| Long-Term
Incentive Awards | | | Objectives:
Our Compensation Committee structures long-term incentive awards with the goal of aligning our NEOs’ interests with those of our stockholders, support retention and motivate NEOs to achieve our financial, strategic and operational goals. Long-term incentive awards include stock options and time-based and performance-based restricted cash units or shares.
Key Features:
• Our Compensation Committee grants stock options and time-based vesting restricted shares and performance-based restricted cash units to our NEOs with the grant date fair value based on itsour Compensation Committee’s general understanding of current competitive pay practices, our CEO’s recommendation (except with respect tofor his own target)awards), its consultation withinput from our compensation consultant, internal pay equity, evaluation of each NEO’s performance, and other factors it deems appropriate. Based on its review of these factors, in March 2019, our Compensation Committee kept the target bonus percentage of each of our NEOs at the same level as in 2018 except for Mr. Doran, whose target bonus percentage increased from 60% to 70%.deems appropriate.
The target cash incentive and maximum bonus percentages for each of our NEOs for 2019 were as follows:
| | Name | | | | Target Incentive
Bonus Percentage | | | | Maximum
Bonus Percentage | | | | | Glenn Lurie | | | | 120% of base salary | | | | 210% of base salary | | | | | David Clark | | | | 70% of base salary | | | | 122.5% of base salary | | | | | Jeffrey Miller | | | | 100% of base salary | | | | 175% of base salary | | | | | Mary Clark | | | | 100% of base salary | | | | 175% of base salary | | | | | Patrick Doran | | | | 70% of base salary | | | | 122.5% of base salary | | |
2019 Objectives
For 2019, the cash incentive bonus for each of our NEOs was determined as follows: (i) 90% based on certain corporate objectives and (ii) 10% based on a discretionary individual performance component. In addition, each NEO had the opportunity to earn another 10% of his or her annual bonus target if our Company entered into at least six new DXP deals with a combined TCV of $10 million.
• Our Compensation Committee established (i) non-GAAP revenue, (ii) non-GAAP EBITDAallocates long-term incentive awards among stock options, time-based vesting restricted shares and (iii) the number of new deals with a contribution margin of 30% and a minimum TCV of $1 million as the corporate components of our 2019 annualperformance-based restricted cash incentive bonus program, with each of the components weighted as set forth below. We utilize these non-GAAP financial measures internally in analyzing our financial results and evaluating our ongoing operational performance because they exclude certain non-cash adjustments and non-recurring charges required under GAAP. These metrics were also selected because they are several of the key performance metrics stockholders use in evaluating our Company. In calculating both non-GAAP revenue and non-GAAP EBITDA, we add back theunits based on grant date fair value stock-based compensation expense, deferred revenue, acquisition-related costs, restructuring charges, changes in the contingent consideration obligation, deferred compensation expense related to earn-outs and amortization of intangibles associated with acquisitions. Each of the components was assigned a “threshold” level, which is the minimum achievement level(with vesting terms that must be satisfied to receive a portion of the applicable bonus amounts, and a “maximum” level, which, if achieved or exceeded, would result in our NEO’s receivinggenerally extend up to 175% of the target amount attributed to that component.
The components of the 2019 cash incentive compensation plan are set forth below:
| | Corporate Component | | | Weighting | | | Threshold 50% payout | | | 100% payout | | | Maximum 175% payout | | | | | Non-GAAP Revenue | | | 40% | | | $325,000,000 | | | $362,000,000 | | | $399,000,000 | | | | | Non-GAAP EBITDA | | | 30% | | | $30,000,000 | | | $47,000,000 | | | $64,000,000 | | | | | Number of new deals with contribution margin of greater than 30% and minimum TCV of $1M | | | 20% | | | 10 | | | 15 | | | 20 | | | | | Individual Component | | | 10% | | | N/A | | | N/A | | | N/A | | | | | Six New DXP Deals with TCV of $10M | | | 10% | | | N/A | | | N/A | | | N/A | | |
2019 Corporate Component
In 2019, our non-GAAP revenue was $308,749,000, which included a $26,000,000 write-down of an accounts receivable related to Sequential Technology International LLC (“Sequential”), a transaction which occurred in 2016, which we had deemed uncollectible. Our non-GAAP revenue for 2019 without the Sequential write-down would have been $334,749,000, and would have resulted in our NEO’s earning approximately a 62% for this metric. Taking into consideration that the Sequential transaction occurred in 2016, before most of our NEOs had joined our Company, and given that Sequential’s failure to pay the receivable was not directly foreseeable and was beyond their control, our Compensation Committee, in consultation with our compensation consultant and after reviewing several alternative approaches, exercised its discretion as set forth under the terms of the plan and determined that it was appropriate to adjust the calculation of our 2019 non-GAAP revenue for purposes of determining bonuses to be awarded pursuant to our 2019 cash incentive compensation plan by adding back approximately $17,000,000 of
revenue, and therefore, approved that our NEOs receive a 50% payout for this metric. As our non-GAAP EBITDA for 2019 was $27,584,000, below the minimum threshold as provided above, our NEOs received no payout for this metric. Our Company signed ten new deals with contribution margin of greater than 30% and minimum TCV of $1,000,000, and therefore, our NEO’s received 50% payout for this metric.
