XM Radio 2011 Annual Report Download - page 35

In 2011, the Compensation Committee adopted a bonus program under our 2009 Long-Term Stock
Incentive Plan, where the awards made under this bonus program were intended to qualify for the performance-
based exception under Section 162(m) (the “NEO Bonus Plan”). Pursuant the NEO Bonus Plan, a bonus pool
was established for our Chief Executive Officer and the four most highly compensated executive officers, other
than our Chief Financial Officer, consisting of 2.75% of our EBITDA, calculated in accordance with generally
accepted accounting principles. The maximum bonus that a named executive officer could receive under the
NEO Bonus Plan was (i) limited by the percentages set forth below (which percentages were not changed during
the performance year); and (ii) could not exceed the cash equivalent of 120 million shares (based on our share
price as of the end of 2011). In addition, (i) no amounts could be paid under the NEO Bonus Plan unless a
threshold amount of EBITDA was achieved for 2011, and (ii) the Compensation Committee retained the ability
to exercise its negative discretion to award bonuses in amounts less than the maximum percentages listed below:
Chief Executive Officer .................................................. 40%
President, Operations and Sales ............................................ 20%
President and Chief Content Officer ......................................... 20%
General Counsel ........................................................ 15%
Chief Administrative Officer .............................................. 5%
After the end of the year, the Compensation Committee evaluated our actual performance against a set of
guidelines, including a variety of key operating metrics included in our budget and business plan for 2011. As
part of such evaluation, the Compensation Committee considered several metrics, including our increase in
subscribers, revenue, adjusted EBITDA and free cash flow; our results in controlling subscriber churn and
operating expenses; the introduction of new products and services during the year; and additional
accomplishments and other factors the Compensation Committee deemed relevant. The Compensation
Committee did not weigh the metrics it considered as part of its evaluation of our performance. In addition, for
named executive officers (other than himself), our Chief Executive Officer recommended to the Compensation
Committee individual bonus amounts, taking into account the responsibilities and contributions of each
individual during the year, our performance and the percentage limits contained in the NEO Bonus Plan. These
amounts were reviewed and discussed with the Compensation Committee by our Chief Executive Officer and,
following consideration by the Compensation Committee, the Compensation Committee approved the amounts
while exercising its negative discretion regarding the permitted percentage limits set forth in the NEO Bonus
Plan. For our Chief Executive Officer, the Compensation Committee reviewed his performance for the year,
determined that he should receive a bonus and determined the bonus amount, while exercising its negative
discretion regarding the permitted percentage limits contained in the NEO Bonus Plan. The Compensation
Committee determined that the bonuses to our named executive officers would be paid solely in cash. The bonus
awards to our named executive officers are described below under “Fiscal Year 2011 Pay Implications —
Payment of Performance-Based Discretionary Annual Bonuses for 2011” and are reflected in the Summary
Compensation Table.
Long-term Incentive Compensation
The Compensation Committee grants long-term incentive awards in the form of stock options to directly
align compensation for our named executive officers over a multi-year period with the interests of our
stockholders by motivating and rewarding actions that enhance long-term stockholder value. The Compensation
Committee determines the level of long-term incentive compensation based on an evaluation of competitive
factors in conjunction with total compensation provided to named executive officers and the objectives of the
above-described compensation program.
Stock options have an exercise price equal to the market price on the date of grant, and therefore provide
value to the executives if the executives create value for our stockholders. In addition, stock options generally
vest over a period of four years and are generally subject to the executive’s continued employment, which
incentivizes the executives to sustain increases in stockholder value over extended periods of time. The specific
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