LeapFrog 2009 Annual Report Download - page 148

performance and sustainability. However, when the plan was adopted in February 2009, the committee
determined that, given the unusual economic downturn and related issues facing the company in early 2009, and
the company’s reliance on fourth quarter sales for the bulk of its operating income, it would not be reasonable to
set operating income goals until more data about economic trends and early sales results were available.
Accordingly it determined that it would set the goals later in the year, and it did so in August 2009.
The compensation committee determined that this operating income or loss element of the company
performance component would be funded at an 80% level if the threshold operating income or loss goal was
achieved and at a 100% level if the target goal was achieved. If the threshold goal was not achieved, this element
would not be funded. In each instance, achieving the operating income or loss goal between the threshold and
target levels would result in ratable funding for the operating income or loss element. In addition, if we exceeded
the target level, 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. The 120% top end of the aggregate potential bonus that could be
funded for the operating income or loss element was set lower than our traditional 200% maximum in
recognition of the fact that the operating income or loss goals were not finally determined until later in the year.
As a percentage of the bonus plan, the operating income or loss target represented 56% of the bonus plan (70% of
the 80% of the overall bonus plan allocated to the company performance component) and, together with the
individual component (which was also to be funded based on threshold achievement of this element) 76% of the
bonus plan.
Degree of Difficulty in Achieving Goals
The compensation committee considered the likelihood of achievement when recommending and approving,
respectively, the company performance goals and the bonus plan structures in 2009 and 2010, but it did not
undertake a detailed statistical analysis of the difficulty of achievement of each separate measure. The committee
generally strives to establish targets so that 80% funding is achievable and 100% would be challenging. Any
amounts in excess of 100% of the target are thought to be stretch goals that would be difficult to achieve and
would require exceptional skill and effort. We believe this generally held true for the goals in our 2009 plan,
including both the cash balance goals when the plan was established and the operating income or loss goals when
they were set in August 2009 as discussed in more detail below) and in our 2010 plan.
For 2009, the committee noted that the performance required for achieving the operating income or loss
goal at target level was likely to be particularly challenging because of extremely difficult economic conditions.
However, the committee designed the bonus plan to reward exceeding expectations while ensuring that the
operating income or loss component (which represented a significant percentage of the funding of the overall
bonus plan pool) would be funded only if there were sufficient operating income to do so. When it set the
threshold, target and stretch goals for the operating income element of the bonus plan in August 2009, the
compensation committee believed that the threshold goal for funding 80% was achievable, though challenging,
requiring that we meet our projections regarding consumer sales and fourth quarter sales, despite anticipated last-
minute ordering by retailers and a sales climate driven by low-price incentives through August 2009. The
committee believed that achieving the target would be extremely challenging and would not likely be achieved
for 2009, as it would likely require an unusual surge in retail sales of our products in the weeks leading to the
holiday season. Any achievement in excess of the target goal was deemed to be, at best, a remote possibility
requiring a marked change in the consumer environment in the fourth quarter.
Bonus Plan Funding Results and Award Decisions
After calculating the extent of the funding of the bonus pool, actual bonus payouts from the pool were to be
allocated on the basis an evaluation of the individual performance of the named executive officer, in part with
respect to overall achievement of his or her respective goals for the year, and in part with respect to the
contributions and impact that his or her area of responsibility made to the achievement of key corporate
accomplishments. Under the bonus plan, the board and compensation committee had discretion to vary the
amount of the bonus awards paid to our named executive officers above or below the funded amount per person
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