LeapFrog 2012 Annual Report Download - page 127

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from our CEO, the compensation committee established the level of achievement of each named executive
officer’s individual goals used in the calculation of the Performance Multiplier.
Company Component — Net Sales. A portion of each executive’s bonus depended upon achievement of
a specified Net Sales result. Threshold, target, and stretch levels for Net Sales were established by the
compensation committee in February 2012, based on our 2012 operating plan and data regarding our financial
results and business expectations as of that time, including toy industry sales growth 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. In May 2012, the compensation committee
increased the stretch goal for the Net Sales performance objective in view of the Company’s strong
year-to-date financial performance at that time.
The compensation committee then established achievement levels of the Net Sales objective for each
potential result. In each instance, net sales achievement between the threshold, target and stretch levels would
result in a ratable achievement level score for the Net Sales measure.
The Net Sales performance levels and related achievement level (for purposes of calculating the
Performance Multiplier) for 2012 were as follows:
Performance Levels Net Sales Achievement Level
Net sales threshold ........................ $470 million 50%
Net sales target ........................... $495 million 100%
Net sales stretch .......................... $540 million 150%
Actual Net Sales .......................... $581 million 150%
When it selected net sales as a measure for the 2012 bonus awards, 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 threshold, target and
stretch levels set represented 3.3%, 8.8% and 18.6%, respectively, year-over-year net sales growth for
the Company.
The Company achieved actual net sales of $581 million in 2012, which exceeded the Net Sales stretch
performance level. Since the Company component had maximum achievement levels of 150%, the
achievement level for this component of the bonus was the maximum of 150%.
Company Component — Operating Income. The other portion of the Company component depended
upon achievement of a specified Operating Income level. As with the Net Sales measure, threshold, target, and
stretch levels for operating income were established by the compensation committee in February 2012 based
on our 2012 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. In May 2012, the compensation committee increased the stretch goal for the
Operating Income performance objective in view of the Company’s strong year-to-date financial performance
at that time.
The compensation committee then established achievement levels for each result. In each instance,
operating income achievement between the threshold, target and stretch levels would result in ratable funding
achievement level score for the Operating Income measure.
The Operating Income performance levels and related achievement levels (for purposes of calculating the
Performance Multiplier) for 2012 were as follows:
Performance Levels Operating Income Achievement Level
Operating Income threshold ................. $30million 50%
Operating Income target .................... $37million 100%
Operating Income stretch ................... $49million 150%
Actual Operating Income ................... $64million 150%
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