LeapFrog 2011 Annual Report Download - page 148

The allocation of total bonus opportunity between Company and individual performance for our
executives is based on the compensation committee’s evaluation of competitive market practices, its
assessment of the amount of compensation that should be based on company performance versus individual
performance and our philosophy of mitigating excessive risk-taking.
Performance Goals and Achievement
Target Bonus Components.
The Company performance component was based on two financial measures, net sales and operating
income, weighted as follows:
Company Goals
Percentage of
Total Bonus
Component
Percentage of
Company
Performance
Component
Net Sales ............................ 21% 30%
Operating Income ...................... 49% 70%
Total Bonus .......................... 70% 100%
As a proportion of each executive’s overall bonus opportunity, the individual performance component
accounted for 30% of the total bonus opportunity for each executive, while the net sales measure was equal to
21% and the operating income measure was equal to 49%. The amount payable with respect to each
performance component was to be calculated by assessing our 2011 performance against pre-established target
levels for each of the financial measures. Each component and its corresponding level of achievement in 2011
is discussed below.
Net Sales Component. With respect to the Company performance component of each executive’s target
bonus opportunity, 30% depended upon achievement of a specified net sales target level, which was set by the
compensation committee when the 2011 bonus plan was approved in April 2011. Threshold, target, and stretch
levels for net sales were established based on our 2011 operating plan and data regarding our financial results
and business expectations as of that time, including toy industry sales growth projections, Company resources
and capabilities, and the inventory of Company products in the mass market retail channel at the end of 2011.
In addition, these levels were consistent with the relative risk acceptable to the board of directors in approving
the Company’s operating plan.
The compensation committee determined that each executive would be eligible for payout of 100% of
their target bonus opportunity associated with the net sales measure for the Company performance component
if the ‘‘target’’ level was achieved. However, if the target level was not achieved, executives would still be
eligible for a payout of 50% of the corresponding target bonus if a lower ‘‘threshold’’ level were achieved. If
the threshold level was not achieved, there would be no payout of target bonuses associated with this measure.
However, if we exceeded the target level, executives would be eligible for a payout of 150% of the
corresponding target bonus if the ‘‘stretch’’ level was achieved. In each instance, net sales achievement
between the threshold, target and stretch levels would result in ratable payout eligibility for the net sales
measure.
The net sales performance levels and related funding levels for 2011 were as follows:
Performance Levels Net Sales
Percent of
Target Bonus
Eligibility
Net sales threshold ..................... $415 million 50%
Net sales target ....................... $435 million 100%
Net sales stretch ....................... $460 million 150%
When it selected net sales as a measure for the 2011 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.
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