(1) | ACV, as of a given date, is the sum of the following two components:
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the sum of the annual value of each term and cloud contract in effect on such date, with the annual value of a term or cloud contract being equal to themeasurement date. The contract’s total value of the contractis divided by the total number ofits duration in years of the contract;to calculate ACV for term license and
maintenance Pega Cloud contracts. Maintenance revenue reported for the quarter then ended on such date,is multiplied by four.
four to calculate ACV for maintenance. Client Cloud ACV is composed of maintenance ACV and ACV from term license contracts. ACV is a performance measure that we believe provides useful information to our management and investors, particularly during our Cloud Transition. Reported amounts have not been adjusted for changes in foreign exchange rates. Foreign currency contributed 1%-2% to ACV growth in 2020.Stockholder Return(1)(2)
Remaining performance obligations (“Backlog”) | Increased 28% since December 31, 2019
•Backlog represents contracted revenue that has not yet been recognized and includes deferred revenue and non-cancellable amounts expected to be invoiced and recognized as revenue in future periods.
•
Pega Cloud revenue | Increased 56% since 2019
•Pega Cloud revenue is revenue as reported under U.S. GAAP for cloud contracts.
Stock performance graph and cumulative total shareholder return
•The following performance graph represents a comparison of the cumulative total stockholdershareholder return, assuming the reinvestment of dividends, for a $100 investment on December 31, 20132015 in our common stock, the Total Return Index for the NASDAQ Composite, a broad market index, and the Standard & Poor’s (“S&P”) North American Technology Sector –- Software Index™ (“S&P NA Tech Software”), a published industry index.
(1) | The lines of the graph merely connect measurement dates and do not reflect fluctuations between those dates.
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(2) | We paid total dividends of $0.12 per share during 2018, 2017, 2016, and 2015 and $0.09 per share in 2014. The dividends paid per share have been adjusted for thetwo-for-one common stock split effected in the form of a common stock dividend on April 1, 2014.
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PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
SHAREHOLDERS
To be held on June
25, 201922, 2021
This proxy statement contains information about the
20192021 Annual Meeting of
StockholdersShareholders of Pegasystems Inc. The Annual Meeting will be held on Tuesday, June
25, 2019,22, 2021, beginning at 10:00
a.m., local time, at One Rogers Street, Cambridge, Massachusetts.am, Eastern Daylight Time. Due to the continuing impact of COVID-19, this year’s Annual Meeting will be held in a virtual format via a live webcast. You will be able to attend the Annual Meeting, submit questions and vote during the live webcast by visiting www.meetingcenter.io/242912236. Unless the context otherwise requires, references in this proxy statement to “Pegasystems,” the “Company,” “we,” “us,” or “our” refer to Pegasystems Inc.
This proxy statement is furnished in connection with the solicitation of proxies by our Board of Directors for use at the Annual Meeting and at any adjournment of that meeting. All proxies will be voted in accordance with the instructions they contain. If you do not specify your voting instructions on the proxy you submit for the meeting, it will be voted in accordance with the recommendation of the Board of Directors.
YouIf you are the record holder of your shares, you may
revoke your proxy and change your vote
and revoke your proxy at any time before it is exercised at the meeting by giving our Secretary written notice to that
effect.effect or a duly executed proxy bearing a later date or by voting your shares online at the Annual Meeting. Any shareholder owning shares in “street name” may revoke a proxy or change previously given voting instructions by contacting the bank or brokerage firm holding the shares. We first provided access to our proxy materials over the Internet at www.envisionreports.com/PEGA on or about May
9, 2019.7, 2021.
Pursuant to Rule14a-16 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, our Annual Report on Form10-K for the fiscal year ended December 31, 2018,2020, or Annual Report, as filed with the Securities and Exchange Commission, or SEC, is being made available to stockholdersshareholders on our website, www.pega.com, and at the following URL: www.envisionreports.com/PEGA.
You may obtain a copy of our Annual Report without charge upon written request to to:
Pegasystems Inc.
, One Rogers Street
Cambridge, MA 02142-1209
Attention:
Secretary.Secretary
The Annual Report does not constitute any part of this proxy statement. Certain documents referenced in this proxy statement are available on our website at www.pega.com. Information contained on our website is not included as part of, nor incorporated by reference into, this proxy statement.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of
StockholdersShareholders to be held on June
25, 2019.22, 2021.
This proxy statement and our Annual Report are available for viewing, printing, and downloading at
www.envisionreports.com/PEGA.
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
What is the purpose of the Annual Meeting?
At the Annual Meeting,
stockholdersshareholders will consider and vote on the following matters:
| 1. | To elect to our Board of Directors the nine nominees named in this proxy statement, each for aone-year term.
|
| 2. | To approve, by anon-binding advisory vote, the compensation of our named executive officers, also referred to as Say on Pay, as described in the “Compensation Discussion and Analysis” section and elsewhere in this proxy statement.
|
| 3. | To ratify the selection by the Audit Committee of our Board of Directors of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019.
|
1.To elect to our Board of Directors the seven nominees named in this proxy statement, each for a one-year term.
2.To approve, by a non-binding advisory vote, the compensation of our named executive officers, also referred to as Say on Pay, as described in the “Compensation Discussion and Analysis” section and elsewhere in this proxy statement. 3.To consider, if properly presented at the meeting, a shareholder proposal regarding shareholder proxy access.
4.To ratify the selection by the Audit Committee of our Board of Directors of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2021.
How does the Board of Directors recommend that I vote on the Proposals?
The Board of Directors recommends that you vote:
| • | | FOR the election to our Board of Directors of each of the nine nominees named in this proxy statement, each to hold office for a term of one year (Proposal 1);
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| • | | FOR the approval, by anon-binding advisory vote, of the compensation of our named executive officers, also referred to as Say on Pay, as described in the “Compensation Discussion and Analysis” section and elsewhere in this proxy statement (Proposal 2); and
|
| • | | FOR the ratification of the selection by the Audit Committee of our Board of Directors of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019 (Proposal 3).
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•FOR the election to our Board of Directors of each of the seven nominees named in this proxy statement, each to hold office for a term of one year (Proposal 1);
•FOR the approval, by a non-binding advisory vote, of the compensation of our named executive officers, also referred to as Say on Pay, as described in the “Compensation Discussion and Analysis” section and elsewhere in this proxy statement (Proposal 2); •AGAINST the shareholder proposal regarding shareholder proxy access (Proposal 3); and
•FOR the ratification of the selection by the Audit Committee of our Board of Directors of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2021 (Proposal 4).
To be able to vote, you must have been a Pegasystems
stockholdershareholder of record at the close of business on April
18, 2019.21, 2021. This date is the Record Date for the Annual Meeting. On the Record Date, there were
78,911,03381,267,183 shares of our common stock outstanding and entitled to vote.
How many votes do I have?
Each share of our common stock that you owned on the Record Date entitles you to one vote on each matter
that is before the
stockholdersshareholders at the Annual Meeting.
Your vote is important regardless of how many shares you own. Please take the time to vote. Also, please take a moment to read the instructions below.
Why did I receive a notice in the mail regarding the Internet availability of proxy materials this year instead of a full set of proxy materials?
We are pleased to comply with the SEC rules that direct companies to distribute their proxy materials over the Internet, as we have done in past years. As a result, we have sent our
stockholdersshareholders and beneficial owners a Notice of Internet Availability of Proxy Materials, or the Availability Notice, instead of paper copies of this proxy statement, our proxy card, and our Annual Report. Detailed instructions on how to access these materials over the Internet may be found in the Availability Notice. This proxy statement and our Annual Report are available for viewing, printing, and downloading at www.envisionreports.com/PEGA.
I prefer to read my proxy materials on paper. How do I get paper copies?
The Availability Notice contains instructions on how to request paper copies by phone, email, or the Internet. You will be sent the materials by first class mail within three business days of your request, at no cost to you. If you receive your proxy materials by mail, you may vote your shares by completing, signing, and dating the proxy card that accompanies this proxy statement and promptly mailing it in the enclosed postage-prepaid envelope. Once you request paper copies, you will continue to receive the materials in paper form until you instruct us otherwise. Please note, however, that the online proxy materials will also be in a format suitable for printing on your own printer.
If you are the “record holder” of your shares, meaning that you own your shares in your own name and not through a bank or brokerage firm, you may vote over the Internet or by telephone or mail, or you may vote
in person atonline during the Annual
Meeting.Meeting by visiting www.meetingcenter.io/242912236 and entering the 15-digit control number found in your Availability Notice, on your proxy card or voting instruction form, or in the instructions you received via email, and following the on-screen instructions. If your shares are held in “street name” by a bank or brokerage firm, please see the first sentence of the “Can I vote if my shares are held in ‘street name’?” section below for instructions regarding how to vote your shares.
Voting by Internet.Internet. You may vote your proxy over the Internet by following the instructions provided in the Availability Notice and on the proxy card.
Voting by telephone.telephone. You may vote your proxy over the telephone by following the instructions provided in the Availability Notice and on the proxy card.
Voting by mail.mail. You may vote your proxy by printing, completing, signing, and dating the proxy card that accompanies this proxy statement and promptly mailing it in accordance with the instructions provided on the proxy card. The shares you own will be voted according to the instructions on the proxy card you submit. If you return the proxy card but do not give any instructions on a particular matter described in this proxy statement, the shares you own will be voted in accordance with the recommendations of our Board of Directors. The Board of Directors recommends that you voteFOR the director nominees, andFOR Proposals 2 and 4. The Board of Directors recommends that you vote AGAINST Proposal 3.
Voting in person at the Annual Meeting.If you attendMeeting. You may vote online during the Annual Meeting by visiting www.meetingcenter.io/242912236 and entering the control number included in your Availability Notice, on your proxy card or voting instruction form, or in the instructions you may vote by delivering your completed proxy in person or by completing a ballot. Ballots will be available atreceived via email, and following the Annual Meeting.on-screen instructions.
Can I vote my shares by filling out and returning the Availability Notice?
No. The Availability Notice contains instructions on how to vote over the Internet, by telephone, by requesting and returning a paper proxy card, or by
submitting a ballot in person atvoting online during the Annual Meeting.
Can I vote if my shares are held in “street name”?
If the shares you own are held in “street name” by a bank or brokerage firm, your bank or brokerage firm, as the record holder of your shares, is required to vote your shares according to your instructions. To vote your shares, you will need to follow the directions your bank or brokerage firm provides you. Many banks and brokerage firms also offer the option of voting over the Internet or by telephone, instructions for which would be provided by your bank or brokerage firm on your
votevoting instruction form.
Under the applicable rules of the NASDAQ Global Select Market, or Nasdaq, if you do not give instructions to your bank or brokerage firm, it will still be able to vote your shares with respect to certain “discretionary” items, but it will not be allowed to vote your shares with respect to certain“non-discretionary” “non-discretionary” items. The ratification of Deloitte & Touche LLP as our independent registered public accounting firm (Proposal 3)4) is considered to be a “discretionary” item under Nasdaq rules, and your bank or brokerage firm will be able to vote on this item even if it does not receive instructions from you, so long as it holds your shares in its name.The election of directors (Proposal 1) and, the advisory vote on executive compensation (Proposal 2), andthe shareholder proposal regarding shareholder proxy access (Proposal 3)are“non-discretionary” “non-discretionary” items. If you do not instruct your broker how to vote with respect to these items, your broker is not permitted to vote with respect to these proposals, and those votes will be counted as “brokernon-votes.” “Brokernon-votes” are shares that are held in “street name” by a bank or brokerage firm that indicates on its proxy that it does not have or did not exercise discretionary authority to vote on a particular matter.If your shares are held in “street name,” you must bring an account statement or letter from your bank or brokerage firm showing that you are the beneficial owner of the shares as of the Record Date in order to be
admitted to the Annual Meeting on June 25, 2019. To be able to vote your shares held in “street name” in person at the Annual Meeting, you will need to obtain a proxy card from the holder of record.
Can I change my vote after I have submitted my proxy?
Yes. You If your shares are registered in your name, you can revoke your proxy and change your vote and revoke your proxy at any time before the polls close for the Annual Meeting by doing any one of the following things: •signing another proxy with a later date;
•giving our Secretary a written notice before or at the Annual Meeting that you want to revoke your proxy;
•voting over the Internet or telephone by following the instructions provided in the Availability Notice and on the proxy card by 1:00 a.m., Eastern Daylight Time, on June 25, 2019;22, 2021; or
•voting in person atduring the Annual Meeting.
Meeting by visiting www.meetingcenter.io/242912236 and entering the control number included in your Availability Notice, on your proxy card or voting instruction form, or in the instructions you received via email.Your attendance at the Annual Meeting alone, without also voting, will not revoke your proxy.
If your shares are held in “street name” and you wish to revoke a proxy, you should contact your bank or brokerage firm and follow its procedures for changing your voting instructions.
What constitutes a quorum?
In order for business to be conducted at the Annual Meeting with respect to a particular matter, a quorum must be present in person or represented by valid proxies for that particular matter. For each of the proposals described in this proxy statement, a quorum consists of the holders of a majority of the shares of common stock issued and outstanding on April
18, 2019,21, 2021, the Record Date, which is approximately
39,455,51740,633,592 shares of our common stock.
Shares of common stock represented in person or by proxy, including “broker
non-votes” and shares that abstain or do not vote with respect to one or more of the matters to be voted upon, will be counted for the purpose of determining whether a quorum exists. A share once represented for any purpose at the Annual Meeting is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of the meeting unless (1) the
stockholdershareholder attends solely to object to lack of notice, defective notice, or the conduct of the meeting on other grounds and does not vote the shares or otherwise consent that they are to be deemed present, or (2) in the case of an adjournment, a new Record Date is set for that adjourned meeting.
If a quorum is not present, the meeting will be adjourned until a quorum is obtained.
What vote is required for each item?
Proposal 1: Election of Directors.Under our Amended and Restated Bylaws, with respect to each of the nineseven nominees for director, the number of votes cast at the Annual Meeting in favor of such nominee must represent a majority of the votes entitled to be cast in an election of directors by all issued and outstanding shares of common stock on the Record Date. This means that if any nominee is one of the nineseven nominees receiving the highest number of votes cast at the Annual Meeting, but the number of votes cast for such nominee does not represent a majority of the votes entitled to be cast in an election of directors by all issued and outstanding shares, such nominee will not be elected as a director.If your shares are held in “street name” and you do not instruct your broker how to vote with respect to this item, your broker is not permitted to vote your shares with respect tothe election of directors.Proposal 2: Advisory Vote on Executive Compensation.Our Board of Directors is seeking a
non-binding advisory vote to approve the compensation of our named executive officers. Under our Amended and Restated Bylaws, approval for suchnon-binding resolution requires that the votes cast in favor exceed the votes cast in opposition. While this vote isnon-binding and advisory in nature, our Board of Directors and Compensation Committee will consider the outcome of the vote when determining executive compensation arrangements.If your shares are held in “street name” and you do not instruct your broker how to vote with respect to this item, your broker is not permitted to vote your shares with respect to this proposal.
Proposal 2: Advisory Vote on Executive Compensation. Our Board of Directors is seeking a non-binding advisory vote to approve the compensation of our named executive officers. Under our Amended and Restated Bylaws, approval for such non-binding resolution requires that the votes cast in favor exceed the votes cast in opposition. While this vote is non-binding and advisory in nature, our Board of Directors and Compensation Committee will consider the outcome of the vote when determining executive compensation arrangements. If your shares are held in “street name” and you do not instruct your broker how to vote with respect to this item, your broker is not permitted to vote your shares with respect to this proposal.
