DEF 14A of Arlo Technologies, Inc.
Filed Apr 26, 2024 · FY20230001140361-24-022448
Director Nominees
Director Nominees The Nominating and Corporate Governance Committee seeks to assemble a Board that, as a whole, possesses the appropriate balance of professional and industry knowledge, financial expertise and high-level management experience necessary to oversee and direct our business. To that end, the Nominating and Corporate Governance Committee has identified and evaluated nominees in the broader context of the Board’s overall composition, with the goal of recruiting members who complement and strengthen the skills of other members and who also exhibit integrity, collegiality, sound business judgment and other qualities that the Nominating and Corporate Governance Committee views as critical to effective functioning of the Board. The brief biographies below include information, as of the date of this Proxy Statement, regarding the specific and particular experience, qualifications, attributes or skills of each director or nominee that led the Nominating and Corporate Governance Committee to believe that the nominee should continue to serve on the Board. However, each of the members of the Nominating and Corporate Governance Committee may have a variety of reasons why such member believes a particular person would be an appropriate nominee for the Board, and these views may differ from the views of other members.
Director Nominees
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Nominees for Election for a Three-Year Term Expiring at the 2027 Annual Meeting
Nominees for Election for a Three-Year Term Expiring at the 2027 Annual Meeting
Nominees for Election for a Three-Year Term Expiring at the 2027 Annual Meeting
| | Business Experience: Matthew McRae has served as our Chief Executive Officer since February 2018 and as a member of our Board since August 2018. Mr. McRae served as Senior Vice President of Strategy of NETGEAR, Inc. (“NETGEAR”) from October 2017 until August 2018. Mr. McRae previously served as the Chief Technology Officer of Vizio Inc., a consumer electronics company, from 2010 to 2017, and prior to that served as its Vice President and General Manager, Advanced Products Group, from 2008 to 2010. From 2007 to 2008, Mr. McRae was Vice President of Marketing and Business Development of Fabrik (now part of HGST, Inc.), a provider of data storage and next generation web services, and prior to that, from 2001 to 2007, was the Senior Director, Worldwide Business Development at Cisco Systems Inc., a leader in networking services. Mr. McRae has served on the board of directors of two private technology companies: Violux since September 2020 and Within since May 2021. He previously served on the board of directors of Dedicated Hosting Services, Inc., UC Irvine Institute for Innovation and the Leatherby Center for Entrepreneurship and Business Ethics at the Business School of Chapman University. Qualifications: The Nominating and Corporate Governance Committee believes that Mr. McRae’s extensive industry experience in leadership positions at consumer electronics and technology companies qualifies him to serve as a member of our Board. | | Matthew McRae | | | Age 50 Director since 2018 Board Committees: None Other Current Public Company Boards: None | |
Nominees for Election for a Three-Year Term Expiring at the 2027 Annual Meeting
| | Business Experience: Catriona Fallon has served as a member of our Board since August 2021. She is an executive advisor, chief financial officer (“CFO”) and investor, helping companies achieve outpaced performance. Ms. Fallon currently serves on the board of directors for Palomar Holdings, Inc., a publicly traded specialty insurance company and General Fusion, a privately held Canadian company which is pursuing the fastest and most practical path to commercial fusion energy. Ms. Fallon previously served on the board of directors of publicly-traded company Cray Inc., until its acquisition by Hewlett Packard Enterprise. In addition to her directorships, Ms. Fallon also has served as CFO for several technology companies, including Aktana from 2021 to 2022, a software and services company, and Hitachi Vantara from 2019 to 2020, a multi-billion-dollar digital solutions subsidiary of Hitachi, Ltd. Prior to her employment at Hitachi Vantara, Ms. Fallon was CFO at Silver Spring Networks from 2017 to 2018 where she helped to execute the sale of the company to Itron. From 2015 to 2017, Ms. Fallon was EVP and CFO at Marin Software, a company providing software as a service to optimize online advertising. Ms. Fallon additionally has held leadership positions across a variety of technology companies including Cognizant Technology Solutions and Hewlett-Packard. She also has served as an equity analyst at Citigroup Investment Research and held roles with Piper Jaffray & Company, and McKinsey & Company. Qualifications: Ms. Fallon brings more than twenty years of strategic finance expertise and leadership experience to her role as a board member via her significant operational and finance experience as a board member and executive of various technology companies. The Nominating and Corporate Governance Committee believes that Ms. Fallon’s understanding of finance, financial reporting, strategy, corporate efficiencies and risk management qualifies her to serve as a member of our Board. | | Catriona M. Fallon | | | Age 53 Director since 2021 Board Committees: Audit (Chair), Cybersecurity and Privacy Other Current Public Company Boards: Palomar Holdings, Inc. | |
