LeapFrog 2010 Annual Report Download - page 155

When it set net sales as a measure for the 2010 bonus plan, the compensation committee believed that the
measure was appropriate because the level of our net sales would be one of the most significant measures of the
type of growth necessary to increase long-term stockholder value.
The Company achieved actual net sales of $432.6 million in 2010, which meant that the executive officers
were eligible to receive 56.5% of the target bonus associated with the net sales measure for the Company
performance component.
Full Year Operating Income Measure for Company Performance Component. With respect to the other
half of the Company performance component of each executive’s target bonus opportunity, bonus eligibility
depended on the achievement, as of the end of the year, of an operating income target level as established by the
compensation committee in February 2010. As with the net sales measure, threshold, target, and “stretch” levels
for operating income were established based on our 2010 operating plan and data regarding our financial results
and business expectations as of that time, including toy industry projections and Company resources and
capabilities. In addition, these levels were consistent with the relative risk acceptable to the board of directors in
approving the Company’s operating plan.
As with the net sales measure, the compensation committee determined that the operating income measure
would be funded at a 50% level if the threshold operating income level was achieved, at a 100% level if the
target level was achieved and 150% if the stretch level were achieved. If the threshold level was not achieved,
this measure would not be funded. In each instance, operating income achievement between the threshold, target
and stretch levels would result in ratable funding for the operating income measure.
The operating income performance levels and related funding levels for 2010 were as follows:
Performance Levels Operating Income Percent of Target Bonus Eligibility
Operating income threshold .......... $10million 50%
Operating income target ............. $18million 100%
Operating income stretch ............ $35million 150%
When it set operating income as a measure for the 2010 bonus plan, the compensation committee believed
that the measure was appropriate because the level of our operating income would be one of our most significant
measures of the sustainability of our business results. While net sales is an important measure of company
growth, the operating income financial metric indicates the profitable and sustainable growth necessary to
maintain long-term stockholder value. Both criteria were weighted at 50% in order to balance growth and
profitability.
The Company achieved actual operating income of $7.8 million in 2010, which meant that the executive
officers were not eligible to receive this portion of their target bonus opportunity since the Company fell short of
the operating income threshold level of the Company performance component.
Individual Performance Component. The remaining 20% of the target bonus opportunity consisted of the
individual performance component. Executives would be eligible for this portion of their target bonus, based on
their individual performance, if the Company achieved operating income break-even on a post-bonus basis. This
meant that if the Company had sufficient operating income to fund this portion of the bonus pool and still have
positive operating income, executives would be eligible for the individual performance component of the target
bonus, based on the compensation committee’s analysis of their achievement of their individual performance
goals.
The Company achieved positive operating income after the proposed funding of this portion of the bonus
pool and, as a result, the executive officers were eligible to receive this portion of their target bonus.
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