Proposal 3: Shareholder Proposal Regarding Shareholder Proxy Access. A shareholder requests that the shareholders of the Company advise the Board to take the necessary steps so that nominating shareholders, individually or in the aggregate, that have owned at least 3% of the outstanding shares of common stock of the Company continuously for a period of at least 3-years be entitled to nominate a total of up to 25% of the number of authorized directors. Under our Amended and Restated Bylaws, the advisory proposal would be passed with the approval of a majority of the shares entitled to be cast. If your shares are held in “street name” and you do not instruct your broker how to vote with respect to this item, your broker is not permitted to vote your shares with respect to this proposal.
Proposal 4: Ratification of the Independent Registered Public Accounting Firm.Firm. The ratification of the selection of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 20192021 will be approved if the votes cast in favor exceed the votes cast in opposition.If your shares are held in “street name” and you do not instruct your broker how to vote with respect to this item, your broker may vote your shares with respect to this proposal. How will votes be counted?
Each share of common stock will be counted as one vote according to the instructions contained on a properly completed proxy card, whether submitted
in person, by mail, over the Internet, by telephone, or
on a ballot voted
in persononline at the Annual Meeting. Shares will not be voted in favor of a matter, and will not be counted as voting on a matter, if they either (1) indicate that the
stockholdershareholder abstains from voting on a particular matter or (2) are broker
non-votes. Banks and brokers that do not receive instructions with respect to Proposals 1,
2 and
23 will not be allowed to vote these shares, which will then be counted as “broker
non-votes” instead of votes “for” or “against.”
Abstentions and broker
non-votes will have no effect on the outcome of voting with respect to Proposal 2 (Advisory Vote on Executive Compensation) and Proposal
34 (Ratification of the Independent Registered Public Accounting Firm), because these proposals will be approved if the votes cast at the Annual Meeting in favor of the proposal exceed the votes cast at the Annual Meeting opposing the proposal. Abstentions and broker
non-votes, however, will have the effect of negative votes with respect to Proposal 1 (Election of Directors)
and Proposal 3 (Shareholder Proposal Regarding Shareholder Proxy Access), because, as described above, each
nominee must receiveof these proposals require the affirmative vote of the holders of shares representing a majority of the votes entitled to be cast at the Annual Meeting by all issued and outstanding shares of common stock on the Record
Date in order to be elected to our Board of Directors.Date.
Who will count the votes?
The votes will be counted, tabulated, and certified by our transfer agent and registrar, Computershare. Matthew J. Cushing, our Vice President, Chief Commercial Officer, General Counsel, and Secretary, will serve as the inspector of elections at the Annual Meeting.
Will my vote be kept confidential?
Yes. Your vote will be kept confidential and we will not disclose your vote unless (1) we are required to do so by law, including in connection with the pursuit or defense of a legal or administrative action or proceeding, or (2) there is a contested election for the Board of Directors. The inspector of elections will forward any written comments that you make on the proxy card to management without providing your name, unless you expressly request disclosure of your identity on your proxy card.
Will any other business be conducted at the Annual Meeting or will other matters be voted on?
No. Under the laws of Massachusetts, where we are incorporated, an item may not be brought before our stockholdersshareholders at a stockholdershareholder meeting unless it appears in the notice of the meeting. Our Amended and Restated Bylaws establish the process for a stockholdershareholder to bring a matter before a meeting. See the “How and when may I submit a stockholdershareholder proposal for the 20202022 Annual Meeting?” section below.
Where can I find the voting results?
We will report the voting results in a Current Report on Form
8-K, which will be filed with the SEC no later than four business days after the Annual Meeting.
How and when may I submit a
stockholdershareholder proposal for the
20202022 Annual Meeting?
If you are interested in submitting a proposal for inclusion in the proxy statement for the 20202022 Annual Meeting, you need to follow the procedures outlined in Rule14a-8 under the Exchange Act and in our Amended and Restated Bylaws. To be eligible for inclusion, we must receive your stockholdershareholder proposal intended for inclusion in the proxy statement for the 20202022 Annual Meeting of StockholdersShareholders at our principal corporate offices in Cambridge, Massachusetts as set forth below no later than January 10, 2020December 30, 2021. In addition, our Amended and Restated Bylaws require that we be given advance written notice for nominations for election to our Board of Directors and other matters that
stockholdersshareholders wish to present for action at an annual meeting other than those to be included in our proxy statement under Rule
14a-8. The Secretary must receive such notice at the address noted below not less than 120 days or more than 150 days before the first anniversary of the date on which our proxy statement was released to
stockholdersshareholders in connection with the prior year’s meeting. However, if the date of our annual meeting is advanced or delayed by more than 30 days from the anniversary date of the prior year’s meeting (or no proxy statement was delivered to
stockholdersshareholders in connection with the prior year’s meeting), then we must receive such notice at the address noted below not earlier than the 120th day before such annual meeting and not later than the close of business on the later of (1) the 90th day before such annual meeting and (2) the 10th day following the day on which public notice of the meeting date is first made. Assuming that the
20202022 Annual Meeting is held between May
26, 202023, 2022 and July
25, 2020,22, 2022, you would need to give us appropriate notice at the address noted below no earlier than
December 11, 2019November 30, 2021 and no later than
January 10, 2020.December 30, 2021. Notwithstanding the foregoing, the postponement or adjournment of any annual meeting for which notice has been provided to
stockholdersshareholders shall not commence a new time period for giving the
stockholders’shareholders’ notice. If a
stockholdershareholder does not provide timely notice of a nomination or other matter to be presented at the
20202022 Annual Meeting, under Massachusetts law, it may not be brought before our
stockholdersshareholders at a meeting.
Our Amended and Restated Bylaws also specify requirements relating to the content of the notice that
stockholdersshareholders must provide to the Secretary for any matter, including a
stockholdershareholder proposal or nomination for director, to be properly presented at a
stockholdershareholder meeting. A copy of the full text of our Amended and Restated Bylaws is on file with the SEC.
Any proposals or notices should be sent to:
Pegasystems Inc.
One Rogers Street
Cambridge, MA 02142-1209
Attention: Vice President, Chief Commercial Officer, General Counsel, and Secretary
Who will bear the costs of soliciting these proxies?
We will bear the costs of solicitation of proxies. We will request brokers, custodians, and fiduciaries to forward proxy soliciting material to the owners of shares of our common stock they hold in such stockholders’shareholders’ names. We will reimburse banks and brokers for their reasonableout-of-pocket expenses incurred in connection with the distribution of proxy materials.
How can I obtain an Annual Report on Form10-K?
Our Annual Report is available in the “Investors” section of our website at www.pega.com, as well as at the following URL: www.envisionreports.com/PEGAPEGA. If you would like a paper copy of our Annual Report on Form10-K, we will send it to you without charge.
Pegasystems Inc.
One Rogers Street
Cambridge, MA 02142-1209
Attention: Vice President, Chief Commercial Officer, General Counsel, and Secretary
Telephone: (617)374-9600
Whom should I contact if I have any questions?
If you have any questions about the Annual Meeting or your ownership of our common stock, please contact Matthew J. Cushing, Vice President, Chief Commercial Officer, General Counsel, and Secretary of Pegasystems
Inc. at the address or telephone number listed above.
Householding of Annual Meeting Materials
Some banks, brokers, and other nominee record holders may be participating in the practice of “householding” proxy statements and annual reports. This means that only one copy of our proxy statement and Annual Report may have been sent to multiple
stockholdersshareholders in your household. We will promptly deliver a separate copy of either document to you if you contact us at the address or telephone number listed above.
If you want to receive separate copies of the proxy statement or Annual Report in the future, or if you are receiving multiple copies and would like to receive only one copy per household, you should contact your bank, broker, or other nominee record holder, or you may contact us at the above address or telephone number.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, which, except as otherwise noted below, is as of January 31,
2019,2021, with respect to the beneficial ownership of our common stock by:
•the stockholdersshareholders we know to beneficially own more than 5% of our outstanding common stock;
stock (based solely on our review of Schedules 13G filed with the SEC);•each director named in this proxy statement;
•each executive officer named in the Summary Compensation Table included in this proxy statement; and
•all of our executive officers and directors as a group.
Unless otherwise indicated, the address of each person listed below is c/o Pegasystems Inc., One Rogers Street, Cambridge, MA 02142.
| | | | | | | | | | | | | | | | |
| | | NUMBER OF
SHARES
OWNED | | | SHARES
ACQUIRABLE
WITHIN 60 DAYS (1) | | | TOTAL SHARES
BENEFICIALLY
OWNED (2) | | | PERCENTAGE
OF SHARES
BENEFICIALLY
OWNED (3) | |
5% Stockholders | | | | | | | | | | | | | | | | |
Alan Trefler (4) | | | 39,911,928 | | | | — | | | | 39,911,928 | | | | 50.81 | % |
| | | | |
Directors | | | | | | | | | | | | | | | | |
Alan Trefler | | | † | | | | † | | | | † | | | | † | |
Peter Gyenes | | | 40,754 | | | | 570 | | | | 41,324 | | | | * | |
Ronald Hovsepian | | | 628 | | | | 654 | | | | 1,282 | | | | * | |
Richard Jones (5) | | | 772,329 | | | | 570 | | | | 772,899 | | | | * | |
Dianne Ledingham | | | 7,093 | | | | 570 | | | | 7,663 | | | | * | |
James O’Halloran (6) | | | 128,790 | | | | 570 | | | | 129,360 | | | | * | |
Sharon Rowlands | | | 13,152 | | | | 570 | | | | 13,722 | | | | * | |
Larry Weber | | | 2,583 | | | | 570 | | | | 3,153 | | | | * | |
| | | | |
Named Executive Officers | | | | | | | | | | | | | | | | |
Alan Trefler | | | † | | | | † | | | | † | | | | † | |
Douglas Kra | | | 30,476 | | | | 126,343 | | | | 156,819 | | | | * | |
Michael Pyle | | | 2,552 | | | | 108,591 | | | | 111,143 | | | | * | |
Kenneth Stillwell | | | 10,295 | | | | 26,489 | | | | 36,784 | | | | * | |
Leon Trefler | | | 6,030 | | | | 167,234 | | | | 173,264 | | | | * | |
All executive officers and directors as a group (7) | | | 40,927,294 | | | | 443,623 | | | | 41,370,917 | | | | 52.37 | % |
* | Represents beneficial ownership of less than 1% of our outstanding common stock.
|
† | See 5% Stockholders above.
|
(1) | The number of shares of common stock beneficially owned by each person is determined under rules promulgated by the SEC. Under these rules, a person is deemed to have “beneficial ownership” of any shares over which that person has sole or shared voting or investment power, plus any shares that the person has the right to acquire within 60 days, including through the exercise of stock options or vesting of restricted stock units, or RSUs. Unless otherwise indicated, for each person named in the table, the number in the “Shares Acquirable within 60 Days” column consists of shares covered by stock options that may be exercised and RSUs that vest within 60 days after January 31, 2019.
|
(2) | To our knowledge, unless otherwise indicated, all of the persons listed in the table above have sole voting and investment power with respect to their shares of common stock, except to the extent authority is shared by spouses under applicable law.
|
(3) | The percent ownership is calculated by dividing each person’s total number of shares beneficially owned by the sum of 78,549,040 shares, which was the number of shares of our common stock outstanding on January 31, 2019, plus any shares that such person has the right to acquire within 60 days of January 31, 2019, including upon the exercise of stock options or the vesting of RSUs.
|
(4) | As reported in the Schedule 13G, Amendment #17 filed with the SEC on February 14, 2019 by Mr. Trefler. Includes 87,000 shares of common stock held by the Trefler Foundation, of which Mr. Trefler is a trustee. Mr. Trefler has shared voting and dispositive control over such shares, but has no pecuniary interest with respect to such shares. As of the date of this Proxy Statement, includes 998,500 shares of common stock pledged or held in margin securities accounts maintained at brokerage firms.
|
(5) | Includes 57,590 shares held by the Jones Family Foundation for which Mr. Jones has voting and dispositive power over such shares, but has no pecuniary interest with respect to such shares. Includes 208,192 shares held by the Richard D. Jones Revocable Trust for which Mr. Jones has sole voting and investment power over such shares. Includes 209,010 shares held by the Patricia K. Jones Revocable Trust for which Mr. Jones’ spouse has sole voting and dispositive power over such shares.
|
(6) | Includes 8,808 shares held by Mr. O’Halloran’s spouse, who has sole voting and dispositive power over such shares.
|
(7) | Includes all 13 persons who were directors or executive officers of Pegasystems on January 31, 2019.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NUMBER OF
SHARES OWNED | | SHARES ACQUIRABLE WITHIN 60 DAYS(1) | | TOTAL SHARES BENEFICIALLY OWNED(2) | | PERCENTAGE OF SHARES BENEFICIALLY OWNED(3) |
| 5% Shareholders | | | | | | | | | |
Alan Trefler (4) | 39,820,517 | | | | 82,772 | | | 39,903,289 | | | | 49.3 | % |
| Bares Capital Management, Inc. | 5,205,967 | | (5) | | — | | | 5,205,967 | | (5) | | 6.4 | % |
| Luxor Capital Group, LP | 3,756,095 | | (6) | | 300,000 | | | 4,056,095 | | (6) | | 5.0 | % |
| Directors | | | | | | | | | |
| Alan Trefler | † | | | † | | † | | | † |
| Peter Gyenes | 30,105 | | | | 7,824 | | | 37,929 | | | | * |
| Ronald Hovsepian | 3,571 | | | | 7,824 | | | 11,395 | | | | * |
Richard Jones (7) | 619,365 | | | | 7,824 | | | 627,189 | | | | * |
| Christopher Lafond | 2,586 | | | | 7,824 | | | 10,410 | | | | * |
| Dianne Ledingham | 9,952 | | | | 7,824 | | | 17,776 | | | | * |
| Sharon Rowlands | 16,011 | | | | 7,824 | | | 23,835 | | | | * |
| Larry Weber | 3,692 | | | | 7,824 | | | 11,516 | | | | * |
| Named Executive Officers | | | | | | | | | |
| Alan Trefler | † | | | † | | † | | | † |
| Kenneth Stillwell | 6,203 | | | | 32,998 | | | 39,201 | | | | * |
| Douglas Kra | 41,164 | | | | 81,210 | | | 122,374 | | | | * |
Hayden Stafford (8) | 3,103 | | | | 14,506 | | | 17,609 | | | | * |
| Leon Trefler | 10,978 | | | | 179,646 | | | 190,624 | | | | * |
All executive officers and directors as a group (9) | 40,579,306 | | | | 531,390 | | | 41,110,696 | | | | 50.5 | % |
* Represents beneficial ownership of less than 1% of our outstanding common stock.
† See 5% Shareholders above.
(1) The number of shares of common stock beneficially owned by each person is determined under the SEC’s rules. Under these rules, a person is deemed to have “beneficial ownership” of any shares over which that person has sole or shared voting or investment power, plus any shares that the person has the right to acquire within 60 days, including through the exercise of stock options or vesting of restricted stock units (“RSUs”). Unless otherwise indicated, for each person named in the table, the number in the “Shares Acquirable within 60 Days” column consists of shares covered by stock options that may be exercised and RSUs that vest within 60 days after January 31, 2021.
(2) To our knowledge, unless otherwise indicated, all the persons listed in the table above have sole voting and investment power with respect to their shares of common stock, except to the extent authority is shared by spouses under applicable law.
(3) The percent ownership is calculated by dividing each person’s total shares beneficially owned by 80,887,713 shares, which was the number of shares of our common stock outstanding on January 31, 2021.
(4) As reported in the Schedule 13G, Amendment #20, filed with the SEC on February 12, 2021 by Mr. Trefler. Includes 27,000 shares of common stock held by the Trefler Foundation, of which Mr. Trefler is a trustee. Mr. Trefler has shared voting and dispositive control over such shares, but has no pecuniary interest with respect to such shares. As of January 31, 2021, includes 998,800 shares of common stock pledged or held in margin securities accounts maintained at brokerage firms.