Nominees for Election for a Three-Year Term Expiring at the 2027 Annual Meeting
| | Arlo Technologies, Inc. Notice of 2024 Annual Meeting and Proxy Statement 21 |
Directors Continuing in Office Until the 2025 Annual Meeting
Directors Continuing in Office Until the 2025 Annual Meeting
Directors Continuing in Office Until the 2025 Annual Meeting
| | Business Experience:Ralph E. Faison has served as the Chairman of our Board since August 2018. Prior to joining our Board, Mr. Faison served on the board of directors of NETGEAR from August 2003 to August 2018. Mr. Faison is currently a private investor. From 2011 to 2014, Mr. Faison served as the President and Chief Executive Officer and chair of the board of directors of Pulse Electronics Corporation, a public company and manufacturer of electronic components. From 2003 through 2007, Mr. Faison served as Chief Executive Officer of Andrew Corporation, a public company and manufacturer of communications equipment and systems. He also served at various times as President, Chief Operating Officer, and Director at Andrew Corporation. From 2001 to 2002, Mr. Faison was President and Chief Executive Officer of Celiant Corporation, a manufacturer of power amplifiers and wireless radio frequency systems, which was acquired by Andrew Corporation. From 1997 to 2001, Mr. Faison was Vice President of the New Ventures Group at Lucent Technologies, Inc., a communications service provider, and from 1995 to 1997, he was Vice President of advertising and brand management at Lucent. Prior to joining Lucent, Mr. Faison also held various positions at AT&T, including as Vice President and General Manager of AT&T’s wireless business unit and manufacturing Vice President for its consumer products unit in Bangkok, Thailand. Mr. Faison also serves on the board of directors of Vislink Technologies, Inc., a public company that produces wireless broadcast video cameras for the commercial broadcast and military markets. Qualifications: Mr. Faison has extensive experience in leading and managing large international companies. He is well-versed in the complex manufacturing and distribution systems that today’s multinational companies implement. The Nominating and Corporate Governance Committee believes that Mr. Faison, as a previous public company chair and chief executive officer, is able to advise Arlo on many aspects of public company governance and management and is qualified to serve as a member of our Board. | | Ralph E. Faison | | | Age 65 Director since 2018 Board Committees: Chairman of the Board, Nominating and Corporate Governance (Chair), Compensation and Human Capital, Cybersecurity and Privacy, Strategic and Capital Allocation (Chair) Other Current Public Company Boards: Vislink Technologies, Inc. | |
Directors Continuing in Office Until the 2025 Annual Meeting
| | Business Experience: Jocelyn E. Carter-Miller has served as a member of our Board since August 2018. Prior to joining our Board, Ms. Carter-Miller served on the board of directors of NETGEAR from January 2009 to August 2018. Since 2001, Ms. Carter-Miller has been President of TechEdVentures, Inc. and since 2013 has been President of SoulTranSync, LLC, both of which are entrepreneurial ventures specializing in the development and marketing of high performance educational and personal/ community empowerment programming. Ms. Carter-Miller has also led Jocelyn Carter-Miller, LLC, a business consulting firm, as President since 2016. From 2002 to 2004, Ms. Carter-Miller served as Executive Vice President and Chief Marketing Officer of Office Depot, Inc. Prior to that, Ms. Carter-Miller spent a decade with Motorola, Inc., initially as a Director of Marketing and Network Service Quality, then as Vice President and GM of International Networks Division Latin America and EMEA Operations, and ultimately as Corporate Vice President and Chief Marketing Officer. She also spent ten years at Mattel, Inc. in marketing, product development and strategic business planning roles. Ms. Carter-Miller also currently serves on the board of directors of Principal Financial Group, Inc., Interpublic Group of Companies, Inc. and Backblaze, Inc. Qualifications: Ms. Carter-Miller provides an in-depth understanding of marketing to home users and small businesses based on her extensive marketing and executive experience at various public companies serving those consumers. The Nominating and Corporate Governance Committee believes that Ms. Carter-Miller’s expertise gained from her time on the boards of large public companies provides an important perspective on corporate governance best practices and procedures that can be applied at Arlo and qualifies her to serve as a member of our Board. | | Jocelyn E. Carter-Miller | | | Age 66 Director since 2018 Board Committees: Compensation and Human Capital (Chair), Audit, Strategic and Capital Allocation Other Current Public Company Boards: Principal Financial Group, Inc., Interpublic Group of Companies, Inc., Backblaze, Inc. | |
