LeapFrog 2012 Annual Report Download - page 128

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When it selected operating income as a measure for the 2012 bonus awards, 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 $64 million in 2012, which exceeded the Operating
Income stretch performance level. Since the Company component had maximum achievement levels of 150%,
the achievement level for this portion of the Company component was the maximum of 150%.
Calculating the Performance Multiplier
Using the above formula and the level of achievement of each bonus component described above, the
following Performance Multipliers were calculated for each named executive officer.
Named Executive
Officer
Individual
Component
Weight % X
Level of
Achievement
%+
Net Sales
Component
Weight % X
Level of
Achievement
%+
Op. Income
Component
Weight % X
Level of
Achievement
%=
Performance
Multiplier
Mr. Barbour . . 20% X 150.0% + 32% X 150% + 48% X 150% = 150.00%
Mr. Arthur . . . 30% X 130.5% + 28% X 150% + 42% X 150% = 144.15%
Mr. Etnyre . . . 30% X 115.5% + 28% X 150% + 42% X 150% = 139.65%
Mr. Ahearn . . . 30% X 130.5% + 28% X 150% + 42% X 150% = 144.15%
Mr. Dodd .... 30% X 135.0% + 28% X 150% + 42% X 150% = 145.50%
Mr. Spalding . . 30% X 139.5% + 28% X 150% + 42% X 150% = 146.85%
Bonus Award Decisions
In February 2013, our CEO recommended bonus awards for each of our named executive officers for
2012 consistent with the above formulas. These recommendations were then reviewed and approved by the
compensation committee. The decisions of the compensation committee were based on its analysis of the
achievement of the Company performance objectives and, individually, the performance goals for each of the
named executive officers. The board of directors and compensation committee had discretion to vary the
amount of the bonus awards paid under the 2011 Plan to our named executive officers, but such discretion
was not exercised this year.
However, in view of the exceptional financial results of the Company in 2012, which included net sales
growth of 28% and operating income growth of 170% while data from NPD showed sluggish growth in toy
industry sales in 2012, the compensation committee decided that, in addition to the bonuses payable under the
2011 Plan, it would grant additional discretionary bonuses to the named executive officers. In determining the
size of the discretionary bonuses, the compensation committee considered each named executive officer’s
contribution to the Company’s performance and the magnitude of the Company’s overachievement of its
financial objectives for 2012. The compensation committee also considered market data, including bonus size
as a percentage of base salary in companies in both our direct peer group and our industry reference group.
The following table indicates the total performance-based bonus awards, discretionary bonus awards and
guaranteed bonuses for our named executive officers for 2012:
Name
Eligible 2012
Base Salary X
Target
Percentage of
Salary X
Performance
Multiplier =
Actual Bonus
Award for
2012
Performance +
Discretionary
Bonus +
Guaranteed
Bonus =
Total 2012
Bonuses
Mr. Barbour .... $575,000 X 100% X 150.00% = $862,500 + $230,000 + — = $1,092,500
Mr. Arthur
(1)
. . . $240,625 X 75% X 144.15% = $260,146 + $ 63,164 + $212,019 = $ 535,329
Mr. Etnyre
(2)
. . . $188,596 X 65% X 139.65% = $171,193 + $ 42,906 + — = $ 214,099
Mr. Ahearn
(3)
. . . $284,375 X 75% X 144.15% = $307,445 + $ 74,648 + $181,731 = $ 563,824
Mr. Dodd ..... $408,000 X 75% X 145.50% = $445,230 + $107,100 + — = $ 552,330
Mr. Spalding . . . $310,782 X 50% X 146.85% = $228,192 + $195,676 + — = $ 423,868
36