In addition, as described above, each NEO was eligible to earn another 10% of his or her annual bonus target if our Company entered into at least six new DXP deals with a combined TCV of $10 million. As we entered into eight new DXP deals with a combined TCV of over $11 million, our NEOs received 100% of the payout with respect to this strategic metric.
2019 Individual Component
In 2019, the individual component of each NEO’s annual cash incentive compensation was based upon our Compensation Committee’s subjective assessment of his or her individual performance.
Based on its assessment and Mr. Lurie’s recommendations (other than with respect to his own incentive compensation), our Compensation Committee awarded the following as the individual component of their annual cash incentive compensation:
•
Mr. Lurie received 100% due to his integral role in establishing our short- and long-term strategy, leading our Company in to new markets with our messaging, DXP and cloud platforms, making key strategic decisions to enable our effective cost cutting measures, and improving our overall corporate environment.
•
Mr. Clark received 100% due to his efforts in improving our financial performance, remediating the prior material weaknesses as provided in our Form 10-K, leading significant cost cutting/controlling initiatives, and developing stronger investor relations.
•
Mr. Miller received 100% due to his ability to get acclimated to his responsibilities as Chief Commercial Officer during his short tenure with our Company, driving existing and new customer relationships, making key changes to the sales organization structure and personnel, and landing key deals for our Company.
•
Ms. Clark received 100% due to her strong performance in re-focusing our platforms and product portfolio, developing a new brand and brand definition through public relations and social media efforts, leading the building of our Mission and Vision, driving the GSMA and Women for Tech initiatives and improving our perception in the marketplace.
•
Mr. Doran received 100% due to his strong performance in re-organizing our entire engineering and IT infrastructure teams, implementing Crosslake’s actions to gain focused cost reductions, improving the efficiencies of our product delivery, leading the transition out of hosting and adapting to the changing business and product models of our Company.
The level of plan payout that was applied to each of the performance components of the 2019 cash incentive compensation plan, which payout percentages were then applied to the cash incentive compensation payments to our NEOs is set forth in the following table:
| | Component | | | Weighting | | | Achievement | | | Bonus Rate Payout | | | Bonus Payout | | | | | Non-GAAP Revenue | | | | | 40% | | | | $325,000,000 | | | | | 50% | | | | | | 20% | | | | | | Non-GAAP EBITDA | | | | | 30% | | | | $27,584,000 | | | | | 0% | | | | | | 0% | | | | | | Number of new deals with contribution margin of 30% and minimum TCV of $1M | | | | | 20% | | | | 10 | | | | | 50% | | | | | | 10% | | | | | | Individual Component | | | | | 10% | | | | 100% | | | | | 100% | | | | | | 10% | | | | | | Six New DXP Deals with TCV of $10M | | | | | 10% | | | | 6 new DXP Deals with TCV of over $11M | | | | | 100% | | | | | | 10% | | | |
Based on the results of the corporate and individual performance components of the annual cash incentive plan, our NEOs were awarded 50% of their respective target cash incentives, resulting in the following payout amounts under the 2019 cash incentive bonus plan for each of our NEOs:
| | Executive | | | Target Bonus | | | Percentage of Target Awarded | | | Actual Bonus Awarded | | | | | Glenn Lurie | | | | $ | 927,000 | | | | | | 50% | | | | | $ | 463,500 | | | | | | David Clark | | | | $ | 273,544 | | | | | | 50% | | | | | $ | 136,772 | | | | | | Jeffrey Miller | | | | $ | 388,850 | | | | | | 50% | | | | | $ | 194,425 | | | | | | Mary Clark | | | | $ | 360,500 | | | | | | 50% | | | | | $ | 180,250 | | | | | | Patrick Doran | | | | $ | 250,188 | | | | | | 50% | | | | | $ | 125,094 | | | |
2019 Long-Term Incentive Compensation Plan
Our Compensation Committee awarded time-based restricted shares, time-based stock options and performance-based cash units to our NEOs as the long-term equity incentive component of their compensation, targeting an annual mixfour years) with the intent to provide NEOs with a balanced retention and performance opportunity and serve to closely align our NEOs’ long-term objectives with those of our stockholders. The number of shares underlying time-based stock options, the target number of performance-based cash units and the number of time-based restricted shares granted to our NEOs is based on our Compensation Committee’s general understanding of competitive pay practices, our CEO’s recommendation (except with respect to his own awards), consultation with our compensation consultant, and other factors that