Directors Continuing in Office Until the 2025 Annual Meeting
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Directors Continuing in Office Until the 2026 Annual Meeting
Directors Continuing in Office Until the 2026 Annual Meeting
Directors Continuing in Office Until the 2026 Annual Meeting
| | Business Experience: Grady Summers has served as a member of our Board since August 2018. Prior to joining our Board, Mr. Summers served on the board of directors of NETGEAR from January 2016 to August 2018. Mr. Summers currently serves as Executive Vice President, Product at SailPoint Technologies, Inc., a leading provider of enterprise identity governance solutions. From 2014 to 2020, Mr. Summers served in various roles at FireEye, Inc., a manufacturer of flame safeguard controls and burner management systems, most recently as Executive Vice President and Chief Technology Officer. He joined FireEye through its 2014 acquisition of Mandiant. From 2012 to 2014 while at Mandiant, Mr. Summers served as Vice President of Strategic Solutions and led the company’s strategic consulting and customer success divisions. From 2010 to 2012, Mr. Summers was a principal at Ernst & Young. From 1999 to 2010, he held various roles at General Electric, most recently as the Chief Information Security Officer overseeing GE’s large global information security organization. Qualifications: Mr. Summers provides Arlo with technology perspectives, strategic insight and cybersecurity oversight. The Nominating and Corporate Governance Committee believes that Mr. Summers’ experience reviewing, leading, designing and implementing cybersecurity programs and his expertise in addressing the security and privacy challenges that Arlo faces in today’s connected world qualifies him to serve as a member of our Board. | | Grady K. Summers | | | Age 47 Director since 2018 Board Committees: Cybersecurity and Privacy (Chair), Compensation and Human Capital Other Current Public Company Boards: None | |
Directors Continuing in Office Until the 2026 Annual Meeting
| | Business Experience: Prashant (Sean) Aggarwal has served as a member of our Board since October 2018. Mr. Aggarwal has served as Chief Executive Officer of Soar Capital Partners since 2016, where he focuses on investments in early-stage technology companies. From 2011 to 2015, Mr. Aggarwal was Chief Financial Officer of Trulia, Inc., an online real estate company, where he directed the company’s successful initial public offering in 2012. From 2008 to 2011, Mr. Aggarwal served as Vice President of Finance at PayPal, Inc., an online payments company. From 2003 to 2008, Mr. Aggarwal held various finance roles at eBay, Inc., an online commerce company, including Vice President of Finance. Prior to eBay, Mr. Aggarwal was Director of Finance at Amazon, Inc., an online commerce company. Mr. Aggarwal started his career in investment banking with Merrill Lynch, Pierce, Fenner & Smith Incorporated. Mr. Aggarwal also currently serves on the board of directors of Lyft, Inc., a transportation company that connects drivers with riders, and Sonder Holdings, Inc., a hospitality company. Qualifications: Mr. Aggarwal has significant operational and finance experience as an executive and board member of technology companies. He has led organizations through periods of rapid top-line growth and expansion into international markets. The Nominating and Corporate Governance Committee believes that Mr. Aggarwal’s deep understanding of finance, financial reporting, strategy, operations and risk management qualifies him to serve as a member of our Board. | | Prashant (Sean) Aggarwal | | | Age 58 Director since 2018 Board Committees: Nominating and Corporate Governance, Compensation and Human Capital, Audit Other Current Public Company Boards: Lyft, Inc. (Chair) and Sonder Holdings Inc. | |
Directors Continuing in Office Until the 2026 Annual Meeting
| | Arlo Technologies, Inc. Notice of 2024 Annual Meeting and Proxy Statement 23 |
Directors Continuing in Office Until the 2026 Annual Meeting
| | Business Experience: Amy Rothstein has served as a member of our Board since May 2019. Ms. Rothstein currently serves as Chief Legal Officer and Head of Corporate Development at Nexxen (formerly Tremor International Ltd.), a leading provider of digital video brand advertising solutions, where she is responsible for managing global legal affairs and driving operational and strategic goals. Ms. Rothstein also previously served as Chief Operating Officer of Nexxen. Ms. Rothstein joined Nexxen through its acquisition of RhythmOne Plc in 2019, at which time Ms. Rothstein served as Executive Vice President, Chief Legal Officer and Chief Operating Officer of RhythmOne. Ms. Rothstein joined RhythmOne through its acquisition of YuMe Inc., where since 2013, she served as Deputy General Counsel and then General