(5) Represents shares of common stock beneficially owned as of December 31, 2020, based on a Schedule 13G filed with the SEC on February 16, 2021 by Bares Capital Management, Inc. (“Bares Capital Management”). Such filing states that Bares Capital Management has shared voting and dispositive power with respect to 5,205,967 shares, and that Brian Bares has sole voting and dispositive power with respect to an additional 1,319 shares. In such filing, Bares Capital Management lists its address as 12600 Hill Country Blvd., Suite R-230, Austin, TX 78738.
(6) Represents shares of common stock beneficially owned as of January 27, 2021, based on a Schedule 13G filed with the SEC on February 8, 2021 by Luxor Capital Group, LP (“Luxor Capital”). Such filing states that Luxor Capital has shared voting and dispositive power with respect to 4,056,095 shares. In such filing, Luxor Capital lists its address as 1114 Avenue of the Americas, 28th Floor, New York, New York 10036.
(7) Includes 40,590 shares held by the Jones Family Foundation for which Mr. Jones has voting and dispositive power over such shares, but has no pecuniary interest with respect to such shares. Includes 148,719 shares held by the Richard H. Jones Revocable Trust for which Mr. Jones has sole voting and investment power over such shares. Includes 13,124 shares held by the Patricia Jones Revocable Trust, 31,065 shares held by the Patricia Jones Irrevocable (Dynasty) Trust and 86,799 shares held by the Patricia Jones Irrevocable Cornerstone Trust for which Mr. Jones’ spouse has sole voting and dispositive power over such shares. As of January 31, 2021, includes 282,672 shares of common stock pledged or held in margin securities accounts maintained at brokerage firms.
(8) Mr. Stafford joined the Company in June 2020.
(9) Includes all 14 persons who were directors or executive officers of Pegasystems on January 31, 2021.
PROPOSAL 1 – ELECTION OF DIRECTORS
This year our Board of Directors has nominated Peter Gyenes,
Ronald Hovsepian, Richard Jones, Christopher Lafond, Dianne Ledingham,
James O’Halloran, Sharon Rowlands, Alan Trefler, and Larry Weber for election to the Board of Directors.
Recently, Mr. Hovsepian was appointed Chief Executive Officer of Indigo Ag. Because of the resulting time commitments of that role, Mr. Hovsepian notified the Company on April 26, 2021 that he could not stand for re-election at the Annual Meeting. Mr. Hovsepian will continue to serve as a member of the Board of Directors and as a member of any committees of the Board of Directors on which he currently serves until the Annual Meeting.
The persons named in the proxy card as proxies will vote to elect each of the nominees, unless you vote against the election of one or more nominees or abstain from voting on the election of one or more nominees, in each case, by affirmatively marking the proxy card to that effect (or through Internet or telephonic voting). Each of our nominees has indicated their willingness to serve, if elected. However, if any of the nominees shall become unable or unwilling to serve, the proxies, unless authority has been withheld as to such nominee, may be voted for the election of a substitute nominee designated by our Board of Directors, or the Board of Directors may reduce the number of directors. Proxies may not be voted for more than
nineseven persons.
There are no family relationships among any of our executive officers or directors, with the exception of Alan Trefler, our Chairman and Chief Executive Officer, whose brother, Leon Trefler, is Senior Vice President, Global
CustomerClient Success. Unless otherwise noted, we refer to Alan Trefler as Mr. Trefler and Leon Trefler as Leon Trefler in this proxy statement.
The Board of Directors recommends that you vote FOR the election of the nominees as directors, and proxies solicited by the Board of Directors will be voted in favor thereof unless a
stockholdershareholder has indicated otherwise on the proxy.
Director Qualifications
DIRECTOR QUALIFICATIONS
The following information is furnished with respect to each of our directors, as of January 31, 2019, with the exception of Mr. Lafond who joined the Board on April 22, 2019.1, 2021. The information presented details the characteristics, qualifications, attributes, and skills that led to the Board of Directors’ conclusion that each of our directors is qualified to serve on the Board of Directors, including significant professional experience and service on the boards of other companies. It includes information each director has given us about their age, all positions they hold with us, and their principal occupation and business experience during at least the past five years, andincluding the names of other publicly-held companies of which they serve or have served as a director. Additionally, it is our view that each director exhibits integrity and high ethical standards, as well as sound business judgment and acumen, which are valued and expected characteristics for our directors. Information about the number of shares of common stock beneficially owned by each director, directly and indirectly, appears above under the heading “Security“Security Ownership of Certain Beneficial Owners and Management.Management.”Nominees for Election for
Director Diversity
We aim to create and maintain a
TermBoard with a diversity of
One Year Expiringskills and attributes that is aligned with our current and anticipated strategic needs. We value diversity and believe that diversity among our directors’ personal and professional experiences, opinions, perspectives, and backgrounds is desirable. We seek to achieve diversity through our thoughtful selection of qualified candidates. Our candidates, as more fully described below, have experience in,
2020among other areas: leadership, technology, international operations and growth, and sales and marketing.
NOMINEES FOR ELECTION FOR A TERM OF ONE YEAR EXPIRING IN 2022
•Peter Gyenes,, 73, 75, has been a Directormember of Pegasystemsour Board of Directors since March 2009. He also serves on our Audit and Nominating and Corporate Governance Committees. Mr. Gyenes has over four decades of experience in global technical, sales, marketing, and general management positions within the software and computer systems industries. Since July 2015 he has served as theNon-Executive Chairman of Sophos plc, a global security software company. From September 2012 to July 2015 he served as Lead Independent Director of Sophos, and from May 2006 to September 2012 as aNon-Executive Chairman. He is an active investor and board member focusing on technology market opportunities. Mr. Gyenes also serves on the boards of RealPage, Inc., a provider ofweb-based property management software; Information Builders, Inc., a software, company specializing in business intelligence, data integration, and data quality solutions; and is a Trustee Emeritus of the Massachusetts Technology Leadership Council. Mr. Gyenes previously served on the boards of Sophos plc (until 2020), Information Builders, Inc. (until 2020), Carbonite (until 2019), IntraLinks, Inc. (until 2017), Epicor (until 2016), EnerNOC Inc. (until 2016), Appfluent Technologies (until 2015), and Cimpress NV (until 2015). He served as Chairman and CEO of Ascential Software, as well as of its predecessor companies VMark Software, Ardent Software, and Informix, and led its growth into the data
integration market leader from 1996 until it was acquired by IBM in 2005. Previously, Mr. Gyenes served as President and CEO of Racal InterLan, Inc., and in executive positions at Data General Corporation, Encore Computer Corporation, and Prime Computer, Inc. Earlier in his career, he held sales and technical positions at Xerox Data Systems and IBM. He is a graduate of Columbia University where he received both his B.A. in mathematics and his M.B.A. degree. Mr. Gyenes was awarded the 2005 New England Region Ernst & Young Entrepreneur of the Year award in Software. We believe Mr. Gyenes’ qualifications to serve on our Board of Directors include his decades of leadership roles for global technology companies, including his positions as a chief executive officer and director of publicly traded companies, as well as his proven ability to bridge strategy with operational excellence and his experience with mergers and acquisitions.
Ronald Hovsepian,57, has been a Director of Pegasystems since January 2019. Mr. Hovsepian was the Chief Executive Officer of Synchronoss Technologies, a telecommunications software and services company, in 2017. He is currently an Executive Partner at Flagship Pioneering, a private equity and venture capital firm that focuses on healthcare. Mr. Hovsepian was Chief Executive Officer of Intralinks until January 2017 and Chief Executive Officer of Novell until November 2011. Mr. Hovsepian currently sits on the boards of Skillsoft Corporation, a learning and performance support company; Ansys Corporation, a simulation software company; Cloud Technology Partners; and ECi Solutions, a technology and software company. Previously, Mr. Hovsepian was
Non-Executive• Chairman of women’s fashion retailer ANN Inc. until August 2015. Mr. Hovsepian holds a Bachelor of Science from Boston College. We believe Mr. Hovsepian’s qualifications to serve on our Board of Directors include his significant experience in business and technology companies, including his role as Chief Executive Officer and as a director of several public and private technology companies.Richard Jones, 67,69, joined Pegasystems in October 1999, serving as President and Chief Operating Officer until September 2002. Mr. Jones was a part-time employee of Pegasystems from July 2002 to July 2007. Mr. Jones was elected as a Directormember of Pegasystemsour Board of Directors in November 2000, and served as Vice Chairman from September 2002 to July 2007. In July 2011, he was elected a member of our Compensation Committee and of our Nominating and Corporate Governance Committee. Mr. Jones also serves on the Board of Directors of Western Oncolytics LLC, a private company which develops novel therapies for cancer. From 1995 to 1997, Mr. Jones served as a Chief Asset Management Executive and member of the Operating Committee at Barnett Banks, Inc., which at the time was among the nation’s 25 largest banks. HeFrom 1991 to 1995, he served as Chief Executive Officer of Fleet Investment Services, a brokerage and wealth management organization from 1991 to 1995.organization. His prior experience also includes serving as Executive Vice President with Fidelity Investments, an international provider of financial services and investment resources, and as a principal with the consulting firm of Booz, Allen & Hamilton. Since June 1995, Mr. Jones has served as Chairman of Jones Boys Ventures, a retailer. Mr. Jones also serves as a director of Buyers Access, LLC, a purchasing and cost control specialist for the housing market, as well as Colo5, LLC, an independent data center operator, and is currently a Trustee of Episcopal High School Foundation in Jacksonville, Florida. Mr. Jones holds an undergraduate degree from Duke University, with majors in both economics and management science. He also holds an M.B.A. degree from the Wharton School of the University of Pennsylvania. We believe Mr. Jones’ qualifications to serve on our Board of Directors include his two decades of executive management, his financial expertise and business acumen, and his experience gained while serving as Pegasystems’ President and Chief Operating Officer.
•Christopher Lafond, 53,55, has been a Directormember of Pegasystemsour Board of Directors since April 2019. In 2020, Mr. Lafond was elected as the Chair of our Audit Committee. Mr. Lafond currently serves as the Chief FinancialExecutive Officer and member of the board of Insurity, Inc., a role he has held since May 2017.August 2019. From November 2017 to August 2019, he served as Insurity’s Chief Financial Officer. From June 2015 to June 2017, Mr. Lafond served as the Executive Vice President and Chief Financial Officer of Intralinks Holdings, Inc. From October 1995 to June 2014, Mr. Lafond held a variety of roles at Gartner, Inc., incluingincluding as Executive Vice President and Chief Financial Officer from 2003 to 2014. Previously at Gartner, he served as Chief Financial Officer for Gartner’s North America and Latin America operations, Group Vice President and North American Controller, Director of Finance, Vice President of Finance and Assistant Controller. From August 2017 to January 2019, Mr. Lafond was a member of the board of Sirius Decisions Inc. Since March 2019, Mr. Lafond has served as a member of the Small Business Advisory Committee of the Financial Accounting Standards Board (“FASB”). Mr. Lafond holds a B.A. in Economics from the University of Connecticut and an M.B.A. degree from the Columbia University Graduate School of Business. Mr. Lafond’s qualifications to serve on our Board of Directors include
his extensive leadership experience and financial expertise, including positions as Chief Financial Officer and member of the board forof Insurity, Inc., and as Chief Financial Officer for several companies.
•Dianne Ledingham, 56,58, has been a Directormember of Pegasystemsour Board of Directors since September 2016. In January 2017, she was elected a member of the Compensation Committee and the Nominating and Corporate Governance Committee. Ms. Ledingham is a Senior Partner and Director in Bain & Company’s Boston office, and is a senior leader in Bain’s Customer Strategy & Marketing practice, and Bain’sthe firm’s Telecom, Media and Technology practice. DuringWith her nearly30-year30-plus year tenure at Bain, Ms. Ledingham has built extensiveis one of the firm’s most prominent leaders in commercial and sales effectivenessexcellence with experience across a range of industries and particular depth in addition to drivingend-to-end growth strategies for technology companies including software and IT services companies.software. In addition, Ms. Ledingham has had severalserved on each of Bain’s governance roles at Baincommittees including serving on Bain’s Board of Directors, (until 2015), serving six years on Bain’s Global Compensation and Promotion Committee, including as elected Chair. In 2015, Ms. Ledingham was elected toChair, and serving on Bain’s Global Nominating Committee, andas elected Chair. Additionally, Ms. Ledingham is currently serving as elected Chair. Ms. Ledingham is also a member ofon the Boardboard of City Year Boston, having previously servedand former Chair, as Board Chair, and is thewell as Treasurer on the Boardboard of Ventures for Hope. Ms. Ledingham holds a degree in electrical engineering with honors from Brown University and an M.B.A. degree with distinction from Harvard Business School. We believe Ms. Ledingham’s qualifications to serve on our Board of Directors include her significant business and marketing experience, including her experience as the founding global leader for Sales and Channel Effectiveness within Bain’s Customer Strategy and Marketing practice.James O’Halloran
•Sharon Rowlands, 86,62, has been a Director of Pegasystems since 1999. In November 2004, he was elected a member of our Audit and Nominating and Corporate Governance Committees, and in January 2017, he was elected Chair of our Audit Committee. In April 2005, he was elected a member of our Compensation Committee on which he served until January 2017. From June 1999 to August 2001, Mr. O’Halloran was the Senior Vice President, Chief Financial Officer, Treasurer, and Secretary of Pegasystems. From 1991 to 1999, he served as President of G & J Associates, Ltd., a financial consulting firm. From 1956 to 1990, he was with the international accounting firm of Arthur Andersen LLP, serving as an audit partner from 1967 until his retirement in 1990. From August 2002 to February 2004, Mr. O’Halloran served as President and Chief Operating Officer of FabTech Industries of Brevard, Inc., a certified supplier of precision components for the aerospace, defense, medical, fuel cell, and high-tech industries. From 2004 to 2016, Mr. O’Halloran served on the board of directors of Omtool Ltd., a software company. Mr. O’Halloran holds degrees in business administration and accounting from Boston College. We believe Mr. O’Halloran’s qualifications to serve on our Board of Directors include his extensive experience with public and financial accounting matters for global organizations, including his past service as Pegasystems’ Chief Financial Officer and as an audit partner for more than two decades with Arthur Andersen LLP.Sharon Rowlands, 60, has been a Director of Pegasystems since April 2016. In January 2017, she was elected a member of the Nominating and Corporate Governance Committee and as the Chair of our Compensation Committee. Ms. Rowlands currently serves as President and Chief Executive Officer of Web.com Group, Inc., a marketing solutions company, sincecompany. From November 2017 to January 2019 andshe served as President of USA Today Network Marketing Solutions at Gannett Co. since November 2017. Previously,From 2014 to 2018, Ms. Rowlands served as the Chief Executive Officer and member of the board of ReachLocal, Inc., an Internet-based advertising and marketing company which specialized in search engine marketing, marketing analytics, and display advertising, beginning in 2014.advertising. Ms. Rowlands has more than 20 years of experience serving small to enterprise level businesses in leadership roles. Ms. Rowlands currently serves as an advisor on the board of Sonihull, a company that provides ultrasonic anti-fouling solutions. From 2011 to 2013, she was the Chief Executive Officer and member of the board of Altegrity, Inc., which provides security and risk management solutions to government and commercial clients. From 2008 to 2011, Ms. Rowlands was the Chief Executive Officer of Penton Media, Inc., abusiness-to-business information provider producing more than 110 magazines and associated websites, and about 60 industry events. From 1997 to 2008, Ms. Rowlands held a variety of roles including Chief Executive Officer from 2005 to 2008, at Thomson Financial Inc., a provider of market and securities data and other financial services for brokerages, investment bankers, traders, and other investment professionals. From 2015 to 2018, Ms. Rowlands currently servesserved on the Board of Directors of The Glimpse Group, a virtual and augmented reality software company, as well as the Local Search
Association, anot-for-profit industry association of media companies and technology providers, andproviders. From 2010 to 2016, she served on the board of ReachLocal, Inc. Additionally,From 2010 to 2014, Ms. Rowlands previously served on the board of Constant Contact, Inc. (until 2014).From 2008 to 2011, she served on the board of Automatic Data Processing, Inc. Ms. Rowlands holds a B.A. in History from the University of Newcastle, Newcastle-Upon-Tyne and a Postgraduate Certificate in Education from Goldsmiths, University of London. We believe Ms. Rowland’s qualifications to serve on our Board of Directors include her extensive leadership experience, including positions as Chief Executive Officer and member of the board for ReachLocal, Inc., and as a director for several public and private companies.