• In 2021, our Compensation Committee deems appropriate. Time-Based Restricted Stock, Stock Options and Performance-Based Restricted Cash Units
In March 2019, in consultation with our compensation consultant, our Compensation Committee granted time-based restricted stock (35% of such NEO’s equity award), time-based optionsagain decided to purchase shares of our Common Stock (10% of such NEO’s equity award) and performance-based cash units (55% of such NEO’s equity award) to each of our NEOs. The time-based restricted shares vest one-third on each of the first, second and third anniversary of their grant date and the time-based stock options vest one-fourth on the first anniversary of their grant date and in equal monthly installments thereafter over the next thirty-six months. The performance-based restricted cash units vest uponrather than shares and retained the Compensation Committee
approving the level of performance against pre-established metrics for such grants, and such approval is expecteddiscretion to occur about February 15, 2022. Each component is subject to the NEO remaining employed through each such vest date. The time-based vesting helps tie our NEOs’ variable realizable compensation to our performance and further align their interests with those of our stockholders. See “Description of Awards Granted in 2019,” below.
The following table sets forth the number of shares of time-based restricted stock and performance-based restricted cash units awarded, and the number of time-based stock options to purchase shares of our Common Stock granted to our NEOs in 2019.
| | Name | | | Number of Time-Based Shares of Restricted Stock | | | Number of Shares Subject to Options | | | Number of Performance-Based Restricted Cash Units | | | | | Glenn Lurie | | | | | 221,518 | | | | | | 148,920 | | | | | | 348,101 | | | | | | David Clark | | | | | 70,886 | | | | | | 47,654 | | | | | | 111,392 | | | | | | Jeffrey Miller | | | | | 44,303 | | | | | | 29,784 | | | | | | 69,620 | | | | | | Mary Clark | | | | | 44,303 | | | | | | 29,784 | | | | | | 69,620 | | | | | | Patrick Doran | | | | | 44,303 | | | | | | 29,784 | | | | | | 69,620 | | | |
Performance-Based Vesting Restricted Shares
2018-2020 Performance Cash Units and Shares
In April 2018, our Compensation Committee granted 2018-2020 performance-based cash units to our NEOs employed as of the grant date. Ms. Clark received performance-based shares as part of her new hire grant based on the same criteria to be used for the 2018-2020 Performance Units. The following table sets forth the 2018-2020 performance-based cash units or shares (collectively, the “2018-2020 Performance Units”) awarded to our NEO’s other than Messrs. Clark and Miller who did not receive any performance-based cash units or shares as part of their new hire compensation packages as they joined our Company in July and October 2018, respectively:
| | Name | | | 2018 – 2020 Target Performance Units | | | 2018 Target Performance Units | | | 2019 Target Performance Units | | | 2020 Target Performance Units | | | | | Glenn Lurie | | | | | 273,070 | | | | | | 91,023 | | | | | | 91,023 | | | | | | 91,024 | | | | | | Mary Clark | | | | | 30,000 | | | | | | 10,000 | | | | | | 10,000 | | | | | | 10,000 | | | | | | Patrick Doran | | | | | 54,614 | | | | | | 18,204 | | | | | | 18,205 | | | | | | 18,205 | | | |
The 2018-2020 Performance Units provide the opportunity to earn the identified performance-based cash units based on the performance of our business during 2018, 2019 and 2020. Our NEOs are required to remain employed by our Company through March 2021 in order to vest insettle the cash units or shares. In the case of the performance-based cash units, our Compensation Committee will determine whether to settle the vested units in either cash or shares of our Common Stock atupon vesting to protect against potential dilution. Each performance-based restricted cash unit has a target number of cash units to be earned following completion of a specific performance period based on the achievement of certain pre-established Company performance objectives. These performance-based restricted cash units will be earned upon the completion of the specific performance period if the relevant performance objectives are achieved and typically vest based on continued service after a three-year period. At the time they vest.