Counsel. Prior to joining YuMe, Ms. Rothstein served as Director of Mergers and Acquisitions for North America at Hewlett Packard Inc., where she led and supported a variety of complex transactions and provided governance counsel. She has also held associate positions at Weil, Gotshal and Manges LLP and Cooley LLP advising clients on a wide variety of securities, mergers and acquisitions, commercial and governance matters. Qualifications: Ms. Rothstein has significant legal and operational experience as an executive in technology and advertising companies. The Nominating and Corporate Governance Committee believes that Ms. Rothstein’s extensive experience evaluating and executing complex strategic transactions including mergers and acquisitions and advising public company technology boards qualifies her to serve as a member of our Board. | | Amy Rothstein | | | Age 49 Director since 2019 Board Committees: Audit, Nominating and Corporate Governance, Cybersecurity and Privacy, Strategic and Capital Allocation Other Current Public Company Boards: None | |
Directors Continuing in Office Until the 2026 Annual Meeting
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Directors Continuing in Office Until the 2026 Annual Meeting
| DIRECTOR AND EXECUTIVE COMPENSATION |
DIRECTOR COMPENSATION
DIRECTOR COMPENSATION Under our non-employee director compensation policy (the “Director Compensation Policy”), our non-employee directors received the following compensation for the 2023 fiscal year: Cash Retainer. Our non-employee directors receive a $32,000 annual retainer. The Chair of the Board and members and Chairs of each committee of the Board also receive the additional annual retainers described below:
DIRECTOR COMPENSATION
| • | Chair. The Chair of the Board will receive an additional annual retainer of $50,000. |
DIRECTOR COMPENSATION
| • | Audit Committee. Each member (including the Chair) of the Audit Committee will receive an annual retainer of $10,000, and the Chair will receive an additional annual retainer of $12,000. |
DIRECTOR COMPENSATION
| • | Compensation and Human Capital Committee. Each member (including the Chair) of the Compensation and Human Capital Committee will receive an annual retainer of $7,500, and the Chair will receive an additional annual retainer of $7,500. |
DIRECTOR COMPENSATION
| • | Nominating and Corporate Governance Committee. Each member (including the Chair) of the Nominating and Corporate Governance Committee will receive an annual retainer of $5,000, and the Chair will receive an additional annual retainer of $5,000. |
DIRECTOR COMPENSATION
| • | Cybersecurity and Privacy Committee. Each member (including the Chair) of the Cybersecurity and Privacy Committee will receive an annual retainer of $10,000, and the Chair will receive an additional annual retainer of $10,000. |
DIRECTOR COMPENSATION
| • | Strategic and Capital Allocation Committee. The members (including the Chair) of the Strategic and Capital Allocation Committee currently do not receive annual retainers for serving on this committee. |
DIRECTOR COMPENSATION
All retainers are paid on a quarterly basis following the end of each quarter and are prorated, as needed, for partial service during such period. Annual Grant. In addition, on an annual basis, each non-employee director who continues to serve as a non-employee director following each annual meeting of stockholders will receive an annual grant of a number of RSUs equal to $180,000 divided by the NYSE closing price of our common stock on the date of such annual stockholder meeting (rounded down to the nearest whole share), which will become fully vested on the date of the following year’s annual stockholder meeting. Initial RSU Grant. Upon joining the Board, each non-employee director will receive an initial grant of RSUs (the “Initial Grant”) equal to $180,000, with such dollar amount prorated for the date of such initial election or appointment in relation to the date of the previous annual meeting of stockholders, divided by the NYSE closing price of our common stock on the date of grant (rounded down to the nearest whole share), which will become fully vested on the date of the next annual stockholder meeting. Vesting of equity awards held by our non-employee directors will fully accelerate if we are subject to a “change in control” (as defined under our 2018 Equity Incentive Plan (the “2018 Plan”)). Continuing Education. In order to encourage continuing director education, we reimburse certain director education of $7,000 over a two-year period and we provide continuing education sessions for the Board, as a whole, to attend in connection with one of its regularly scheduled meetings. Travel Expenses. Our non-employee directors are entitled to reimbursement for travel and other related expenses incurred in connection with their attendance at meetings of our Board and the committees thereof.
DIRECTOR COMPENSATION
| | Arlo Technologies, Inc. Notice of 2024 Annual Meeting and Proxy Statement 25 |
DIRECTOR COMPENSATION
The following table details the compensation of our non-employee directors for the 2023 fiscal year.