•Alan Trefler, 62,65, a founder of Pegasystems, has served as Chief Executive Officer and Chairman of the Board of Directors since Pegasystems was organized in 1983. Prior to 1983, he managed an electronic funds transfer product for TMI Systems Corporation, a software and services company. Mr. Trefler holds a B.A. degree in economics and computer science from Dartmouth College. We believe Mr. Trefler’s qualifications to serve on our Board of Directors include his extensive experience in the software industry, including as our founder, Chief Executive Officer, and Chairman of our Board of Directors since our inception in 1983.
•Larry Weber, 63,65, has been a Directormember of Pegasystemsour Board of Directors since August 2012. In May 2013, he was elected a member of our Compensation and Nominating and Corporate Governance Committees, and in January 2015, he was elected Chair of our Nominating and Corporate Governance Committee. Mr. Weber has served as the Chief Executive Officer and Chairman of the Board of Racepoint Global, Inc., a digital marketing services ecosystem of marketing service companies organized to help chief marketing officers in their role as builders of communities and content aggregators, since he founded the company in September 2004. UntilFrom 2017 to 2018, Mr. Weber served on the board as well as the Nominating and Corporate Governance Committee of RMG Networks Holding Corporation, a digital signage provider for most of the Fortune 100 companies. From 2011 to 2013, Mr. Weber also served on the board of Avectra, a provider ofweb-based association management software (AMS) and social CRM software. In 2001, Mr. Weber founded Weber Shandwick, one of the largest public relations agencies in the world. Mr. Weber is also aco-Founder and Chairman of the Board of the Massachusetts Innovation & Technology Exchange (MITX), one of the largest interactive advocacy organizations in the world. Mr. Weber has authored four books:Marketing to the Social Web: How Digital Customer Communities Build Your Business; Everywhere: Comprehensive Digital Business Strategy for the Social Media Era; Sticks and Stones: How Digital Business Reputations are Built Over Time and Lost in a Click; andThe Provocateur: How a New Generation of Leaders are Building Communities, Not Just Companies. Mr. Weber holds a B.A. in English from Denison University, Ohio and a M.F.A. in Writing and Literature from Antioch College, Oxford. We believe Mr. Weber’s qualifications to serve on our Board of Directors include his extensive experience in the global marketing and public relations industry, including positions as founder and Chairman of the Board for Racepoint Global, Inc., and as a director for several companies.
Directors Not Standing for Re-election
•Ronald Hovsepian,60, has been a member of our Board of Directors since January 2019. Mr. Hovsepian has served as a member of our Nominating and Corporate Governance Committee since June 2019 and was elected a member of our Audit Committee in 2020. Mr. Hovsepian currently serves as the Chief Executive Officer of Indigo Ag, an agricultural technology company. Mr. Hovsepian also serves as an Executive Partner at Flagship Pioneering, a private equity and venture capital firm that focuses on healthcare. He was the Chief Executive Officer of Synchronoss Technologies, a telecommunications software and services company, in 2017. From December 2012 to January 2017, Mr. Hovsepian was also Chief Executive Officer of Intralinks. From 2006 to 2011, he served as Chief Executive Officer of Novell. Mr. Hovsepian currently sits on the boards of Skillsoft Corporation, a learning and performance support company; and Ansys Corporation, a simulation software company. From 1998 to 2015, Mr. Hovsepian was Non-Executive Chairman of women’s fashion retailer ANN Inc. From 2015 to 2019, he was also a board member of Cloud Technology Partners. Mr. Hovsepian holds a Bachelor of Science from Boston College. We believe Mr. Hovsepian’s qualifications to serve on our Board of Directors include his significant experience in business and technology companies, including his role as Chief Executive Officer and as a director of several public and private technology companies.
CORPORATE GOVERNANCE
General
GENERAL
We believe that good corporate governance is important to ensure that Pegasystems is managed for the long-term benefit of its
stockholders,shareholders, and we are committed to maintaining sound corporate governance principles. During the past year, we continued to review our corporate governance policies and practices and to compare them to those suggested by various authorities in corporate governance and the practices of other public companies. We have also continued to review the provisions of the Sarbanes-Oxley Act of 2002, the existing and proposed rules of the SEC, and the listing standards of Nasdaq.
We have adopted policies and procedures that we believe are in the best interests of Pegasystems and our
stockholders.shareholders. In particular, we have the following policies and procedures:
| • | | Declassified Board of Directors.We have a declassified Board of Directors and our Amended and Restated Bylaws provide forone-year terms for our directors. All nominees will stand for election orre-election toone-year terms at this Annual Meeting.
|
| • | | Majority Voting for Election of Directors.Our Amended and Restated Bylaws provide for a majority voting standard in Director elections, so a nominee is elected to the Board of Directors if they receive a majority of the votes entitled to be cast in an election of directors by all issued and outstanding shares of common stock.
|
| • | | No Hedging Policy.Pursuant to our Insider Trading Policy we prohibit all hedging transactions or short sales involving Pegasystems securities by our directors and employees, including our executive officers.
|
•Declassified Board of Directors. We have a declassified Board of Directors and our Amended and Restated Bylaws provide for one-year terms for our directors. All nominees will stand for election or re-election to one-year terms at this Annual Meeting.
•Majority Voting for Election of Directors. Our Amended and Restated Bylaws provide for a majority voting standard in director elections, so a nominee is elected to the Board of Directors if they receive a majority of the votes entitled to be cast in an election of directors by all issued and outstanding shares of common stock.
•No Hedging Policy. Pursuant to our Insider Trading Policy, we prohibit all hedging transactions or short sales involving Pegasystems securities by our directors and employees, including our executive officers.
The Board of Directors has approved Corporate Governance Guidelines which provide a framework for corporate governance. These guidelines outline the qualifications required for Board members, the composition and structure of the Board, and the role and responsibilities of the Board. They also detail the various committees of the Board, as well as their structure and purpose. The guidelines address evaluating Board, committee, director and officer performance, establishing executive management talent succession plans, and reviewing pledged or margined shares of the Company’s common stock by executive officers and directors. The Board also implemented stock ownership guidelines for officers and directors.
We have a written Code of Conduct that applies to our Board of Directors and all
of our employees, including our principal executive officer, principal financial officer, and principal accounting officer, and to persons performing similar functions.
You can access the current charters for our Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee, our Corporate Governance Guidelines, and our Code of Conduct in the “Governance” section of our website at
www.pega.com or by contacting:
Pegasystems Inc.
One Rogers Street
Cambridge, MA 02142-1209
Attention: Vice President, Chief Commercial Officer, General Counsel, and Secretary
Phone:
Telephone: (617)374-9600
Determination of Independence
DETERMINATION OF INDEPENDENCE
A majority of our directors must be “independent directors” as defined by Nasdaq Rule 5605(a)(2). Our Board of Directors has determined that each of ournon-employee directors qualifies as an “independent director”
because none of them is an executive officer or employee or an individual who has a relationship which, in the opinion of our Board of Directors, would interfere with the exercise of their independent judgment in carrying out the responsibilities of a director. Therefore, our Board of Directors has determined that each of these directors (Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Larry Weber, and Ronald Hovsepian) is an “independent director” as defined under Nasdaq Rule 5605(a)(2). There were no other transactions, relationships, or arrangements not disclosed in this proxy statement that were relevant to the independence of the persons serving as members of our Board of Directors in 2018.
Board Leadership Structure and Risk Oversight
2020.
BOARD LEADERSHIP STRUCTURE AND RISK OVERSIGHT
The Board of Directors has responsibility for establishing broad corporate policies and reviewing our overall performance, rather than directing
day-to-day operations. The Board’s primary responsibility is to oversee the management of Pegasystems and, in so doing, serve the best interests of Pegasystems and its
stockholders.shareholders. The Board selects, evaluates, and provides for the succession of executive officers and, subject to
stockholdershareholder election each year at our annual meeting, directors. It reviews and approves corporate objectives and strategies, and evaluates significant policies and proposed major commitments of corporate resources. It participates in decisions that have a potential major economic impact on us. Management keeps the Board informed of Company activity through regular written reports and presentations at Board and committee meetings.
As part of our corporate governance process, our Board of Directors,
along with our Audit Committee, oversees the risk management process for Pegasystems, which provides further checks and balances to our leadership structure.
In 2018, theThe Board
has vested its oversight of corporate governance to the
newly expanded Nominating and Corporate Governance Committee. The Board receives reports from members of senior management on the functional areas for which they are responsible. Such reports may include operational, financial, sales, competitive, legal and regulatory, compliance, strategic and other risks, as well as any related management and mitigation.
Our Chief Information Security Officer (“CISO”) periodically meets with the Board to inform and update them on our cybersecurity program. In addition, as part of its core functions, the Audit Committee reviews our internal audit, business, and financial controls in collaboration with our senior management, including our Chief Compliance Officer and our Senior Director of Internal
Audit.Audit, and also receives periodic reports from our CISO.
Since our inception in 1983, Mr. Trefler, our founder, has served as Chairman of our Board of Directors and as our Chief Executive Officer. We believe our leadership structure, which is often adopted by other public companies in the United States, has been effective for us, as evidenced by our solid performance and continued growth. We believe a combined Chairman and Chief Executive Officer, along with independent Board committees and a largely independent Board, provides balanced leadership for the Company. We do not have a lead independent director.
In his dual capacity as both Chairman and Chief Executive Officer, Mr. Trefler provides a strong vision and voice for leading and representing Pegasystems to others, which provides cohesive management and reduces risk of confusion or redundant undertakings or messages. Mr. Trefler effectively serves as a bridge between our Board of Directors and the Company. As our founder, Mr. Trefler has guided us during more than three decades of growth. As such, he is most familiar with our operations and best suited to lead it into the future.
Director Candidates
DIRECTOR CANDIDATES
Our
stockholdersshareholders may recommend candidates to the Board of Directors for inclusion in the slate of nominees which the Board recommends to our
stockholdersshareholders for election. The qualifications of recommended candidates will be reviewed by our Nominating and Corporate Governance Committee. If the Board determines to nominate a
stockholder-recommendedshareholder-recommended candidate and recommends his or her election as a
Directordirector by the
stockholders,shareholders, the name will be included in our proxy card for the
stockholdersshareholders meeting at which his or her election is recommended.
Stockholders
Shareholders may recommend individuals for the Nominating and Corporate Governance Committee to consider as potential Directordirector candidates by submitting their names and background to the “Pegasystems Inc. Nominating and Corporate Governance Committee” c/o Pegasystems Inc., One Rogers Street, Cambridge,
MA 02142-1209, Attention: Secretary. The Nominating and Corporate Governance Committee will consider a recommendation only if appropriate biographical information and background material is provided on a timely basis. The process followed by the Nominating and Corporate Governance Committee to identify and evaluate candidates includes requests to our directors and others for recommendations, meetings from time to time to evaluate biographical information and background material relating to potential candidates and interviews of selected candidates by members of the Nominating and Corporate Governance Committee and the Board. Assuming that appropriate biographical and background material is provided for candidates recommended by stockholders,shareholders, the Nominating and Corporate Governance Committee will evaluate those candidates, by following substantially the same process, and applying the same criteria, as for new candidates submitted by our directors.
In considering whether to recommend any candidate for inclusion in the Board’s slate of recommended
Directordirector nominees, including candidates recommended by
stockholders,shareholders, the Nominating and Corporate Governance Committee will apply the criteria appended to the Nominating and Corporate Governance Committee’s charter. These criteria include the candidate’s integrity, business acumen, experience, commitment, diligence, conflicts of interest, and ability to act in the interest of all
stockholders. Although we do not have a formal policy regarding diversity, theshareholders. The value of diversity is also considered, and the Nominating and Corporate Governance Committee charter specifically dictates that nominees shall not be discriminated against on the basis of race, religion, national origin, sex, sexual orientation, disability, or any other basis proscribed by law. The Nominating and Corporate Governance Committee considers diversity in the broadest sense, encompassing also director experience, professions, skills, and background.
The Nominating and Corporate Governance Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees. We believe that the backgrounds and qualifications of the directors, considered as a group, should provide a significant composite mix of experience, knowledge, and abilities that will allow the Board to fulfill its responsibilities. More specific information regarding each director nominee’s qualifications can be found in the preceding “Election of Directors” section of this proxy statement. No director candidate was recommended to us by any beneficial owner
or group of beneficial owners of more than 5% of our common stock.
Stockholders
Shareholders also have the right to directly nominate director candidates, without any action or recommendation on the part of the Nominating and Corporate Governance Committee. Our Amended and Restated Bylaws specify the requirements relating to the timing and the content of the notice that
stockholdersshareholders must provide to the Secretary for a director nomination to be properly presented at a
stockholdershareholder meeting. See the section entitled “Information about the Annual Meeting and Voting — How and when may I submit a
stockholdershareholder proposal for the
20202022 Annual Meeting?” above.
Communications from Stockholders and Other Interested Parties to the Board
COMMUNICATIONS FROM SHAREHOLDERS AND OTHER INTERESTED PARTIES TO THE BOARD
The Board of Directors will give appropriate attention to written communications on issues that are submitted by
stockholdersshareholders and other interested parties, and will respond if and as appropriate. Absent unusual circumstances or as contemplated by committee charters, the Chairman of the Board of Directors will, with the assistance of our Secretary, (1) be primarily responsible for monitoring communications from
stockholdersshareholders and other interested parties, and (2) provide copies or summaries of such communications to the other directors as he considers appropriate.
Communications can be addressed to the full Board of Directors or individual directors. Communications will be forwarded to all directors if they relate to substantive matters and include suggestions or comments that the Chairman of the Board of Directors considers to be important for the directors to know. In general, communications relating to corporate governance and long-term corporate strategy are more likely to be forwarded than communications relating to personal grievances and matters as to which we receive repetitive or duplicative communications.
StockholdersShareholders and other interested parties who wish to send communications on any topic to the Board of Directors should address such communications to:
Chairman of the Board of Directors
c/o Pegasystems Inc.
One Rogers Street
Cambridge, MA 02142-1209
Attention: Vice President, Chief Commercial Officer, General Counsel, and Secretary
Board Meetings
BOARD MEETINGS
The Board of Directors met
fiveseven times in
2018.2020. During
2018,2020, each of our directors attended at least 75% of the total number of meetings of the Board of Directors and meetings of the committees of which such director was a member. Executive sessions of
non-employee directors are held periodically each year, generally in conjunction with regularly scheduled meetings of the full Board. Any
non-employee director can request that an additional executive session be scheduled.
Directors are encouraged to attend annual meetings of
stockholders,shareholders, but we have no formal policy requiring such attendance. All then-current directors attended the
20182020 Annual Meeting of
Stockholders.Board Committees
Shareholders.
