LeapFrog 2011 Annual Report Download - page 145

companies. Typically, this compensation peer group, or the Peer Group, is composed of a cross-section of
direct competitors, as well as companies in related industries with a focus on toy, gaming and educational
products. The Peer Group consists of both ‘‘direct peers’’ and ‘‘industry reference peers.’’ The direct peers
include publicly traded companies with market positions and sizes that closely match our own and represent
the group that the compensation committee uses to determine the competitiveness of our executive and
director compensation programs.
To be included in the direct peer group, a company should be in the software or leisure products
industries, have net sales in the range of $150 − 600 million and have a market capitalization between
$200 − 800 million. These criteria represent general guidelines; not all of the Company’s direct peers will
meet all selection criteria. Given the limited number of directly comparable companies, the selection criteria
have been broadened for those companies that are the closest fits from an industry perspective.
The following companies comprised the direct peer group in 2011 approved by our compensation
committee in February 2011:
Blackboard Build A Bear Workshop iRobot
JAKKS Pacific K12 Kid Brands
NetSuite RC2 Real Networks
Renaissance Learning Rosetta Stone THQ
In addition, an industry reference group is used as a secondary reference point for our executive and
director compensation programs to identify compensation design trends and ‘‘best practices’’ in our industry.
For 2011, the industry reference group is comprised of Activision Blizzard, Electronic Arts, Hasbro, Mattel
and Take-Two Interactive Software; companies that provide toys, educational products or consumer packaged
goods for children or games (handheld or electronic, hardware or software). Although they operate in a similar
business or industry, these companies are included in the industry reference group rather than the direct peer
group because they are significantly larger than we are and were not within the targeted range for net sales or
market capitalization.
While the compensation committee does not believe that the Peer Group data is appropriate as a stand-
alone tool for setting compensation due to the unique nature of our business, it considers this information to
be a valuable reference during its decision-making process. In addition to reviewing analyses of compensation
data from the Peer Group, the compensation committee employs the collective experience and judgment of its
members and advisors (including Compensia, management and the Company’s human resource department) in
determining the total compensation and the various components provided to our named executive officers.
For 2011, 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 2010 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 updated to July 2011, 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 was at the 70
th
percentiles of the
competitive market. The analysis also indicated that our executives’ base salary aligned with the 40
th
percentile of the competitive market, overall, and that target bonus opportunities were generally between the
25
th
and 50
th
percentiles of the competitive market. While cash compensation for our executives was below
the market median, the value of equity awards tended to bring their target total direct compensation above the
market median.
The Radford Survey was used as a supplementary reference to gauge compensation trends and the market
generally and to confirm that any conclusions drawn from the analyses of the compensation data from the
Peer Group was not based on market outliers.
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