LeapFrog 2015 Annual Report Download - page 161

Calculating the Bonus Factor
Since all of the variables in the Bonus Factor were zero, the Bonus Factor for each named executive
officer was zero.
Performance-Based Bonus Award Decisions
In March 2015, our chief executive officer recommended that no bonus awards be paid out to our named
executive officers for 2014 consistent with the above determinations. This recommendation was then reviewed
and approved by the compensation committee. The decision of the compensation committee was based on its
analysis of the achievement of the Company performance objectives and the failure to meet the threshold
profitability level for payment of individual component of the bonuses. Our board of directors and
compensation committee had discretion to vary the amount of the bonus awards paid under the 2011 EIP to
our named executive officers, but such discretion was not exercised this year.
Other Bonuses
Mr. Hicks was not an employee of the Company when the performance-based bonus awards were
established for the 2014 calendar year. Instead, Mr. Hicks’s employment agreement provided for a guaranteed
bonus of 75% of his base salary actually earned through the beginning of his employment, in September 2014
through March 31, 2015. Based on his actual base salary for this period of $221,475, Mr. Hicks’ bonus for
Fiscal 2015 was determined to be $160,989.
Equity Awards
We believe that equity incentives are an effective way to attract and retain talented executives, to
motivate and reward them for outstanding corporate and individual performance, and to align their interests
with those of our stockholders. The compensation committee considers annual grants of equity awards to our
executive officers, including our named executive officers, after taking into consideration our overall
performance against short-term and long-term financial and strategic goals, the executive officer’s then-current
equity holdings, his or her anticipated future contributions to our success, its assessment of his or her potential
to contribute to the long-term value of our Company and an analysis of the equity award practices of the Peer
Group. In addition, the compensation committee makes initial grants of equity awards upon the initial
employment of our executive officers, based on a variety of factors including consideration of a competitive
market analysis of the Peer Group.
Award Mix
Typically, we grant a mix of stock options and RSUs to our executive officers as part of their initial
compensation packages at the time of hire and, thereafter, on an annual basis. The compensation committee
believes that the use of a ‘‘portfolio’’ approach to granting equity awards, pairing options with RSUs, is
consistent with current market trends and developments and is the method used by 75% of the companies in
our Peer Group. These awards are generally subject to time-based vesting requirements. Recently, our practice
has been to grant relatively equal amounts of RSUs and stock options. We believe this is consistent with the
industry practice in the market in which we compete for employees, provides additional retention incentives
and requires fewer shares granted out of the 2011 EIP equity pool in order to provide a targeted equity value
(as compared to granting a higher amount of stock options versus RSUs).
Stock Options. The compensation committee believes that stock options provide our executive officers
with a strong incentive to focus on long-term corporate performance and the creation of stockholder value.
Option grants made to our executive officers have an exercise price equal to 100% of the fair market value of
the underlying Class A common stock, as defined under our 2011 EIP, on the date of grant.
Restricted Stock Units (RSUs). RSUs represent full-value shares of Class A common stock. Shares of
our Class A common stock are not issued when an RSU award is granted. Instead, once an RSU award vests,
one share of our Class A common stock is issued for each vested RSU.
Equity Award Grant Policy
The timing of equity awards is determined by the compensation committee based on its view, from time
to time, regarding the sufficiency of our executive officers’ equity holdings for purposes of retention and
motivation. Equity awards are generally granted annually, near the beginning of the fiscal year. Our policy
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