BOARD COMMITTEES
The Board of Directors has standing Audit, Compensation, and Nominating and Corporate Governance Committees. Each committee has a charter that has been approved by the Board. Copies of the charters are posted in the “Governance” section of our website at www.pega.com. Each committee reviews the appropriateness of its charter and performs a self-evaluation periodically. All members of the committees are
non-employee directors. Mr. Trefler is the only director who is an employee and, as such, is not a member of any of the committees. The Board of Directors has determined that all members of the three standing committees are “independent directors” as defined under Nasdaq Rule 5605(a)(2), and, in the case of the Audit Committee, as further defined under Nasdaq Rule 5605(c)(2), and, in the case of the Compensation Committee, as further defined under Nasdaq Rule 5605(d)(2). The Board of Directors establishes special committees of limited duration to deal with issues not squarely within its purview from time to time. Membership on each standing committee
in 2018 is reflected on the chart below.
| | | | | | | | | | | | | | | | | |
| | Audit | Audit
Committee | Compensation | | Compensation
Committee | | | Nominating and
Corporate Governance
Committee | |
Alan Trefler | | | | | | | | | | | | |
Peter Gyenes | | | X | | | | | | | | X | |
Richard Jones
Ronald Hovsepian | X | | | | X |
| Richard Jones | | | X | | | | X | |
Steven Kaplan (1)
Christopher Lafond | | | X | | (C) | | | | X |
| Dianne Ledingham |
| | X | | X |
Dianne Ledingham
| Sharon Rowlands | | | X(C) | | | X | | | | X | |
James O’Halloran
| | | X | (C) | Larry Weber | | | | | | X | |
Sharon Rowlands
| | | | | | | X | (C) | | | X | |
Larry Weber
| | | X | | | | X | | | | X | (C) |
William Wyman (1)
| | | X | | | | | | | | X | |
(1) | Both Steven Kaplan and William Wyman served on the above listed committees until June 28, 2018, as they did not stand for reelection.
|
(C) | Denotes Committee Chair.
|
(C) Denotes Committee Chair.
We have a standing Audit Committee of the Board of Directors. The Audit Committee assists the Board’s oversight of the integrity of our financial statements, the qualifications and independence of our independent registered public accounting firm, and the performance of our internal audit function and independent registered public accounting firm.firm, and risk assessment and risk management. The Audit Committee has the authority to engage any independent legal, accounting, or other advisors that it deems necessary or appropriate to carry out its responsibilities. The Audit Committee was responsible for selecting and appointing Deloitte & Touche LLP, our independent registered public accounting firm. The Board of Directors has determined that Mr. O’HalloranLafond, an independent director, qualifies as an “audit committee financial expert” within the meaning of Item 407(d)(5)(ii) under RegulationS-K. The Audit Committee oversees our corporate accounting and financial reporting process and risk management. Among other matters it is responsible for determining the engagement of the independent accounting firm; overseeing the process for monitoring auditor independence; overseeing the implementation of new accounting standards; and reviewing non-GAAP financial measures and related disclosures. The responsibilities of our Audit Committee and its activities during 20182020 are further described in the “Report“Report of the Audit Committee”Committee” contained below. Our Audit Committee held sixfour meetings during 2018.2020.
We have a standing Compensation Committee of the Board of Directors. The Compensation Committee evaluates and sets the compensation of our Chief Executive Officer and approves the salaries and bonuses of our other executive officers. The Compensation Committee also approves equity grants, within the guidelines established by our Board of Directors, to our named executive officers and other employees. The responsibilities of our Compensation Committee and its activities during
20182020 are further described in the “Compensation Discussion and Analysis” and the “Compensation Committee Report,” each of which is contained below. Our Compensation Committee held six meetings during
2018.2020.
Nominating and Corporate Governance Committee
We have a standing Nominating and Corporate Governance Committee of the Board of Directors.
In 2018, the Board expanded the purview of theThe Nominating
and Corporate Governance Committee
to include governance, vesting it with oversight of ouroversees corporate governance,
in addition to theincluding our Corporate Governance Guidelines and identification of qualified individuals as needed to recommend to the Board to be nominated for election as directors at the annual meeting of
stockholders.shareholders. The Nominating and Corporate Governance Committee is authorized to retain any such advisors or consultants it deems necessary or appropriate to carry out its responsibilities. For information relating to nominations of directors by our
stockholders,shareholders, see “Director Candidates” above. Our Nominating and Corporate Governance Committee held
foursix meetings in
2018.2020.
CORPORATE RESPONSIBILITY AND SUSTAINABILITY
Corporate Responsibility and Sustainability
Pegasystems has
We continue to focus on improving the social, economic, and environmental impacts of our business and building off the success of our Environmental, Social, and Governance (“ESG”) committee, comprised of senior leaders across various functions and geographies, formed in 2019. While Corporate Governance is discussed elsewhere in the proxy, this section will highlight our Sustainability, Human Capital, and Information Security initiatives. More information on our ESG initiatives can be found at: https://www.pega.com/corporate-social-responsibility, which is included as an inactive reference and the content of which is not incorporated by reference into this proxy statement.
| | | | | | | | |
Environmental | Social | Governance |
| We are committed to reducing the environmental impact of our operations on air, land, and water | We strive to be a responsible corporate citizen and active contributor in communities where our employees, partners, and clients work | We believe that corporate governance is important to ensure that Pegasystems is managed for the long-term benefit of all our stakeholders |
Pega Values
| | | | | | | | |
Innovative: We are visionaries, challenging ourselves and the status quo to better transform our clients’ organizations for their customers. | | Engaging: We actively listen and continuously learn. We are collaborative thought leaders focused on bringing ONE PEGA to our clients. |
Inclusive: We are capable of achieving more together. We encourage diverse thinking and collaboration for better outcomes for all. | | Genuine: Integrity and authenticity are central to our work. The trust of our clients and the communities around us make us who we are. |
Passionate: We love what we do for our clients. And it shows! | | Adaptable: Business and technology are constantly changing. So in everything we do, we Build for Change®. |
Environmental Sustainability
We have taken steps to reduce
itsour impact on the environment while empowering our employees to make a real difference.
OurIn addition to launching ‘green teams’ to engage our employees in sustainability practices globally, our sustainability initiatives include recycling programs; alternative transportation programs, including
offering incentives
to employees who takefor taking public transportation,
bike,biking, or
walkwalking to
work; launching awareness campaigns regarding wellness and nutrition; and utilizing energy saving technologies in our locations.work. Our
corporate headquarters
in Cambridge, Massachusettsbuilding has received
LEEDLeadership in Energy and Environmental Design (“LEED”) Gold certification and
some of our other
major offices are located in buildings
that have receivedwith similar certifications.
We adopted a Supplier Code of Conduct, in which, we expect our suppliers to adopt policies and practices to reduce environmental impact, and to follow all applicable environmental laws, regulations and standards.
Empowering our People
Our Chief People Officer meets regularly with our Board to drive a people first culture. We have created multiple programs to empower and support our employees and our communities, including:
Global Inclusion & Diversity. “Inclusive” is one of our Pega Values. A truly inclusive culture activates a wellspring of creativity; and, in an increasingly competitive global market, inclusivity is, now more than ever, critical to success. We train both managers and individual contributors on our culture and values, including inclusivity. We have formed employee resource groups with a focus on recruitment and retention, career advancement, and social impact. We currently have five resource groups, Women@pega, Pride@pega, Black@pega, Veterans@pega, and Asian@pega, with plans to launch two additional resource groups over 2021.
Employee Development. Employee development underpins our efforts to execute our strategy and continue to create and sell innovative products and services. We continually invest in our employees’ career growth and provide employees with a wide range of development opportunities, including formal and informal learning, mentoring, and coaching.To support our current and future leaders’ development, we currently offer five programs addressing the development of people managers and leaders in a cohort format comprised of all functions and geographies. We also provide educational resources and classes, career training, and education reimbursement programs. In 2020, more than 90% of our employees participated in a formal education program.
PegaUp! Total Well-Being. We are committed to creating an environment that supports our employees’ health and overall well-being, focusing on physical, emotional, financial, and personal wellness. PegaUp! includes such programs as awareness campaigns, fitness classes, guided meditation, and health, wellness, and financial seminars. An important part of well-being is feeling heard. In 2020, in addition to our annual employee survey and continuous feedback tool, we hosted regular check-in chats with our leadership team to directly address employee questions.
PegaCares. We strive to be a responsible corporate citizen and active contributor in the communities where our employees, clients, and partners live and work. We support a variety of local and global nonprofit organizations that align with our focus areas of women & girls in technology, education and youth development, and environmental sustainability. In 2020, Pegasystems and our employees donated over $1,000,000 to charity. We provide opportunities for our employees to regularly give back, including paid time off to volunteer.
Information Security
Information has become one of the most valuable assets of modern businesses and protecting it, in an ever-changing threat landscape, requires a multi-tiered approach. Weconduct independent annual red team penetration tests, as well as independent purple team exercises that aim to improve our ability to detect, deter, and defend against threats. Pega Platform is regularly subjected to internal and independent penetration tests as well as source code reviews. Pega Cloud has obtained ISO 27001, PCI-DSS, FedRamp, Australian IRAP, UK Cyber Essentials, CSA Cloud Security Alliance, and Hébergeurs de Données de Santé (HDS) certifications. We have selected ISO 27001/27002 as our corporate trust anchor, and, to manage cyber risk, we have adopted the ISO 3100 risk management framework. The full list of our certifications and attestations may be found on the Pegasystems trust center (https://www.pega.com/trust).
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as described below, during 2018
During 2020 there were no transactions involving more than $120,000, nor are any proposed, between Pegasystems and any executive officer, director, beneficial owner of 5% or more of our common stock or equivalents, or any immediate family member of any of the foregoing, in which any such persons or entities had or will have a direct or indirect material interest. Leon Trefler, the brother of our Chairman and Chief Executive Officer, Alan Trefler, serves as our Senior Vice President, Global CustomerClient Success.
Our Board of Directors adopted a Related Person Transaction Policy, which can be found on the “Governance” section of our website at www.pega.com. The policy mandates that we enter into or ratify a related person transaction only when our Board of Directors, or a committee thereof, acting in accordance with the policy, determines that the transaction is either in, or is not inconsistent with, the best interest of Pegasystems and its stockholders.shareholders. A “related person transaction” for these purposes is defined in the policy to include any transaction or relationship (involving an amount expected to exceed $120,000) between Pegasystems and an individual or entity defined as a “related person” in the policy. Approval or ratification of a related person transaction may be conditioned by the Board of Directors, or committee thereof, directing the related person or Pegasystems to take certain actions to narrow the scope of the relationship, such as: requiring the related person to resign from, or change position within an entity involved in the related person transaction; assuring that the related person not be directly involved in negotiating the terms of the related person transaction; limiting the duration or magnitude of the related person transaction; or requiring that information about the related person transaction be documented and delivered to the Board of Directors or committee on an ongoing process.
basis.Non-employee directors are paid an annual cash retainer of
$55,000$50,000 and receive an annual equity grant valued at
$125,000, typically issued on the date of our annual meeting of stockholders,$200,000, or the Annual Equity Grant. The Annual Equity Grant is granted in the form of
RSUs, with twenty-fivefifty percent
vesting on the date of the annual meeting of stockholderscommon stock and
an additional twenty-fivefifty percent
vesting each quarter thereafter.stock options, which are both fully vested when granted.
Additionally, we pay an annual cash retainer
(paid in quarterly installments) to
non-employee directors serving on the Audit and Compensation Committees:
$10,000$15,000 to each Audit Committee member;
$20,000$27,000 to the Audit Committee Chair;
$6,000$10,000 to each Compensation Committee member; and
$8,000$20,000 to the Compensation Committee Chair. Directors do not receive compensation for service on the Nominating and Corporate Governance Committee.
The annual cash retainer and committee retainer payments are payable in full on the date of grant, with such retainers to cover the period from each annual meeting of shareholders to the following year’s annual meeting.
In addition to the above, we also offer to reimburse
non-employee directors for expenses incurred in attending Board, committee or other Company meetings. Alan Trefler is our only director who is also an employee. He receives no compensation for his service as a director.
Non-Employee Director Compensation
The following table provides the total compensation earned by each
non-employee director in
2018.2020:
| | | | | | | | | | | | | | | | | | | | |
| Fees Earned or Paid in Cash | | Stock Awards (1) | | Total |
| Peter Gyenes | $ | 65,000 | | (2) | | $ | 200,000 | | | $ | 265,000 | |
| Ronald Hovsepian | $ | 65,000 | | (2) | | $ | 200,000 | | | $ | 265,000 | |
| Richard Jones | $ | 60,000 | | (3) | | $ | 200,000 | | | $ | 260,000 | |
| Christopher Lafond | $ | 77,000 | | (4) | | $ | 200,000 | | | $ | 277,000 | |
| Dianne Ledingham | $ | 60,000 | | (3) | | $ | 200,000 | | | $ | 260,000 | |
| Sharon Rowlands | $ | 70,000 | | (5) | | $ | 200,000 | | | $ | 270,000 | |
| Larry Weber | $ | 60,000 | | (3) | | $ | 200,000 | | | $ | 260,000 | |
(1) These amounts reflect the dollar amount of the aggregate grant date fair value of awards granted in 2020, in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 718.
(2) Consists of Board retainer fees of $50,000 and committee retainer fees of $15,000.
(3) Consists of Board retainer fees of $50,000 and committee retainer fees of $10,000.
(4) Consists of Board retainer fees of $50,000 and committee retainer fees of $27,000.
(5) Consists of Board retainer fees of $50,000 and committee retainer fees of $20,000.
Non-Employee
Director Compensation Table | | | | | | | | | | | | |
| | | Fees
Earned or
Paid in
Cash | | | Stock
Awards(1) | | | Total | |
Peter Gyenes | | $ | 65,000 | (2) | | $ | 125,000 | | | $ | 190,000 | |
Richard Jones | | $ | 61,000 | (3) | | $ | 125,000 | | | $ | 186,000 | |
Steven Kaplan | | $ | 5,000 | (4) | | $ | — | | | $ | 5,000 | |
Dianne Ledingham | | $ | 61,000 | (3) | | $ | 125,000 | | | $ | 186,000 | |
James O’Halloran | | $ | 75,000 | (5) | | $ | 125,000 | | | $ | 200,000 | |
Sharon Rowlands | | $ | 63,000 | (6) | | $ | 125,000 | | | $ | 188,000 | |
Larry Weber | | $ | 66,000 | (7) | | $ | 125,000 | | | $ | 191,000 | |
William Wyman | | $ | 5,000 | (4) | | $ | — | | | $ | 5,000 | |
(1) | These amounts reflect the dollar amount of the aggregate grant date fair value of awards granted in 2018, in accordance with Financial Accounting Standards Board Accounting Standards Codification (FASB ASC) Topic 718. As of December 31, 2018, eachnon-employee director, with the exception of Messrs. Kaplan and Wyman, held 570 unvested RSUs from the June 2018 Board of Directors award.
|
(2) | Consists of Board retainer fees of $55,000 and committee retainer fees of $10,000.
|
(3) | Consists of Board retainer fees of $55,000 and committee retainer fees of $6,000.
|
(4) | Messrs. Kaplan and Wyman did not stand forre-election in June 2018. Amount consists of committee retainer fees of $5,000 for committee membership through the end of their directorship.
|
(5) | Consists of Board retainer fees of $55,000 and committee retainer fees of $20,000.
|
(6) | Consists of Board retainer fees of $55,000 and committee retainer fees of $8,000.
|
(7) | Consists of Board retainer fees of $55,000 and committee retainer fees of $11,000.
|
PROPOSAL 2 – ADVISORY VOTE ON EXECUTIVE COMPENSATION
We
are includinginclude in this proxy statement a
non-binding, advisory vote on the compensation of our named executive officers in compliance with the Dodd-Frank Wall Street Reform and Consumer Protection Act
or the Dodd-Frank Act.(the “Dodd-Frank Act”).
