through at least 2009, the committee
determined that the 2009 bonus plan should be adjusted to reflect our priorities for a difficult environment over
the coming year.
While retaining the same target bonuses and funding the individual component of the target bonuses in the
same manner as in 2008, the 2009 bonus plan has a new structure for funding and paying out the company
performance portion of target bonuses. The goal of the new company performance component of the 2009 bonus
plan (which again represents 80% of any bonus funding for our executives as described in more detail below)
represents a significant change from the bonus plans of recent years in that it focuses on managing cash flow and
achieving an improved operating income rather than on achieving top-line product sales growth. As noted in
“Compensation Methodology” above, while the committee felt that our various compensation elements provided
an appropriate balance of incentives that did not encourage our management to take unreasonable risks relating to
our business, they determined the variable component could be modified for 2009 to reflect new business
realities as we weather the recession.
As in prior years, the extent of the actual funding of the bonus pool is determined by the compensation
committee in its discretion. The target bonus pool again includes two components: (1) a company performance
component (for executive officers, 80% of their respective target bonuses), which is calculated by assessing
company performance against pre-determined financial measures as described below, and (2) an individual
component (for executive officers, 20% of their respective target bonuses), which will be funded only if the
threshold end-of-year 2009 operating income financial goal for the company performance component is
achieved. After calculating the extent of the funding of the bonus pool, the pool is allocated among employees,
including our executive officers, based on a review of individual performance, using a multiplier percentage
against their allocated portion of the relevant component of the overall bonus pool.
For 2009, funding of the company component of the bonus pool will be based upon the following company
performance goals: a quarterly cash balance goal and a year-end measure of operating profit or loss.
Quarterly Cash Balance Goals During Fiscal 2009. With respect to the company performance component
of the target bonus pool, 30% of that pool will depend upon achievement of specified quarterly cash balance
goals. For each of the first three fiscal quarters of 2009, a cash balance goal has been set by the compensation
committee based upon our operating plan for 2009. In any of the quarters, 80% to 100% of the cash balance
element of the company performance amount allocated to that quarter can be funded. Accordingly, for achieving
the 80% threshold or 100% target first quarter cash balance goal, 4% or 5%, respectively, of the total company
performance component of the target bonus pool would be funded. For achieving the threshold or target second
quarter cash balance goal, 8% or 10%, respectively, of the total company performance component would be
36