DIRECTOR COMPENSATION
| Name | Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2) | Option Awards ($)(3) | Total ($) | | Ralph E. Faison(4) | $109,500 | $179,998 | $— | $289,498 | | Prashant (Sean) Aggarwal(4) | $54,500 | $179,998 | $— | $234,498 | | Grady K. Summers(4) | $59,500 | $179,998 | $— | $239,498 | | Jocelyn E. Carter-Miller(4) | $57,000 | $179,998 | $— | $236,998 | | Catriona M. Fallon(4) | $64,000 | $179,998 | $— | $243,998 | | Amy M. Rothstein(5) | $57,000 | $179,998 | $10,000 | $246,998 |
DIRECTOR COMPENSATION
| (1) The fees earned by our non-employee directors in 2023 represent the annual cash retainers discussed above, a portion of which were paid in 2024. |
DIRECTOR COMPENSATION
| (2) The amounts included in the “Stock Awards” column represent the grant date fair value of awards granted in 2023 calculated in accordance with FASB ASC 718. Refer to Note 2 in the Notes to Consolidated Financial Statements in Item 8 of Part II of the Annual Report for the assumptions used to estimate fair value at the grant date. |
DIRECTOR COMPENSATION
| (3) The amount included in the “Option Awards” column represent the grant date fair value of awards granted in 2023 calculated in accordance with FASB ASC 718. Refer to Note 2 in the Notes to Consolidated Financial Statements in Item 8 of Part II of the Annual Report for the assumptions used to estimate fair value at the grant date. |
DIRECTOR COMPENSATION
| (4) As of December 31, 2023, each of Messrs. Faison, Aggarwal and Summers, and Mses. Carter-Miller and Fallon held 19,629 RSUs. |
DIRECTOR COMPENSATION
| (5) As of December 31, 2023, Ms. Rothstein held 19,629 RSUs and outstanding stock options to purchase 10,000 shares of our common stock. |
DIRECTOR COMPENSATION
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2023 Business Highlights
| • | Cash and cash equivalence and short-term investment were $136.5 million as of December 31, 2023 |
2023 Executive Compensation Highlights
| • | No cash compensation increases. We did not increase base salaries or annual target performance bonuses for any of our named executive officers during 2023. |
2023 Executive Compensation Highlights
| • | Limited fixed pay. Over 83% of our Chief Executive Officer’s and 74% of Mr. Busse’s 2023 total direct compensation, on average, was ‘at-risk’ and dependent on Company performance. Components of such at-risk compensation included annual performance bonus earned and equity incentive awards granted, excluding additional tranches of PSUs granted pursuant to the Executive Retention Program in 2022. Mr. Binder is not included in the “Other NEOs” chart below because he was hired in September 2022 and did not receive any equity award grants in 2023. |
2023 Executive Compensation Highlights
| • | Rigorous annual incentive plan goals. We structured annual performance bonuses to provide payout upon achievement of a rigorous Non-GAAP Operating Income target for 2023; we achieved 70% of our target goal and paid bonuses to our named executive officers equal to 70% of target. For 2023, we chose to pay annual performance bonuses in the form of fully-vested RSUs. |
2023 Executive Compensation Highlights
| • | Emphasis on performance-based equity tied to our multi-year strategy. We continued to emphasize equity awards that vest based on performance goals. In 2023, in addition to time vesting RSUs, we granted PSUs to our named executive officers. 75% of our Chief Executive Officer’s and 63% of Mr. Busse’s 2023 equity awards consisted of PSUs that vest based on achievement of attainment of certain Cumulative Paid Subscriber thresholds (“CPS PSUs”). |
2023 Executive Compensation Highlights
| • | No one-time equity awards. We did not make any one-time equity awards to our named executive officers during 2023 and we lowered the aggregate grant date value of annual equity awards granted to Messrs. McRae and Busse, from awards granted in 2022. We did not grant equity awards to Mr. Binder in 2023, since he was hired in September 2022 and received a sign-on equity award. |
Compensation Policies and Practices
| What We Do | | What We Don't Do | | | ☑ | Maintain an independent Compensation and Human Capital Committee with independent compensation consultant | ☒ | No guaranteed salary increases or bonus payouts | | ☑ | Annually review the executive compensation program | ☒ | No agreements providing for tax reimbursements or tax gross-up on severance or upon a change in control | | ☑ | Use a pay-for-performance philosophy where a significant portion of compensation is “at risk” and based on Company performance | ☒ | No excessive perquisites | | ☑ | Award annual incentive compensation subject to the achievement of predetermined performance goals | ☒ | No hedging or pledging of our equity securities | | ☑ | Grant a significant portion of equity incentives in the form of PSUs that only vest upon achievement of defined performance goals over a multi-year performance period | ☒ | No supplemental executive retirement or pension plans | | ☑ | Maintain a clawback policy that complies with current SEC requirements, with prior policy continuing to apply under certain circumstances, including in the case of misconduct | ☒ | No guaranteed ‘single-trigger’ change in control payments |
