LeapFrog 2011 Annual Report Download - page 149

The Company achieved actual net sales of $455 million in 2011, which meant that the executive officers
were eligible to receive 140% of the target bonus associated with the net sales measure for the Company
performance component.
Operating Income. With respect to the other 70% 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 with the net sales measure, threshold, target, and ‘‘stretch’’ levels for
operating income were established based on our 2011 operating plan and data regarding our financial results
and business expectations as of that time, including toy industry and technology company financial
benchmarks for product margin, operating expenses and operating income of as a percentage of net sales, 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 at a 150% level 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 2011 were as follows:
Performance Levels
Operating
Income
Percent of
Target Bonus
Eligibility
Operating income threshold ............... $12million 50%
Operating income target ................. $18million 100%
Operating income stretch ................. $24million 150%
When it selected operating income as a measure for the 2011 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 measure indicates the profitable and sustainable growth
necessary to maintain long-term stockholder value. Operating income was weighted more highly than net sales
because the board of directors had established improving the profitability of the business as a key priority.
The Company achieved actual operating income of $23.7 million in 2011, which meant that the executive
officers were eligible to receive 147% of the target bonus associated with the profitability measure for the
Company performance component.
Individual Performance Component. The remaining 30% 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 $8 million of operating income 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 $8 million in 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 operating income in excess of $8 million 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. Individual goals for the executive officers were divided into three categories: (i) Achievement of
financial goals relevant to each executive officer’s department; (ii) successful execution of specific projects
relevant to each executive officer’s department and (iii) successful execution of employee-related goals.
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