Logitech 2011 Annual Report Download - page 119

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Additional tax considerations
U.S. Tax Code Section 162(m)
We are limited by Section 162(m) of the U.S. Tax Code to a deduction for U.S. federal income tax purposes
of up to $1,000,000 of compensation paid to our CEO and any of our three most highly compensated executive
officers, other than our Chief Financial Officer, in a taxable year. Compensation above $1,000,000 may be deducted
if, by meeting certain technical requirements, it can be classified as “performance-based compensation.” The
Compensation Committee considers the implications of Section 162(m) of the U.S. Tax Code in setting and
determining executive officer long-term equity incentive award grants and in setting short-term cash incentive
award compensation.
The Logitech International S.A. 2006 Stock Incentive Plan approved by our shareholders in 2006 permits
certain grants of awards under that plan to qualify as “performance-based compensation.” Bonuses paid to
executives under the Logitech Management Performance Bonus Plan may similarly qualify under Section 162(m).
The bonuses earned in fiscal year 2011 did qualify under Section 162(m). Although the Compensation Committee
uses the requirements of Section 162(m) as a guideline, deductibility is not the sole factor it considers in assessing the
appropriate levels and types of executive compensation and it will elect to forego deductibility when the Committee
believes it to be in the best interests of the Company and its shareholders.
In addition to considering the tax consequences, the Compensation Committee considers the accounting
consequences, including the impact of the Financial Accounting Standard Board’s Accounting Standards
Codification Section 718, on its decisions in determining the forms of different equity awards.
COMPENSATION BELOW THE EXECUTIVE LEVEL
Similar to Logitech’s executive compensation programs, Logitech’s compensation for its employees below the
level of executive officer have been designed to attract, retain and motivate the skilled employees that are essential
to Logitech’s success. However, one essential difference between compensation of executives and for employees
below the executive level is that, for employees below the executive level, short-term incentives in the form of cash
bonuses or profit sharing and long-term equity incentive awards comprise a smaller portion of the employee’s total
target compensation. This means there is less total compensation at risk for non-executive employees based on the
Company’s performance, while also meaning, similarly, that there is less potential for increased compensation from
superior Company performance.
Components – Non-Executive Compensation
The key components of Logitech’s compensation for employees below the executive level are as follows:
Base salary. Base salary is set to reward employees’ current contributions to Logitech and compensate
them for their expected day-to-day performance
Short-term cash incentives. Logitech has a bonus program for employees at the director level or above,
a profit-sharing program for employees below the director level, and, for sales personnel, sales commission plans.
All professional staff other than sales personnel participate in the bonus program or the profit sharing program.
The potential target compensation from the bonus and profit sharing programs is established as a percentage of the
employee’s annual base salary. The potential target compensation for sales personnel under sales commission plans
is set on the basis of their sales quotas.
Long-term equity incentive awards. Approximately one-third of the Company’s professional staff receive
long-term equity incentive awards, in the form of RSUs, and for eligible employees at the level of Vice-President or
above, PSUs. In addition, full-time professional staff, in countries where Logitech is able to offer the program, are