LeapFrog 2008 Annual Report Download - page 141

funded. For achieving the threshold or the target third quarter cash balance goal, 12% or 15%, respectively, of the
total company performance component would be funded. For achieving a cash balance between the threshold and
target, the cash balance element for that quarter would be funded ratably.
However, if the cash balance goal were not fully achieved in any of the first three quarters, there would be
an opportunity to “catch up” in the following quarters. For example, if the target cash balance goal were not fully
achieved in the first quarter, but were fully achieved in the second quarter, the company performance component
would be funded at the level of 15% minus the percentage funded in the first quarter. Similarly, if the target cash
balance goal were fully achieved in the third quarter, the company component would be funded at the level of
30% minus the cumulative percentages funded in the first and second quarters. As an illustration, if only 4% of
the company performance component is funded in the first quarter, up to 11% of the company performance
component could be funded in the second quarter. If 0% is funded in the first quarter, up to 15% could be funded
in the second quarter. If only 4% and 8% are funded in the first and second quarters, respectively, the amount
funded in the third quarter could be up to 18% of the company performance component. Any actual bonuses
resulting from this funding would be paid on a quarterly basis.
Operating Income or Loss Goal at Fiscal Year End. With respect to the remaining 70% of the company
performance component of the target bonus pool, funding will depend upon achievement, as of the end of the
fiscal year, of an operating income or loss goal set by the compensation committee. Threshold, target and
“stretch” goals (as explained in more detail below) for operating income or loss are to be set in July 2009 based
on our operating plan for 2009 and data regarding our financial results and business expectations as of that time,
with any actual bonuses resulting from this funding to be paid in early 2010.
The element of the company performance component of the target bonus pool related to the achievement of
the operating income or loss goal would be funded at an 80% level if the threshold goal were achieved, at 0% if
the threshold goal were not achieved, and at 100% if the target goal were fully achieved. For achieving operating
income or loss between the threshold and target, the operating income or loss component would be funded
ratably. In addition, if we achieve more than the target goal, this element would be funded ratably up to a
maximum level of 120% based on the difference between the target goal and the stretch goal. For example,
achieving an operating income midway between the target goal and the stretch goal set by the bonus plan for the
year would result in funding of 110% of the operating income or loss element and 77% of the company
performance component of the target bonus pool. The 120% top end of the potential bonus that could be funded
for the operating income or loss element is set lower than our traditional 200% maximum in recognition of the
fact that the operating income or loss goals will not be finally set until the July 2009 board and committee
meetings.
The following table illustrates different possible scenarios for funding of the company component of the
bonus pool relative to achievement of the operating income or loss goal:
Operating Income (Loss) Element Funding Illustration
(Full Year) (70% of Company Performance Component)
Operating Income (Loss)
% of Operating Income or
Loss Element of Company
Performance Bonus Component
% of Company Performance
Bonus Component
% of Executive
Target Bonus Pool
Threshold 80% 56% 44.8%
Target 100% 70% 56.0%
Stretch Up to 120% Up to 84% 67.2%
The compensation committee has considered and will consider the likelihood of achievement when
recommending and approving, respectively, the company performance goals and the bonus plan structures in
2008 and 2009, but it did not undertake a detailed statistical analysis of the difficulty of achievement of each
separate measure. When it set operating profit as the dominant goal in the 2009 bonus plan, the committee
believed that the goal was appropriate because operating profit will be one of our most significant measures of
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