Compensation Policies and Practices
approves, all compensation for our named executive officers, except for the approval of compensation for our Chief Executive Officer, whose compensation is approved by the independent members of our Board after considering recommendations from our Compensation and Human Capital Committee. Our Compensation and Human Capital Committee works with and receives information and analyses from management, including our legal, finance, and human resources departments, our independent compensation consultants, and our Chief Executive Officer, and considers such information and analyses in determining the structure and amount of compensation to be paid to our executive officers (other than his own compensation). Our Chief Executive Officer provides recommendations to the Compensation and Human Capital Committee regarding the compensation of all executive officers (other than himself) based on the overall corporate achievements during the period being assessed and his knowledge of the individual contributions to our success by each of the executive officers. The Compensation and Human Capital Committee takes these recommendations into consideration when determining the overall performance of the company and each of our executive officers individually, as demonstrated by progress measured against corporate goals and achievement of other corporate priorities. From time to time, various other members of management and other employees as well as outside advisors or consultants may be invited by the Compensation and Human Capital Committee to make presentations, provide financial or other background information or advice, or otherwise participate in Compensation and Human Capital Committee or Board meetings. Members of management, including our Chief Executive Officer, may attend portions of our Compensation and Human Capital Committee’s meetings; however, neither our Chief Executive Officer nor any other member of management is present during decisions regarding his or her own compensation. Role of Independent Compensation Consultant Our Compensation and Human Capital Committee has the sole authority to retain compensation consultants to assist in its evaluation of executive compensation, including the authority to approve the consultant’s reasonable fees and other retention terms. For purposes of evaluating 2023 compensation for each of our executive officers and making 2023 compensation decisions, our Compensation and Human Capital Committee retained Compensia, Inc., or Compensia, to assist it in reviewing our executive compensation program and to ensure that our compensation program remains competitive in attracting and retaining talented executives. In October 2023, the Compensation and Human Capital Committee retained Pay Governance, LLC (“Pay Governance”) to serve as its compensation consultant. Pay Governance assisted with reviewing Arlo’s 2023 peer group in order to understand the peer group changes required for 2024 compensation decisions. During 2023, Compensia assisted the Compensation and Human Capital Committee in selecting a group of peer companies to use as a reference in understanding the competitive market, evaluating current pay practices and philosophies, and considering compensation and corporate governance best practices. As described further below, Compensia also prepared an analysis of our compensation practices with respect to base salaries, annual bonuses and long-term incentive compensation compared to competitive market practices. Compensia reported directly to, and advised, our Compensation and Human Capital Committee. Compensia interacted with management to gain access to company information that is required to perform its services and to understand the culture and policies of our organization. Our Compensation and Human Capital Committee has considered whether the work of Compensia and Pay Governance has raised any conflict of interest, taking into account the factors set forth in the SEC rules and the NYSE listing standards, and determined that that there is no conflict of interest resulting from retaining Compensia and Pay Governance currently or during 2023. Other than the services provided to our Compensation and Human Capital Committee, Compensia and Pay Governance has not performed any other work for us. Role of Market Data Because the Compensation and Human Capital Committee aims to attract and retain the most highly qualified executive officers in a competitive market for talent, it believes that it is important when making its compensation decisions to be informed as to the current practices of comparable public companies with which we compete for top talent. To this end, as described below, the Compensation and Human Capital Committee reviews data from a peer group of companies as a reference point in making executive compensation decisions.