The following were the performance targets for the plan established by our Compensation Committee: 40% based on non-GAAP revenue, 40% based on non-GAAP EBITDA and 20% based on a strategic objective established by our Compensation Committeethat each year during the three-year period. For 2018 and 2019, our Compensation Committee designated freeperformance-based restricted cash flow as the strategic metric. In consultation with
Deloitte, and to be consistent with many of our peer group of companies,unit vests, our Compensation Committee has decided that for 2020discretion to either (i) pay cash equal to the strategic metric will be total shareholder returnproduct of the closing price of our Company compared toCommon Stock multiplied by the total shareholder return for the companies in the Russell 2000 index.
Eachnumber of the components was separately assigned a “threshold” level, which established the minimum achievement necessary to be satisfied to receive any portion of the applicable bonus amounts, and a “maximum” level, which, if achieved or exceeded, would result in 200% of the target cash units being earnedthat vested or (ii) issue one share of our Common Stock for each performance-based restricted cash unit.
Process:
• In the first fiscal quarter, our CEO recommends grant date fair value of awards for executives other than himself.
• Our Compensation Committee reviews proposed performance measures and ranges provided by management and competitive market data from our peer group and, with respect to such component as described below.input from its compensation consultant, approves performance measures and ranges that it believes establish appropriately challenging goals.
As previously disclosed in last year’s CD&A, our NEOs earned 51.4%• Our Compensation Committee approves the number of time-based stock options and the target number of the 2018-2020 Performance Units allocable to 2018 based on our Company’s 2018 financial performance. The actual number of 2018-2020 Performance Units earned based on our 2018 performance is set forth below, which performance units shall vest in or about March 2021 provided the NEO remains employed by our Company through such date:
| | Name | | | 2018-2020 Target Performance Units | | | 2018 Target Performance Units | | | Attainment % | | | Units Earned | | | | | Glenn Lurie | | | | | 273,070 | | | | | | 91,023 | | | | | | 51.4% | | | | | | 46,786 | | | | | | Mary Clark | | | | | 30,000 | | | | | | 10,000 | | | | | | 51.4% | | | | | | 5,140 | | | | | | Patrick Doran | | | | | 54,614 | | | | | | 18,204 | | | | | | 51.4% | | | | | | 9,357 | | | |
2019 Performance Period — One-third of the 2018-2020 Performance Shares
In April 2019, our Compensation Committee approved the following threshold, targettime-based restricted shares and maximum performance goals for the 2019 portion of the 2018-2020 Performance Shares:
| | Corporate Component | | | Weighting | | | Threshold 50% payout | | | Target 100% payout | | | Maximum 200% payout | | | | | Non-GAAP Revenue | | | | | 40% | | | | | $ | 358,000,000 | | | | | $ | 374,000,000 | | | | | $ | 390,000,000 | | | | | | Non-GAAP EBITDA | | | | | 40% | | | | | $ | 30,000,000 | | | | | $ | 47,000,000 | | | | | $ | 64,000,000 | | | | | | Free Cash Flow | | | | | 20% | | | | | $ | 13,000,000 | | | | | $ | 20,000,000 | | | | | $ | 27,000,000 | | | |
In 2019, using the same adjustments and calculations as described above under our 2019 Cash Incentive Compensation Plan, our NEOs did not receive any portion with respect to the 2019 financial performance of our Company because each of our Non-GAAP revenue, Non-GAAP EBITDA and Free Cash Flow for 2019 was below the threshold payout with respect to each metric.