As described in the “Compensation“Compensation Discussion and Analysis”Analysis” section of this proxy statement, as well as in the tables set forth in the “Executive Compensation”“Executive Compensation” and the “Compensation“Compensation Practices Risk Assessment”Assessment” sections, we seek to align the interests of our named executive officers with our stockholders.shareholders. Our named executive officers, and most of our other employees, are also stockholdersshareholders or hold RSUs or options. Our compensation programs contain elements of fixed and variable compensation and are designed to reward our executive officers for achieving short-term and long-term corporate goals while avoiding the encouragement of excessive risk taking.risk-taking. Thisnon-binding advisory vote is intended to address the overall compensation of our named executive officers and our executive compensation program rather than any specific elements. Although this vote is advisory in nature and, as such, will not be binding, our Board of Directors and our Compensation Committee will consider the outcome of the vote in evaluating its executive compensation program. Therefore, we are asking our
stockholdersshareholders to vote on the following resolution at the Annual Meeting:
“RESOLVED, that the stockholdersshareholders of the Company approve, by anon-binding advisory vote, the compensation of the Company’s named executive officers, as described in this proxy statement, including in the ‘Compensation‘Compensation Discussion and Analysis,’ compensation tables, and narrative discussion included therein.” The Board of Directors recommends that you vote FOR the approval of the compensation of our named executive officers, as described in this proxy statement, and proxies solicited by the Board of Directors will be voted in favor thereof unless a stockholdershareholder has indicated otherwise on the proxy.
COMPENSATION DISCUSSION AND ANALYSIS
Executive Summary
EXECUTIVE SUMMARY
This “Compensation“Compensation Discussion and Analysis”Analysis” section describes the material elements of our compensation programs for our named executive officers, comprised of our principal executive officer, our principal financial officer, and the three executive officers who were our next most highly compensated executive officers during 2018.2020. All of the named executive officers, listed below, held their positions as of December 31, 2018.2020. •Alan Trefler, our Chairman of the Board of Directors and Chief Executive Officer (principal executive officer);
•Kenneth Stillwell, our Chief Administrative Officer, Chief Financial Officer, and Senior Vice President (principal financial officer);
•Douglas Kra, our Senior Vice President, Global CustomerClient Success;
Michael Pyle,•Hayden Stafford, our Senior Vice President Engineering;of Global Client Engagement; and
•Leon Trefler, our Senior Vice President, Global CustomerClient Success.
This section also provides an overview of our executive compensation philosophy and analyzes how and why the Compensation Committee of our Board of Directors
or the Compensation Committee,(the “Compensation Committee”) arrives at specific compensation decisions and policies.
Our executive compensation is designed to reward performance by our executives and to align the interests of our executives with our
stockholders.shareholders. For
2018,2020, our executive compensation program included the following elements of fixed and variable compensation:
•annual bonus tied to the achievement of corporate goals under our Corporate Incentive Compensation Plan or the CICP;
(“CICP”);•additional individual incentive compensationcash incentives tied to the achievement of individual, business unit, and/or corporate goals by our executive officers, the attainment of which supports our achievement of our corporate goals;
•equity awards comprised of both stock options and RSUs that vest over time; and
The Board of Directors and the Compensation Committee believe that our performance-based executive compensation program effectively correlates pay with performance, and, in doing so, aligns the interests of our
stockholdersshareholders and executives. The program ties significant variable compensation, such as annual bonus opportunities, as well as equity awards, with our achievement of our corporate goals. By linking executive compensation with corporate performance, our executive compensation program promotes
stockholdershareholder value and our continued growth and success.
Advisory Vote
Information About Our Executive Officers
The names of our executive officers and certain information about them are set forth below as of April 1, 2021:
Alan Trefler, age 65, founder of Pegasystems, has served as Chief Executive Officer and Chairman of the Board of Directors since the Company was organized in 1983. Prior to 1983, he managed an electronic funds transfer product for TMI Systems Corporation, a software and services company. Mr. Trefler holds a B.A. degree in economics and computer science from Dartmouth College.
Kenneth Stillwell, age 50, joined Pegasystems in July 2016 as Senior Vice President, Chief Financial Officer, and Chief Administrative Officer. In April 2021, Mr. Stillwell was promoted to Chief Operating Officer in addition to his role as Chief Financial Officer. Mr. Stillwell previously served as Senior Vice President and Chief Financial Officer of Dynatrace, a leader in digital performance management solutions and Executive Vice President and Chief Financial Officer of SOVOS, a financial compliance SaaS provider. Prior to SOVOS, Mr. Stillwell was at PTC, a publicly-traded software provider, where he served as Division CFO. Mr. Stillwell holds a B.S. in business/economics from the University of Pittsburgh and an M.S. in accounting and finance from the University of South Carolina. Mr. Stillwell is a Certified Public Accountant.
Kerim Akgonul, age 50, joined Pegasystems in 1992 and has served as Senior Vice President of Engineering since January 2014. On April 1, 2021, Mr. Akgonul was named Chief Product Officer. Mr. Akgonul’s professional background encompasses almost thirty years of software development and managerial experience over his tenure at the Company. Mr. Akgonul holds a B.S. in mathematics and computer science from Indiana University of Pennsylvania.
Efstathios Kouninis, age 59, joined Pegasystems in April 2008 as Vice President of Finance. The Board of Directors appointed Mr. Kouninis as the Company’s Chief Accounting Officer in May 2008 and Treasurer in January 2014. From February 2006 to April 2008, Mr. Kouninis served as Chief Financial Officer and Treasurer of Tasker Products Corporation, a publicly-traded manufacturer of antimicrobial chemicals. From November 2004 to February 2006, Mr. Kouninis served on Executive Compensation, “Say on Pay”the Staff of the Division of Corporation Finance of the Securities and Exchange Commission. Mr. Kouninis holds a B.S. from the University of Massachusetts, a Post Baccalaureate in accounting, and an M.S. in taxation from Bentley College.
Michael Pyle, age 66, joined Pegasystems in 1985 and has served as Senior Vice President of Engineering since August 2000. As of April 1, 2021, Mr. Pyle was appointed to serve as Pega’s Chief Technology Strategist. Mr. Pyle’s professional background encompasses more than forty years of software development and managerial experience throughout Europe and the United States. Mr. Pyle completed his B.C.S. specializing in computer science and systems programming at the Civil Service College in London.
Hayden Stafford, age 50, joined Pegasystems in June 2020 as President of Global Client Engagement. Mr. Stafford served as Corporate Vice President – Global Microsoft Business Applications at Microsoft Corporation from August 2017 to June 2020 and previously served as Vice President, Global Enterprise Sales, Microsoft Dynamics at Microsoft from May 2014 to August 2017. Prior to that, from June 2012 to May 2014, Mr. Stafford worked at salesforce.com, inc. as Senior Vice President – Industry Business Sales. Mr. Stafford previously worked at IBM in a variety of positions from 2001 to 2012 and at Ernst & Young as a management consultant from 1994 to 2000. Mr. Stafford holds a B.S. in biology and chemistry from St. Lawrence University and an M.B.A. in strategy and business policy from the Weatherhead School of Management at Case Western Reserve University.
ADVISORY VOTE ON EXECUTIVE COMPENSATION, “SAY ON PAY”
In 2018,2020, pursuant to the requirements of Section 14A of the Exchange Act, which was implemented by the Dodd-Frank Act, we conducted an advisory vote of our stockholdersshareholders on our executive compensation program for our named executive officers, sometimes called “Say on Pay.” Each year,
our stockholdersshareholders have overwhelmingly approved our executive compensation programs with more than 98%97% of the votes cast at our 20182020 Annual Meeting voting to adopt our “Say on Pay” resolution. We value the feedback of our stockholders.shareholders. As a result, our compensation program continues to be modeled on the same principles that received the strong support of our stockholdersshareholders last year.
Oversight We plan to hold the next shareholder advisory vote on the frequency of Compensation Programs
voting on “say on pay” at our 2023 annual meeting of shareholders.
OVERSIGHT OF COMPENSATION PROGRAMS
The Compensation Committee
The Compensation Committee oversees all
of the compensation programs that we offer to our executive officers. In
2018,2020, the Compensation Committee’s schedule of meetings, as well as the agenda items for those meetings, was established by our
Senior Vice President of Human Resources, Jeffrey Yanagi, and by Adriana Bokel Herde, Senior Vice President, Chief People Officer,
following Mr. Yanagi’s retirement. Mr. Yanagi andAdriana Bokel Herde. Ms. Bokel Herde
respectively received input from the Chair of the Compensation Committee, Sharon Rowlands, and our Chief Executive Officer, Alan Trefler. During
2018,2020, the Compensation Committee met six times. At those meetings, the Compensation Committee addressed the following matters, among others: discussion and review of the compensation paid to our executive officers, including review and approval of the
20182020 base salaries, target bonuses and the CICP for executive officers in addition to
20182020 equity awards granted to our executive officers; review of our
20182020 strategic goals and achievement of
2017our 2019 strategic goals; analysis and approval of the bonus payments under the
20172019 CICP; review and approval of the
20182020 CICP, including approval of the
20182020 CICP RSU grants; review and approval of base salary increase budgets for our employees; approval of all grants of stock options and RSUs to our employees;
review of the Company’s 401(k) plan; review of the Company’s Employee Stock Purchase Plan (“ESPP”), including amending its terms to increase the purchase discount from 5% to 15%, change the offering periods from semi-annually to quarterly, and to add a one-year holding period; and review and approval of the
20192021 CICP and
20192021 equity award budget. Ms. Rowlands has served as the Chair of the Compensation Committee since January 2017.
To facilitate the Compensation Committee’s review of each of the elements of the compensation paid to the executive officers, and to assist with the Compensation Committee’s determination of compensation for
2018,2020, management provided the Compensation Committee with “tally sheets.” These tally sheets detailed each executive officer’s total compensation in
2018,2020, including the cash value of each element of that total compensation, including salary, bonus, additional incentives, equity awards, our 401(k) plan matching contribution, Company-paid parking, and Company-paid health, dental, and other insurance premiums. The Compensation Committee also considered more detailed information regarding the equity components of executive compensation, including the total value of outstanding
“in-the-money” “in-the-money” vested stock options and unvested stock options and RSUs and the retention value of such awards.
Additionally, the Compensation Committee reviewed organizational data for each executive officer, including the number of employees in each executive officer’s department and the level of responsibility of such employees, to gain a more detailed understanding of the scope of responsibility of each executive officer in determining that executive officer’s compensation.The Compensation Committee considers the data provided on the tally sheets and the organizational summaries, along with benchmarking information for the role of each executive officer, as further detailed in the “Objectives of Compensation Programs – Benchmarking” section below, when setting executive compensation for the year. The Compensation Committee uses this information to ensure that the total amount of compensation paid to the executive officers is consistent with our total compensation philosophy, rather than focusing only on the base salaries and bonuses of the executive officers.
Compensation and Other Consultants
In 2018,2020, our management continued to utilize Arthur J. Gallagher & Co. and The Kelliher Group of Morgan Stanley for consulting services related to our 401(k) defined contribution retirement plan. In 2020, the Company spent approximately $486,000 on Arthur J. Gallagher & Co. and approximately $176,000 on The Kelliher Group of Morgan Stanley. Arthur J. Gallagher & Co. assisted with benefit plan design, vendor assessment, cost considerations, and benefit plan oversight, while members of The Kelliher Group participated in meetings of our Retirement Committee, which is composed of representatives from our Finance Department and Human Resources departments,People Organization, and provided fund guidance and regulatory updates.
The Compensation Committee may retain the services of compensation advisors for the purposes of assisting in the determination of executive compensation, and it has the budgetary authority to hire such advisors as it deems necessary, although it did not do so in 2018.2020. The Compensation Committee does not currently engage its own outside consultant for advice because its members are comfortable with the benchmarking data and other supporting information provided by our management and believes they are adequately experienced and equipped to address the relevant issues and provide appropriate executive compensation market data. The Compensation Committee also believes that outside consultants are unnecessary at this time because our executive officers’ compensation is primarily composed of base salary, bonus, and stock option and RSU grants, and does not include more complex elements such as deferred compensation plans.
performance-based equity awards.
Role of Executives in Establishing Compensation
In
2018,2020, our
Human Resources departmentPeople Organization researched appropriate types and levels of compensation for our executive officers and created preliminary recommendations that were presented to Alan Trefler. Mr. Trefler reviewed that data and presented his recommendations to the Compensation Committee in executive session to determine final compensation for our executive officers. Mr. Trefler, along with
Mr. Yanagi (until his retirement), Ms. Bokel Herde,
(after she joined in July), and other members of our
human resourcesPeople Organization management team, attended meetings of the Compensation Committee as required.
The Compensation Committee may form and delegate its authority to one or more subcommittees of members of the Compensation Committee as it deems appropriate from time to time under the circumstances, including a subcommittee consisting of a single member of the Compensation Committee. The Compensation Committee generally does not delegate decisions regarding the compensation of executive officers to management, except that the attainment of each executive officer’s annual cash bonus is tied to that individual’s level of contribution to our strategic goals as determined by Mr. Trefler in consultation with the Compensation Committee and as further described below in this “Compensation“Compensation Discussion and Analysis”Analysis” section. Additionally, Mr. Stafford, President of Global Client Engagement, and Leon Trefler and Mr. Kra, our Senior Vice Presidents, Global CustomerClient Success, will be provided an opportunity in 2019, as they have in past years,2021 to receive additional performance-based compensation tied to the attainment of individual, business unit, and/or corporate goals established by Alan Trefler, as further described below in this “Compensation“Compensation Discussion and Analysis”Analysis” section.Objectives of Compensation Programs
OBJECTIVES OF COMPENSATION PROGRAMS
The objective of our executive compensation program is to align executive compensation with the achievement of our strategic and financial goals. The program focuses on long-term indicators of the underlying success of our business, rather than on ancillary indicators such as our stock price or earnings per share that may be influenced by other factors and may not necessarily demonstrate the underlying success of our business. Our compensation philosophy is built upon principles of internal equity with respect to each executive’s role relative to others within the
company,Company, external competitiveness, recognition of performance against short and long-term goals, and the sharing of success. Therefore, our compensation program is primarily focused on internal and external benchmarking, and the level of attainment of target goals, most of which are shared goals relating to our overall performance.
Our compensation program is designed to reward superior performance by our executive officers. In measuring the contribution of the executive officers to Pegasystems, the Compensation Committee considers their performance relative to the applicable unit goals such as license signings, profit margins, additional financial metrics, and other specific objectives set by management. While compensation surveys are useful guides for comparative purposes, the Compensation Committee believes that a successful compensation program
also requires the application of judgment and subjective determinations of individual and company performance. Therefore, the Compensation Committee applies its judgment when reconciling the program’s objectives with the realities of retaining valued employees.
In making compensation decisions, management and the Compensation Committee compare each element of total cash compensation against a peer group ofbusiness-to-business software companies that the Compensation Committee believes compete with us for executive talent and have similar present and/or projected revenue. These benchmarking companies are listed below. In general, with the exception of our Chief Executive Officer, due to his status as a significant shareholder, the Compensation Committee targets total cash compensation, consisting of base salary and bonuses or (“Total Cash Compensation,Compensation”) to our executive officers that is within the range ofthe 50th to 75th percentile of the Total Cash Compensation paid to the executive officers of the benchmark companies,companies. In 2020, the target Total Cash Compensation of our named executive officers generally fell within that range, with the exception of our Chief Executive Officer who is compensated below the 50th percentile due to his status as a significant stockholder.shareholder.
