COMPENSATION DISCUSSION & ANALYSIS
Our Compensation Discussion and Analysis begins with an executive summary of our compensation program for our named executive officers. We then address in detail the following aspects of the overall program:
Our compensation philosophy and objectives regarding executive officer compensation;
The role of our compensation committee;
Our process for determining compensation and assessment of compensation risk;
Fiscal year 2013 compensation decisions;
The employment agreements and retirement arrangements in effect with some of our named executive officers.
For the 2013 fiscal year, our named executive officers were Dr. John G. Sperling, Ms. Terri C. Bishop, Mr. Gregory W. Cappelli, Mr. Joseph L. D’Amico, Mr. Brian L. Swartz, Mr. Sean B.W. Martin, and Mr. Peter V. Sperling. Dr. Sperling and Mr. D’Amico ceased to be executive officers of the Company on December 31, 2012 and August 2, 2013, respectively, but are named executive officers for the 2013 fiscal year on the basis of total compensation for the 2013 fiscal year.
The core principle of our compensation philosophy for executive officers continues to be a strong pay-for-performance structure tied to our overall financial success. We continue to structure a substantial portion (at least 80%) of the aggregate total direct compensation of our named executive officers in the form of annual performance-based cash incentives and long-term stock-based compensation. This structure is designed to maintain an appropriate balance between our long-term and short-term performance and create a positive relationship between our operational performance and shareholder return. As noted below, we believe our pay is well aligned with our performance.
Aligning Executive Compensation with Performance
For the 2013 fiscal year, our named executive officers decided to forego any non-promotional increases to their respective annual rates of base salary for the 2013 fiscal year. In that regard, Mr. Cappelli, our Chief Executive Officer, agreed to keep his base salary at $700,000 and forego the $50,000 increase in base salary provided for in his extended employment agreement with us.
No changes were made to the target bonus levels for our named executive officers as a percentage of their base salary, other than Ms. Bishop’s target bonus percentage was increased from 75% of base salary to 100% of base salary commensurate with her appointment as Vice Chairman of the Board effective December 31, 2012. The Company attained 154.2% of the target opportunity established for the bonus plan for our named executive officers for the 2013 fiscal year using the financial and non-financial metrics established under the plan. Fifty percent (50%) of the bonus opportunity was tied to our operating income for the 2013 fiscal year, and an additional thirty percent (30%) was tied to our net revenue. The remaining twenty percent (20%) was allocated to a non-financial metric of employee productivity.
We exceeded our employee productivity and operating income target goals, but did not achieve our target revenue goal. Based on its evaluation of the overall performance of the Company for the 2013 fiscal year, the Compensation Committee chose to use its negative discretion under the plan to reduce the actual bonus payments made for the 2013 fiscal year. The fiscal year 2013 bonus payments are not significantly different from the bonus payments under the prior fiscal year’s bonus plan.