Compensation Policies and Practices
The Compensation and Human Capital Committee approved a peer group in January 2023 which it developed in consultation with Compensia and with input from our Chief Executive Officer. The peer group for 2023 consists of the following 24 U.S. publicly traded companies. Determining an executive compensation peer group is not easy as there are few, if any, direct comparable business competitors that are stand-alone public companies of similar size. Our closest competitors are in many cases a division of a larger publicly traded company. In selecting the companies to include in the peer group, the Compensation and Human Capital Committee considered the following targeted selection criteria:
Compensation Policies and Practices
Our Compensation and Human Capital Committee’s general approach emphasizes setting total compensation for executives, which consists of base salary and benefits, annual incentive bonus, and equity-based incentives, at or near the median of the peer group. However, the use of peer company data is not formulaic, and the Compensation and Human Capital Committee considers market data as only one of the factors that informs its decisions, as described below under “Key Factors Used in Determining Executive Compensation.” Our Compensation and Human Capital Committee sets the compensation of our executive officers at levels they determine to be competitive and appropriate for each named executive officer, with committee members using their professional experience and judgment. Our Compensation and Human Capital Committee believes that executive pay decisions require consideration of a multitude of relevant factors which may vary from year to year. Pay decisions are not made by using a formulaic approach or benchmark data. In making executive compensation decisions, our Compensation and Human Capital Committee generally takes into consideration the factors listed below:
Compensation Policies and Practices
| • | Whether the equity award holdings of the named executive officer provide a sufficient retention incentive; |
Compensation Policies and Practices
| • | Peer company data, as described above under “Role of Market Data”. |
Compensation Elements Summary
| Element | Objective | Determination Factors | | Base Salary (fixed compensation) | • Provides financial stability and security through a fixed salary for performing job responsibilities. | • Skills, experience, and performance of individual compared to the market. • Value of role to Arlo. | | Performance Bonus (variable compensation) | • Motivates and rewards employees for achieving rigorous annual corporate performance goals that relate to our key business objectives. • Supports need for long-term sustained performance and focuses executives on critical long-term performance goals. • Aligns interests of executives and stockholders, encouraging equity ownership and stockholder alignment, including through payment of earned bonus in the form of stock unit awards. • Retains key executives. | • Award payout based on achievement against annual company performance goals. • 2023 annual award payout based on achievement against operating income goals. • Longer-term retention cash bonuses earned based on achievement of specified cumulative paid subscriber account goals | | Equity-based Incentives (variable equity compensation) • Time-based RSUs • Performance-based RSUs | • Motivates and rewards for long-term company performance. Aligns pay with long-term stockholder value. • Attracts highly qualified executives and encourages their continued employment over the long-term. | • Value delivered based on continuing service, and on achievement of cumulative paid subscriber account goals. • Equity awards granted in prior years continued to provide retention value based on achievement of stock price performance, cash balance goals and total stockholder return metrics. |
Compensation Elements Summary
We also provide our executive officers with severance and change-in-control related payments and benefits, as well as benefits available to all our employees, including retirement benefits under our 401(k) plan and participation in various employee health and welfare benefit plans. In evaluating our executive compensation policies and programs, as well as the short-term and long-term value of our executive compensation plans, we consider both company and individual performance and skills of each of our executives, as well as the
2023 Executive Compensation Program
Performance Bonus The annual performance bonus program provides each named executive officer with the opportunity to earn annual incentive payments based upon the attainment of certain corporate financial or operational measures or objectives as appropriate for the year, based on such participant’s annual performance bonus opportunity, expressed as a percentage of base salary. 2023 Target Bonus For 2023, Messrs. McRae, Binder and Busse had the opportunity to earn a target annual performance bonus equal to 100%, 70% and 50% of their annual base salary, respectively. The target percentages applicable to such named executive officers for 2023 were unchanged from 2022. 2023 Performance Goals and Achievements For 2023, the Compensation and Human Capital Committee established non-GAAP operating income (loss) as the corporate performance goal applicable to the 2023 plan year. The Compensation and Human Capital Committee chose this metric because it drives revenue growth and gives our executive officers the opportunity to manage and contain operating expenses. If we overachieve our target measure, the maximum payout any named executive officer could receive is 150% of the target bonus. Executives earn a payout of 10% of their target bonus upon achievement of the threshold level of achievement shown below, with payout increasing proportionately based on achievement against the target goal, up to a maximum bonus of 150% of the executive’s target amount for achievement at or above 150% of the goal. The full Board set the target measure at a level it felt was rigorous, but achievable with effort and represented a meaningful increase from our level of achievement in 2022.
2023 Executive Compensation Program
| Corporate Performance Goal | Payout Formula | Achievement (in thousands) | Payout Percentage | | Non-GAAP Operating Income (Loss)(1) | • Threshold achievement: no payout at less than $13.4 million operating income | $13,400 | 10% | | | • Target achievement (100% of target): 100% payout funding | $30,000 | 100% | | | • Maximum achievement (150% of target): 150% payout funding | $44,000 | 150% |
2023 Executive Compensation Program
| Named Executive Officer | Target ($) | Actual Payout as % of Target | Actual Payout ($) | | Matthew McRae | $790,000 | 70% | $553,000 | | Kurtis Binder | $350,000 | 70% | $245,000 | | Brian Busse | $195,000 | 70% | $136,500 |
2023 Executive Compensation Program
Equity-Based Incentives Since our IPO, we have granted equity compensation to our executive officers primarily in the form of RSU or PSU awards. We grant equity incentive awards to support long-term alignment between our executive officers and our stockholders, and to enable us to obtain and retain the services of highly qualified senior management team members, which we believe is essential to our long-term success. 2023 Annual Equity Awards During 2023, we granted each of our named executive officers annual time-based RSUs and performance-based RSUs as reflected in the table below. We did not grant equity awards to Mr. Binder in 2023 because he received meaningful equity incentive grants in September 2022 when he joined our company.