We believe that it is helpful to utilize data from a wide array of comparable companies in order to determine the best pay scales to apply to our executive compensation program. We primarily considered data from Radford, which we believe to have the most relevant and comprehensive data for this purpose.
Generally, the Radford surveys included data and breakout information from software companies based upon annual revenue. The surveys analyze compensation data from several hundred technology companies and provide specific data based on each executive officer’s role. Our primary benchmarks are from software companies with annual revenue ranging from
$200 million$1 billion to
$1$1.5 billion, which we believe is the most relevant benchmark data for our executive compensation
program. We also review data from software companies with annual revenue over $1 billion,program, as we believe this accurately represents the companies from where we attract talent.
We also utilized Comptryx as a secondary market data source for benchmarking purposes. In reviewing the Comptryx data, we focused on benchmarking against companies with annual revenue from $500 million to less than $2 billion. Data from both Radford and Comptryx were considered when evaluating 2018 executive compensation.
In addition to
theour standard benchmarking industry
surveyssurvey mentioned above, we review compensation practices of a select group of similar companies, which are benchmarked through the use of proxy statements, because one or more of the following applies: (a) they are of comparable size and revenue; (b) they are in a comparable industry; (c) they are within our geographic market; or (d) they compete with us for talent.
The list of companies below was used as our compensation benchmarking peer group for reviewing and evaluating our
20182020 compensation program for our executive officers where there was data for comparable positions:
| | | | | | | | |
Akamai Technologies
Guidewire Software | RealPage | Aspen Technology | | Autodesk | | Fair Isaac Corporation |
| | | |
Guidewire Software
| | Microstrategy | PTC | Nuance Communications | | Oracle |
| | | |
PTC
| | RealPage | | Salesforce.com | | ServiceNow |
| | | |
Splunk | | Tableau Software | | Verint Systems | | WorkdayZendesk |
Our senior management uses this benchmarking data to review and recommend compensation levels for executive compensation and the Compensation Committee evaluates this data to determine whether the recommended levels of compensation are reasonable and consistent with the goal of providing Total Cash Compensation that is targeted within the 50th to 75th percentile of the Total Cash Compensation paid to the executive officers of the benchmark companies or industry surveys. In 2018, the target Total Cash Compensation
of our named executive officers generally fell within that range, with the exception of our Chief Executive Officer who is compensated below the 50th percentile due to his status as a significant stockholder.
Elements of compensation for our executive officers consist of the following: base salary; annual bonus tied to the achievement of corporate goals; additional
individual incentive compensationcash incentives opportunities tied to the achievement of specific individual, business unit and/or corporate goals by our executive officers, the attainment of which supports our achievement of our corporate goals; equity awards comprised of both stock options and RSUs that vest over time; and other perquisites such as health, disability and life insurance, a match by Pegasystems of 401(k) defined contribution plan contributions, and Company-paid parking. Further analysis and discussion of each element are described in the chart below and the discussion that follows.
| | | | | | | | | | | | | | |
Element
| | Objective | | Fixed/Variable |
Base Salary | | Attract and retain highly qualified leaders with market-competitive compensation structure. | | Fixed |
| | |
Bonus – CICP | | Link pay with our performance. Reward achievement of our financial and strategic goals. | | Variable |
| Additional Cash Incentives | | |
Additional Individual Incentive Compensation
| | Link pay with individual, business unit and/or corporate performance. Reward achievement of specific goals. | | Variable |
| | |
Equity Awards (Stock Options and RSUs) | | Link pay with our long-term performance. Reward stock price appreciation, promote long-term retention and permit executives to accumulate equity ownership. | | Variable |
| | |
Other Perquisites | | Retain talent by providing financial protection and security. | | Fixed |
Cash compensation in the form of base salary is intended to reflect an executive’s knowledge, skills, and level of responsibility, as well as the economic and business conditions affecting Pegasystems. In determining the salary of each executive officer, the Compensation Committee reviews compensation for comparable positions in other software companies and in other
similarly-sized companies contained in published surveys or gleaned from the public disclosure filings of publicly-traded companies, as noted in the “Benchmarking” section above. As discussed above, the Compensation Committee’s approach in
20182020 was that Total Cash Compensation for our executive officers should be targeted between the 50th and 75th percentile of the Total Cash Compensation for similarly situated executives in comparable companies with the exception of our Chief Executive Officer who is compensated below the 50th percentile.
On average, the base salaries of the executive officers for 2018, other than the Chief Executive Officer, comprise approximately 54% of their target Total Cash Compensation, with the remainder provided in the bonus portion of such compensation. The base salary of the Chief Executive Officer is 50% of his target Total Cash Compensation. Base salaries are set for our named executive officers at a regularly scheduled meeting of our Compensation Committee in the first quarter of the year. The Compensation Committee also approves the bonus payments based on the prior year’s results and the target bonus levels for the current year.
Annual cash bonuses are intended to reward executive officers for the achievement of our financial and strategic goals. The mechanism that we use to determine whether, and to what extent, annual cash bonuses are
paid to our executive officers is the CICP for executive officers, or the Executive Incentive Plan, that is approved by the Compensation Committee each year at a regularly scheduled meeting generally meetingoccurring in the first quarter of the year.
For purposes of the Executive Incentive Plan, the performance goals are divided into two categories. The first category is comprised of the corporate financial goals related to bookings and operating income, as approved by the Board of Directors in connection with establishing our annual budget, in the aggregate weighted at 70% of total achievement with, in
2018,2020, bookings weighted at 45% and operating income weighted at 25%. The second category is comprised of the qualitative strategic goals as approved by the Board of Directors as part of our annual strategic planning, with the strategic goals in the aggregate weighted at 30% of total achievement. Together, these two categories make up a single performance target under the Executive Incentive Plan, or the Corporate Performance Target.
The percentage achievement of the Corporate Performance Target, or the Funding Percentage, determines the extent to which the Executive Incentive Plan is funded. The Executive Incentive Plan is funded with an amount equal to the aggregate target cash bonus amount for our named executive officers multiplied by the Funding Percentage, except that if the Funding Percentage is less than 70%
(“threshold funding”) then the Executive Incentive Plan is not funded at all. In
2018,2020, if the Corporate Performance Target had been exceeded, the percentage achievement of the Corporate Performance Target for purposes of funding the Executive Incentive Plan would have been deemed equal to 100% with an opportunity for an enhanced incentive as determined by the Board of Directors in its discretion.
Once the Funding Percentage is determined, the actual bonus payment for each executive officer is subject to adjustment to reflect each individual’s level of contribution to our strategic goals, as determined by the Compensation Committee. Our strategic goals are established each year by our senior management team and describe our key operational initiatives related to strategy and
organization alignment, sellingorganizational effectiveness, go-to-market transformation and product and
delivery transformation.service leadership. The Chief Executive Officer assesses each executive officer’s contribution to the overall operational plan and to such executive officer’s specific functional unit. The Compensation Committee determines and approves executive officer compensation and has the discretion to modify individual payout amounts to reflect an individual’s performance.
The target bonus levels established for our executive officers represent management’s and the Compensation Committee’s assessment of a very high level of achievement of specific goals. Where target bonus levels relate to financial goals that are also the subject of our published financial guidance, these goals are generally established at levels that represent over-performance in relation to the guidance that we publish at the beginning of each calendar year. For
2018,2020, the Funding Percentage was
100%80%, which was consistent with our level of achievement of the Corporate Performance Target for the year.
Additional
Individual Incentive CompensationCash Incentives
Additional cash incentives have historically been available to several executives other than our Chief Executive Officer based on the achievement of specific individual, business unit, and/or corporate performance goals established by Alan Trefler. In addition, in
2018,2020, Mr. Stafford, Leon Trefler and Mr. Kra were eligible for sales incentive compensation related to the achievement of sales objectives set by our Chief Executive Officer.
The Compensation Committee utilizes stock options and RSUs as long-term,non-cash incentives and as a means of aligning the long-term interests of executives and stockholders.shareholders. In the case of stock options, this is because they do not become valuable to the holder unless the price of our stock increases above the fair market value of our stock on the date of grant. In the case of RSUs, an RSU delivers more value than a stock option to the holder if the price of our stock remains constant, but the value to the holder increases if our stock price increases over time.
Stock options deliver to the recipient a right to receive an option to purchase a specified number of shares of our common stock upon vesting, while RSUs deliver to the recipient a right to receive a specified number of shares of our common stock upon vesting. Unlike stock options, which require payment of the exercise price to purchase shares, RSUs do not require an additional payment by the executive officer at the time shares are issued. Therefore, RSUs provide value to our executives even if our stock price remains constant. Additionally, RSUs, while more expensive than options to the Company by approximately a three to one ratio, can be more efficient based upon the benefit to the executive in comparison to the cost to the Company. RSU grants do not result in the same amount of dilution upon issuance to our investors’ ownership as is caused by stock options, because the same incentive associated with options can be provided to the executive with RSUs, but with fewer shares ultimately issued. In determining the value of equity grants to recipients, we value our RSUs at the fair value of our common stock on the grant date, which is the closing price of our common stock on that date, less the present value of expected dividends, as the executive officers or other employees are not entitled to dividends during the requisite vesting period. We value our stock options using a Black-Scholes option valuation model. Equity awards for employees typically vest over a five-year period.
Executive officers and other employees may elect to receive 50% of their target incentive compensation under the Executive Incentive Plan in the form of RSUs instead of cash. As an added incentive,
beginning in 2015, the number of RSUs receivable by executive officers and other employees is determined by dividing 50% of his or her target incentive compensation by an amount equal to 85% of the closing price of our common stock on the date of grant.
If elected pursuant to the Executive Incentive Plan, the equity grant occurs during the open trading period following the public release of our financial results for the prior year and vests 100% on the first anniversary of the date of grant. This typically coincides with the cash payout date for all participants. Vesting is conditioned upon threshold funding of the Executive Incentive Plan, and status as an active employee in good standing with satisfactory performance as of the vesting date. If these conditions are not met, the equity grant does not vest and expires.
Equity Award Granting Practices
Executive officers, and most employees, have typically received an initial equity grant upon joining
us.Pegasystems. Grants to newly hired employees are determined based upon a target financial value associated with their job type, rather than a
pre-determined predetermined number of options or RSUs based on an individual’s level of job responsibilities, which we believe improves our ability to more effectively communicate the value of equity grants to our employees. For all employee positions which are at the director level or above,
equity grants are typically comprised of an equal mix of stock options and RSUs, with 50% of the target value
is typically granted in stock options and 50%
is granted in RSUs. For those employees who hold positions below the director level, equity grants
haveare typically
beenawarded 100% in RSUs.
The Compensation Committee also makes periodic grants of stock options and RSUs to the executive officers, typically on an annual basis. For periodic grants, the number of stock options and RSUs granted to an executive officer is determined by taking into consideration factors such as: (i) equity awards previously granted to the executive; (ii) the executive’s remaining equity awards exercisable and the value of those equity awards; (iii) the performance of the executive; (iv) the anticipated value that an executive will add to Pegasystems in the future; (v) the target value, as discussed above; (vi) the retentive value of equity awards; and (vii) competitive external market data. We expect to continue to grant periodic equity awards in the future.
In addition to the elements of compensation discussed above, we offer the executive officers Company-paid parking at our home office location in Cambridge, Massachusetts, and contributions towards medical, dental, vision, life, accidental death and dismemberment, and disability insurance premiums. We do not offer deferred
compensation of any kind, nor do we offer retirement benefits other than a 401(k) defined contribution plan. We typically match, on a quarterly basis, 50% of contributions made by executive officers and other employees to the 401(k) plan, up to 6% of the executive officer’s or employee’s base salary.
Executive Incentive Plan
EXECUTIVE INCENTIVE PLAN
In December 2017,February 2020, the Compensation Committee adopted the 20182020 Executive Incentive Plan which covered the period from January 1 through December 31, 2018,2020, or the Incentive Period. The 20182020 Executive Incentive Plan was designed to establish a pool of funds to be available for making bonus payments to the executive officers if we achieved certain performance goals during the Incentive Period. The aggregate 20182020 target cash bonus amount for our named executive officers was $1,321,000. The target bonuses for the named executive officers, with the exception of our Chief Executive Officer and our two Senior Vice Presidents, Global Customer Success, represented 60% of the earned base salaries for those executive officers.$1,397,000. For our Chief Executive Officer, the target bonus represented 100% of his earned base salary; for our Chief Financial Officer, the target bonus represented 70% of his earned base salary; and for each of our Senior Vice Presidents, Global CustomerClient Success, the target bonus represented 50% of their earned base salary given their additional opportunities to earn additional cash compensation in the form of individual incentive compensation and sales commissions as described further below. When Mr. Stafford joined in June as President of Global Client Engagement, his target bonus was set at 50% of his earned base salary. Based on our performance, the Board of Directors and Compensation Committee determined that the 20182020 Funding Percentage would be 100%80%.
The Compensation Committee has approved the
20192021 Executive Incentive Plan. Under the
20192021 Executive Incentive Plan,
45%25% of the plan funding will
remainbe based on the attainment of
bookings, or the total value of license signings,Sales Commissionable Value (“SCV”), 25% based on
operating income,Annual Contract Value growth, 25% on margin, and
30%25% based on the attainment of strategic
imperatives.initiatives. Historically, the Compensation Committee has also approved a similar plan for our employees, with the exception of certain of our sales employees who are enrolled in a sales incentive compensation plan.
Chief Executive Officer Compensation
CHIEF EXECUTIVE OFFICER COMPENSATION
The Compensation Committee believes that the Chief Executive Officer continued to perform at a high level in
2018,2020, and that his performance is not reflected in his salary. The Chief Executive Officer’s comparatively low salary has historically reflected his status as a significant
stockholder,shareholder, and, as such, his personal wealth is tied directly to sustained increases in our value.
In
2018,2020, the Chief Executive Officer’s salary
was increased
by 3.2% from $470,000 to
$485,000, effective as of January 1, 2018.$495,000. Under the
20182020 Executive Incentive Plan the target bonus for the Chief Executive Officer was 100% of his earned base salary. In determining the Chief Executive Officer’s bonus for
2018,2020, the Compensation Committee considered the factors described above and ultimately determined that he should be granted a bonus of
$485,000$396,000 under the
20182020 Executive Incentive Plan, representing a payment that is consistent with the
20182020 Funding Percentage. Under the
20192021 Executive Incentive Plan, the target bonus for the Chief Executive Officer will continue to be 100% of his earned base salary.
In 2018, as has been the Compensation Committee’s past practice, no stock options or RSUs were granted to2020, in recognition of the Chief Executive Officer because of his significant holdings of our stock. In 2019, in recognition of hisOfficer’s leadership driving our continued growth and market position and low to market cash compensation, which falls between the 25th and 50th percentile of the market range, the Compensation Committee provided Mr. Trefler with an equity grant.
grant valued at $5,000,000, which falls at approximately the 50th percentile. In 2021, the Compensation for Other Named Executive Officers
Committee also provided Mr. Trefler with a periodic equity grant valued at $6,500,000, in consideration of the above factors. Mr. Trefler’s equity awards are comprised of 50% stock options and 50% RSUs and vest on a five-year schedule.