2018-2019 CEO New Hire LTI Plan
Upon joining our Company in November 2017, our Compensation Committee awarded Mr. Lurie a special grant of 180,528 performance-based restricted shares based on our Company’s performance in 2018 and 2019 (the “2018-2019 New Hire LTI Plan”). One-half of the performance-based restricted shares were based on our Company’s performance in 2018 and the remaining one-half were based on our Company’s performance in 2019, as discussed below, provided Mr. Lurie remains employed by our Company through such date.
Under the terms of Mr. Lurie’s performance-based shares, the metrics for obtaining such shares with respectcash units granted to our Company’s financial performance are the same metrics as the long-term incentive plan for the 2018 and 2019 portion of the 2018-2020 Performance Units. In 2018, as described in last year’s CD&A, NEOs.
Mr. Lurie earned 51.4% of the target number of the 2018-2019 CEO New Hire LTI Plan allocable to 2018 based on our Company’s 2018 financial performance. The actual number of performance-based restricted shares earned by Mr. Lurie based on our 2018 performance under the 2018-2019 CEO New Hire LTI Plan is set forth below, which shares vested in March 2019:
| | Name | | | 2018-2019 Target Performance Shares | | | 2018 Target Performance Shares | | | Attainment % | | | Performance Shares Earned | | | | | Glenn Lurie | | | | | 180,528 | | | | | | 90,264 | | | | | | 51.4% | | | | | | 46,395 | | | |
With respect to our Company’s 2019 performance, for the same reasons stated above, Mr. Lurie did not receive any of the shares allocated to our Company’s 2019 financial performance under the 2018-2019 CEO New Hire LTI Plan and such shares have been forfeited.
2019-2021 Performance Cash Units
In April 2019, our Compensation Committee granted 2019-2021 performance-based cash units to our NEOs employed as of the grant date. The following table sets forth the 2019-2021 performance-based cash units (collectively, the “2019-2021 Performance Units”) awarded to our NEO’s:
| | Name | | | 2019-2021 Target Performance Units | | | 2019 Target Performance Units | | | 2020 Target Performance Units | | | 2021 Target Performance Units | | | | | Glenn Lurie | | | | | 348,101 | | | | | | 116,034 | | | | | | 116,034 | | | | | | 116,033 | | | | | | David Clark | | | | | 111,392 | | | | | | 37,131 | | | | | | 37,131 | | | | | | 37,130 | | | | | | Jeffrey Miller | | | | | 69,620 | | | | | | 23,207 | | | | | | 23,207 | | | | | | 23,206 | | | | | | Mary Clark | | | | | 69,620 | | | | | | 23,207 | | | | | | 23,207 | | | | | | 23,206 | | | | | | Patrick Doran | | | | | 69,620 | | | | | | 23,207 | | | | | | 23,207 | | | | | | 23,206 | | | |
The 2019-2021 Performance Units provide the opportunity to earn the identified performance-based cash units based on the performance of our business during 2019, 2020 and 2021. Our NEOs are required to remain employed by our Company through March 2022 in order to vest in the cash units.• Our Compensation Committee will determine whetherreports equity award determinations to settleour full Board. At the vested performance-based cash units in cash or sharesend of our Common Stock at the time they vest.
The following were therelevant performance targets for the plan established by our Compensation Committee: 40% based on non-GAAP revenue, 40% based on non-GAAP EBITDA and 20% based on a strategic objective established by our Compensation Committee. For the 2019-2021 period, our Compensation Committee designated “revenue diversity” asreviews the strategic metric which was defined as year-over-year revenue growthCompany’s financial performance for DXPthe relevant performance period and determines the internetamount of things (“IoT”), with the target year-over-year revenue growth of 35%.
Each of the components was separately assigned a “threshold” level, which established the minimum achievement necessary to be satisfied to receive any portion of the applicable bonus amounts, and a “maximum” level, which, if achieved or exceeded, would result in 200% of the targetearned cash units being earned with respectthat are subject to such component as described below.performance-based vesting.
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