LeapFrog 2015 Annual Report Download - page 155

recommendations are based on his assessment of our financial and operational results, each executive officer’s
contribution to these results, the executive officer’s progress toward achieving his or her individual goals, and
input from the compensation consultant retained by the compensation committee to provide information on
competitive market practices. The compensation committee’s decisions regarding our Chief Executive Officer’s
compensation are based on its assessment of our financial and operational results, his contributions to these
results, and, to a lesser extent, his progress toward achieving his individual goals, and information on
competitive market practices.
Role of Compensation Consultant
The compensation committee engaged Compensia, Inc., or Compensia, a national compensation
consulting firm, to provide independent advice and guidance on our executive compensation policies and
practices and to provide relevant information about the executive compensation practices of similarly situated
companies. Compensia assisted in the preparation of compensation materials on executive compensation
proposals in advance of compensation committee meetings, including changes to compensation levels for our
executive officers, the design of our equity programs and other executive benefit programs. In addition,
Compensia reviewed and advised the compensation committee on compensation materials relating to executive
compensation prepared by management for its consideration.
As part of our annual executive compensation review process, Compensia, under the direction of the
compensation committee, conducted a review of the competitiveness of our executive compensation program,
including base salaries, annual bonus opportunities, equity awards, and other executive benefits, by analyzing
the compensation practices of the companies in our compensation peer group (as described below), as well as
data from third-party compensation surveys. The compensation committee used the results of this analysis to
assess the competitiveness and risks of our executive officers’ total compensation packages.
Based on the consideration of the various factors set forth in applicable SEC rules and the listing
standards of the New York Stock Exchange, the compensation committee does not believe that its relationship
with Compensia and the work of Compensia on behalf of the compensation committee has raised any conflict
of interest.
Use of Competitive Data
To monitor the competitiveness of our executive officers’ compensation, the compensation committee uses
a compensation peer group that reflects the pay of executives in comparable positions at similarly situated
companies. Typically, this compensation peer group, or the Peer Group, is composed of a cross-section of
direct competitors, as well as companies in relevant industries with a focus on software, educational and
leisure products. The Peer Group consists of both ‘‘direct peers’’ and ‘‘industry reference peers.’’
The direct peers are companies which the compensation committee uses to determine the competitiveness
of our executive and director compensation programs. In determining the direct peers, the compensation
committee analyzed publicly-held companies with market capitalizations and net revenues similar to our own
and which operate in relevant industries. Revenue is chosen as a key indicator because, when other variables
are held constant, revenue is the key indicator of executive cash compensation levels. Market capitalization is
used because market capitalization generally has the greatest correlation to equity compensation levels.
To be considered a ‘‘direct peer,’’ a company should be in the software, educational or leisure products
industries, have net revenue in the range of $300 million − $1.0 billion and have a market capitalization
between $150 million and $2.0 billion. These criteria represent general guidelines and are intended to identify
companies with revenue and market capitalization that were comparable to LeapFrog at the time of the peer
selection while positioning the Company at or near the median of the peer group in key financial measures.
However, given the limited number of directly comparable companies to LeapFrog, the selection criteria was
not strictly applied to those companies that were the closest fits from an industry perspective. Not all of the
Company’s direct peers met all of the selection criteria.
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