COMPENSATION FOR OTHER NAMED EXECUTIVE OFFICERS
For
2018,2020, the Compensation Committee authorized base salaries for our named executive officers (other than our Chief Executive Officer) as follows:
| | | | | | | | | | | | |
| | | 2018 | | | 2017 | | | % Increase | |
Douglas Kra | | $ | 350,000 | | | $ | 350,000 | | | | — | % |
Michael Pyle | | $ | 370,000 | | | $ | 363,000 | | | | 1.9 | % |
Kenneth Stillwell | | $ | 440,000 | | | $ | 415,000 | | | | 6.0 | % |
Leon Trefler | | $ | 350,000 | | | $ | 350,000 | | | | — | % |
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | % Increase |
| Kenneth Stillwell | $ | 460,000 | | | $ | 445,000 | | | 3.4 | % |
| Douglas Kra | $ | 365,000 | | | $ | 360,000 | | | 1.4 | % |
| Hayden Stafford* | $ | 430,000 | | | $ | — | | | * |
| Leon Trefler | $ | 365,000 | | | $ | 360,000 | | | 1.4 | % |
*Hayden Stafford joined Pegasystems in June 2020
The base salaries of the named executive officers were increased effective January 1,
2018.2020.
Under the
20182020 Executive Incentive Plan,
the target bonuses for the named executive officers, other than our Chief
Executive Officer and our Senior Vice Presidents, Global Customer Success,Financial Officer’s target bonus represented
60%70% of
thehis earned base
salariessalary; our President of Global Client Engagement’s target bonus represented 50% of his earned base salary given his opportunity to earn additional cash incentives in the form of sales commissions as described further below; and for
those named executive officers. For each of Leon Trefler and Mr. Kra, our Senior Vice Presidents, Global
CustomerClient Success, the target bonus represented 50% of his earned base salary given his opportunity to earn additional cash
compensationincentives in the form of individual incentive compensation and sales commissions as described further below. For
2018,2020, the Compensation Committee approved bonuses for our named executive officers under the
20182020 Executive Incentive Plan consistent with the
20182020 Funding Percentage. In
2018, Mr. Pyle,2020, Mr. Stillwell, and Leon Trefler opted to receive 50% of their CICP payment in RSUs. Accordingly, for
2018 Mr. Kra received a cash bonus of $175,000; Mr. Pyle received a cash bonus of $111,000;2020, Mr. Stillwell received a cash bonus of
$132,000;$128,735; and Leon Trefler received a cash bonus of
$87,500.$73,000.
Under the
20192021 Executive Incentive Plan, the target
bonusesbonus for Mr. Stillwell
and Mr. Pyle will represent
65% and 60%70% of
those executive officers’his earned base
salaries, respectively.salary. For
each ofMr. Stafford, Leon Trefler, and Mr. Kra,
our Senior Vice Presidents, Global Customer Success, the target
bonusbonuses will represent 50% of
histheir earned base salary given
histheir opportunity to earn additional cash
compensation in the form of individual incentive compensation and sales commissions.incentives.
Additional Cash Incentives
Individual Incentive Compensation
In
2018,2020, Leon Trefler and Douglas Kra, our Senior Vice Presidents, Global
CustomerClient Success, were each eligible to receive
additional individual incentive compensation based upon the achievement of specific performance goals established by our Chief Executive Officer. Both
Leon Trefler’s and Mr. Kra’s
and Leon Trefler’s targets were $50,000 in
additional individual incentive compensation for the achievement of operational metrics set by our Chief Executive Officer. For
2018,2020, Leon Trefler received $36,000 and Mr. Kra received
$35,602 and Leon Trefler received $48,660.$25,000.
In
addition, in 2018, Leon Trefler and Mr. Kra each had a target sales commission of for $225,000 and $180,000, respectively, in additional incentive compensation related to the value of bookings achieved by us. For 2018, Leon Trefler’s and Mr. Kra’s actual additional incentive compensation in the form of sales commissions related to this goal was $240,053 and $131,828, respectively.In 2019,2021, Leon Trefler and Mr. Kra are also eligible to receive additionalindividual incentive paymentscompensation based upon the performance of specific individual, business unit and/or corporate goals tied to the achievement of operational objectives. In 2019,2021, Leon Trefler’s and Mr. Kra’s targets are $50,000 in additionalindividual incentive payments.compensation. The executive officers will be eligible for these additionalindividual incentive paymentscompensation based upon the level of achievement of their respective objectives. Our Chief Executive Officer will review each executive officer’s respective
performance towards achieving these individual, business unit and/or corporate goals.
Sales Commissions
In 2019,2020, Mr. Stafford, Leon Trefler, and Mr. Kra each had a target sales commission of $516,000, $310,000, and $228,000, respectively, related to the SCV of cloud, license, and maintenance sales. For 2020, Mr. Stafford’s, Leon Trefler’s, and Mr. Kra’s actual sales commissions were $323,000, $277,000, and $151,000, respectively.
In 2021, Mr. Stafford, Leon Trefler, and Mr. Kra will
also have
a target sales commissions of
$257,759$516,000, $310,000 and
$190,588,$228,000, respectively.
In March 2018,2020, the Compensation Committee approved a periodic equity grant for our named executive officers in the form of 50% stock options and 50% RSUs,RSUs. All grants vest over the period of five years.
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | % Increase |
| Kenneth Stillwell | $ | 2,500,000 | | | $ | 1,000,000 | | | 150.0 | % |
| Douglas Kra | $ | 850,000 | | | $ | 850,000 | | | 0.0 | % |
| Hayden Stafford* | $ | 6,500,000 | | | $ | — | | | * |
| Leon Trefler | $ | 1,200,000 | | | $ | 850,000 | | | 41.2 | % |
*Hayden Stafford joined Pegasystems in June 2020. The above amount consists of two equity grants effective as part of their total compensation package.Severance, Retention,
July 1, 2020 and Change in Control BenefitsAugust 1, 2020.
SEVERANCE, RETENTION, AND CHANGE IN CONTROL BENEFITS
We have entered into employment offer letters with Messrs. Kra,
Stafford, and Stillwell containing provisions for additional cash compensation upon termination of employment under certain circumstances. Specifically, each of these
lettersagreements provides for a
lump-sum severance payment equal to six months of then-current base salary in the event that such officer’s employment is terminated by us without cause. In Mr. Stillwell’s
and Mr. Stafford’s agreement, an additional month of severance will be paid for each year of service with a maximum of 12 months total severance. In addition, for Mr. Stillwell
and Mr. Stafford, in the event of a sale of Pegasystems (as defined in our 2004 Long-Term Incentive Plan, as amended and restated, or the 2004 Long-Term Incentive Plan) and termination of
Mr. Stillwell’stheir employment,
as Chief Administrative Officer, Chief Financial Officer, and Senior Vice President, all unvested stock options and RSUs would be subject to immediate full acceleration of vesting. The terms of these agreements are more fully described in the “Potential Payments upon Termination or Change in Control” section below.
Our primary rationale for these payments is that we believe that it is standard in our industry to provide a reasonable severance payment to certain high ranking executive officers in the event that they are terminated without cause, and that the absence of such arrangements might jeopardize our chances of hiring and retaining such executives. We limit such post-termination compensation arrangements to situations in which such executive officers are actually terminated, rather than those in which there is a mere change of control.
While these offer letters, which were previously filed with the SEC, do not specifically define what constitutes a termination “without cause,” in this context, we believe that the term “cause” would be construed consistently with Massachusetts case law, which generally defines it to mean, in this context, that we had a reasonable good faith basis for dissatisfaction with the employee, due to lack of capacity or diligence, failure to conform to usual standards of conduct, or other culpable or inappropriate behavior, or grounds for discharge reasonably related, in our good faith judgment, to the needs of the business. There are, or were, no other conditions to the payment of the severance amount.
Under our 2004 Long-Term Incentive Plan, in the event of the sale of Pegasystems, the Board of Directors, acting through a majority of directors who are determined to be “independent directors” under the applicable Nasdaq rules, may, in its discretion, provide that all outstanding RSUs, unvested stock options or other stock-based awards granted under the plan shall be assumed or an equivalent option, right, unit, or restricted stock be substituted by the successor entity; accelerated in full prior to the effective date of the sale of Pegasystems; or cancelled as of the effective date of the sale of Pegasystems; or the Board of Directors may apply any combination of the foregoing.
Potential Payments Upon Termination or Change in Control
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
As discussed above, under the terms of their employment offer letters, if either Mr. Kra, Mr. Stafford or Mr. Stillwell is terminated without cause, he would receive alump-sum severance payment equal to six months of his then-current base salary. In addition, Mr. Stafford and Mr. Stillwell would receive an additional month of severance for each year of service with a maximum of 12 months total severance. By way of example, if Mr. Kra had been terminated without cause on December 31, 2018,2020, he would have received a severance payment of $175,000.$182,500. If Mr. StillwellStafford had been terminated without cause on December 31, 2018,2020, he would have received a severance payment of
$293,333. $215,000. In addition, in the event of a sale of Pegasystems and the termination of Mr. Stillwell’sStafford’s employment, as Chief Administrative Officer, Chief Financial Officer, and Senior Vice President, all of his unvested stock options and RSUs would be subject to immediate full acceleration of vesting. If, on December 31, 2018,2020, Mr. Stafford had been terminated following a sale of Pegasystems, the value of his accelerated RSUs would have been $4,526,975, and the value of his accelerated stock options would have been $2,367,284, excluding out-of-the-money options. If Mr. Stillwell had been terminated without cause on December 31, 2020, he would have received a severance payment of $383,333. In addition, in the event of a sale of Pegasystems and the termination of Mr. Stillwell’s employment, all his unvested stock options and RSUs would be subject to immediate full acceleration of vesting. If, on December 31, 2020, Mr. Stillwell had been terminated following a sale of Pegasystems, the value of his accelerated RSUs would have been $1,772,819,$4,361,067, and the value of his accelerated stock options would have been $2,358,669,$8,169,735, excludingout-of-the-money options. The value of accelerated unvested options as of December 31, 20182020 is calculated by taking the difference between the closing price of our common stock on NASDAQ Global Select Market on the last trading day of the fiscal year ($47.83133.26 on December 31, 2018)2020) and the option exercise price and multiplying it by the number of accelerated options. For RSUs, the value represents the closing price of our common stock on the last trading day of the fiscal year multiplied by the number of accelerated units.
Additionally, as noted above, under our 2004 Long-Term Incentive Plan, in the event of the sale of the Company, the Board of Directors may provide that all outstanding RSUs, unexercised stock options or other stock-based awards granted under the plan would accelerate in full prior to the effective date of the sale of the Company. The table entitled “Outstanding Equity Awards at Fiscal
Year-End” lists all outstanding equity awards held by our named executive officers as of December 31,
2018.2020.
IMPACT OF REGULATORY REQUIREMENTS
Our stock option and RSU grant policies are impacted by FASB ASC 718, formerly FAS 123(R), which we adopted on January 1, 2006. As a result of the adoption of this accounting policy, we have generally reduced the number of stock options granted to employees, as has been the case with many companies of similar size in our industry.
Prior to 2018, Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, generally disallowed a tax deduction to public companies for compensation over $1,000,000 paid to its chief executive officer and its three other most highly compensated executive officers, other than its chief financial officer. Performance-based compensation was excluded from the compensation taken into account for purposes of the $1 million limit if certain requirements were met. Effective in 2018, the Tax Cuts and Jobs Act of 2017 modified Section 162(m) of the Code to eliminate the exception for performance-based compensation, subject to transition relief for certain grandfathered arrangements in effect as of November 2, 2017. In addition, the $1,000,000 limit now applies to all named executive officers, including the chief financial officer, and to any individual who was a named executive officer in any tax year beginning after December 31, 2016. The Compensation Committee will continue to award compensation to our executive officers as it deems appropriate, even though it may not be fully deductible for purposes of Section 162(m). Accordingly, compensation attributable to our Executive Incentive Plan, additional cash incentives, equity awards, or severance may not be fully deductible for the purposes of Section 162(m).
COMPENSATION PRACTICES RISK ASSESSMENT
We have conducted a risk assessment of our compensation programs for executive officers and all other employees. Our Finance, Legal, People Organization, Sales, and Compliance functions reviewed our compensation programs, practices and policies, referred to as the Compensation Programs. Management reviewed and discussed the findings of this review with the Compensation Committee, and with our Disclosure Committee, consisting of representatives from our Finance, Legal, Internal Audit, and Compliance departments. Based upon this assessment, we have concluded that our Compensation Programs are balanced and do not, by design, motivate excessive risk taking by management and other employees.
As part of our risk assessment, we review our Compensation Programs to ensure they are consistent with current market practices. In determining that the programs contained an appropriate mix of risk and reward in relation to our strategy and long-term goals without encouraging excessive risk taking by management and other employees, the following elements were considered:
•In general, compensation consists of a balanced mix of fixed and variable compensation. The fixed component, base salary, provides a stable income stream to employees, including management and executives, while variable compensation, consisting of annual bonuses, commissions for sales and certain services employees, provides compensation opportunities tied to our company performance and strategic initiatives;
•Annual incentive payments, or bonuses, provide the potential for variable pay based upon the achievement of our annual financial and strategic business objectives. These objectives are set at the company level and are not based upon the results for any one individual, team or division. Our Board of Directors reviews and approves the corporate funding percentage. Moreover, the Compensation Committee determines and approves executive officer compensation and has the discretion to modify individual payout amounts to reflect an individual’s performance;
•The incentive plans for our sales force align variable compensation with both short- and long-term goals. Commissions are payable on contract signing; however, our incentive plans permit us to recover the value of payments on sales commissions for client non-payment. Corporate controls require a risk-based approach for review and approval of customer contracts by Finance, Legal, and Sales management prior to execution. Our senior management also reviews and approves material nonstandard contract terms; and
•Equity awards, which are granted to most employees, may consist of both stock options and RSUs, and align employee equity compensation with our long-term success. Additionally, senior level employees receive equity compensation in both RSUs and stock options to further align their interests with those of our stakeholders, including our shareholders. Equity awards typically vest over five years and increase in value if our stock price increases over time. To further mitigate against risk, our equity incentive plan allows for the cancellation and forfeiture, as well as the clawback, of equity awards for employee misconduct.
As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation
S-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of our Chief Executive Officer. For
2018,2020, our last completed fiscal year:
•The median of the annual total compensation of all employees included in(excluding the analysis (other than our Chief Executive Officer) (the “median employee”) was $96,508;$144,952; and
•The annual total compensation of our Chief Executive Officer, as reported in the Summary Compensation Table included elsewhere in this proxy statement, was $981,250.
$5,903,647.Based on this information, for 20182020 the ratio of the annual total compensation of our Chief Executive Officer to the median employee was approximately 41 to 1.
During 2020, there have been no changes to our employee population or employee compensation arrangements that we reasonably believe would result in a significant change to our pay ratio disclosure and there was no change in the circumstances of the
annual total compensation of all employees was approximately 10 to 1.To identifyemployee identified as the median of the annual total compensation of all employees,employee in 2018. Therefore, as permitted by SEC rules, we used the following methodology:
same median employee as disclosed in our proxy statement filed in 2020. We selected December 1, 2018, which is within the last three months of 2018, as the date upon which we would identify the median employee. We chose this date, rather than November 6, the date we used last year, for administrative convenience in calculating the 2018 CEO pay ratio. As of December 1, 2018, we had 4,577 employees worldwide.
| • | | In determining the employee population to be used to calculate the compensation of the median employee, we included employees in all countries, including Poland, which was excluded in the calculation of our 2017 CEO pay ratio as ade minimis exemption under SEC rules.
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We compared the annual base salary, target bonus, sales commissions and additional cash incentive compensation for the employee population for the 2018 calendar year. This is referred to asOn-Target Earnings.
Based on theOn-Target Earnings of each employee, we identified a cohort, referred to as the Median Cohort, of approximately 460 employees consistingcombined all elements of the median employee and the employees 5% above and 5% below the medianOn-Target Earnings.
