LeapFrog 2010 Annual Report Download - page 152

For 2010, the compensation committee directed Compensia to conduct an analysis of the compensation of
our executives using data compiled from the Peer Group, supplemented by data from the Radford 2009 Global
Technology Survey, a broad-based third-party survey that reflects widespread compensation practices among
more than 700 high technology companies. This analysis, which was performed in February 2010, indicated that
the target total direct compensation for our executives (the sum of target total cash compensation and the value of
annual equity awards) base salaries and equity award grant values all fell between the 50th and 75th percentiles of
the competitive market. The analysis also indicated that our executives’ target bonus opportunities were
generally between the 25th and 50th percentiles of the competitive market. Data from the Radford study was not
used for benchmarking purposes. Rather, the Radford Survey was used as a supplementary reference to gauge
compensation trends and the market generally and to confirm that conclusions drawn from benchmarking against
the Company’s constructed compensation peer group were not based on market outliers.
Compensation Design and Mix
The overall composition of an executive’s total compensation package is determined initially based on the
competitive market data for the position described above and then adjusted to reflect the specific performance,
contributions and experience of the individual. Each year, the compensation committee evaluates the total
compensation of our executives with respect to our overall company performance, individual performance,
changes in scope of responsibility and any changes in the competitive market for each position. The
compensation committee does not have a pre-established policy or target for the allocation between cash and
non-cash compensation or short-term and long-term incentive compensation. Rather, the compensation
committee uses the compensation data provided by Compensia to determine the appropriate level and mix of
incentive compensation, taking into consideration how that mix creates or awards incentives that might lead to
excessive risk-taking. In general, the level of an executive’s variable compensation opportunity (short-term and
long-term incentive compensation) increases with his or her level of responsibility. However, the compensation
committee is careful (i) not to increase the variable compensation component to such an extent so as to unduly
increase the associated level of risk-taking behavior by our employees and (ii) to select performance criteria that
align individual performance with long-term stockholder interest.
Economic and Risk Considerations
Members of our senior management, including the CEO, CFO and General Counsel, along with members of
our Human Resources Department and Legal Department, with oversight by the compensation committee,
conducted an assessment of our compensation programs and policies to determine whether the incentives
provided by these programs and policies were appropriate or had the potential to encourage excessive risk-taking
by employees. The results of this assessment were discussed at and in conjunction with board and compensation
committee meetings held in February and March 2010 and February 2011, as well as during the course of 2010 in
connection with the review of the Company’s 2010 bonus programs and equity grants.
The assessment focused on the key terms of the Company’s equity compensation and variable cash
compensation programs, such as bonus plans. Our compensation programs were analyzed to determine whether
they introduced or encouraged excessive risk-taking or other behaviors that could have an adverse impact on our
business and whether existing risk mitigation features were sufficient in light of the overall structure and
composition of our compensation programs. In particular, the assessment focused on the ability of participants to
affect the level of the variable component of their compensation and the controls over participant action and
variable compensation. For more general information regarding the features of our compensation plans and
programs that have been identified as discouraging or potentially mitigating excessive risk-taking behavior, see
the information discussed under the heading “Compensation Committee” earlier in this proxy statement.
Although the compensation committee determined that, for all employees, our compensation programs do
not encourage excessive risk-taking and instead encourage behaviors that support sustainable value generation, in
response to the ongoing global economic recession, the compensation committee determined that our variable
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