2023 Executive Compensation Program
| Named Executive Officer | Time-Based RSUs | Performance-Based CPS PSUs | | | (in shares) | | | Matthew McRae | 437,500 | 937,500 | | Brian Busse | 125,000 | 175,000 |
2023 Executive Compensation Program
The Compensation and Human Capital Committee chose each named executive officer’s grant level based on the amount which they felt, in their judgment, was appropriate to retain and incentivize the named executive officers, while remaining reasonable within market standards. In making these determinations, the Compensation and Human Capital Committee considered each of the named executive officer’s current equity holdings, including vested and unvested holdings and the extent to which such holdings were “in-the-money,” the extent to which such holdings remained unvested and therefore continued to serve as a retention tool, the market data provided by Compensia reflecting equity value based on approximate grant date fair value, internal equity amongst the team, individual performance and length of service. The time-based RSUs vest in four equal annual installments beginning on the RSU grant date in January 2023.
2023 Executive Compensation Program
The performance-based CPS PSUs vest in substantially equal installments upon achievement of 3 million, 4 million and 5 million Cumulative Paid Subscribers, as such term is defined and described below under “Executive Retention Plan Awards” on or prior to September 30, 2027. Executive Retention Plan Awards In August 2022, we adopted an Executive Retention Plan under which Messrs. McRae and Busse have the opportunity to earn cash and equity payouts upon achievement by us of certain Cumulative Paid Subscriber thresholds over a five-year performance period beginning in September 2022 and ending in September 2027. For purposes of the Executive Retention Plan, Cumulative Paid Subscribers means, on a cumulative basis, ordinary course paid subscription accounts generated by us which collectively are expected to generate at least a blended 60% margin as reasonably determined in the sole discretion of the Board or the Compensation and Human Capital Committee. We implemented the Executive Retention Plan in recognition of the significant benefits to us in retaining and incentivizing such participants to continue their employment relationship with us. Compensation and Human Capital Committee chose CPS as the performance goal for the Executive Retention Plan because the paid account subscribers drives our service revenue growth that generate over 70% gross margin. Upon achievement by us during the five-year performance period of each of the CPS Targets listed in the table below, each of Messrs. McRae and Busse is entitled to receive a cash payment and a PSU equal to, or calculated by reference to, such Participant’s base amount or base PSU as reflected below. The CPS Targets were set in 2022 at levels the Board felt would be challenging based upon our historical performance, internal forecasts at the time of approval and industry-wide conditions.
2023 Executive Compensation Program
| CPS Target | Retention Bonus | CPS PSU | | 2 Million | Base Amount | Base PSU | | 3 Million | 50% of Base Amount (the “3 Million Amount”) | 50% of Base Amount (the “3 Million PSU”) | | 4 Million | 50% of Base Amount (the “4 Million Amount”) | 50% of Base Amount (the “4 Million PSU”) | | 5 Million | 100% of Base Amount (the “$5 Million Amount”) | 100% of Base Amount (the “$5 Million PSU”) |
2023 Executive Compensation Program
Messrs. McRae’s and Busse’s Retention Bonus Base Amounts are $2,000,000 and $200,000, respectively, and Messrs. McRae’s and Busse’s CPS Base PSU amounts are 1,000,000, and 100,000 shares, respectively. The CPS Base PSU was granted in 2022 and will vest upon achievement of the 2 Million CPS Target. Upon achievement of each CPS Target, the PSU award corresponding to the next CPS Target will be granted and eligible to vest upon achievement of such CPS Target. Upon Mr. Binder’s joining us in September 2022, he was granted 750,000 PSUs that vests in three equal installments upon achievement of each of the 3 Million, 4 Million and 5 Million CPS Targets on or prior to the fifth anniversary of the grant date of the PSUs. The Retention Bonus and CPS PSUs described above are eligible for acceleration or different vesting upon certain change in control or termination events as described below under “Potential Payments upon Termination or Change in Control”. In May 2023, the 2 Million CPS Target was achieved; accordingly, each of Messrs. McRae and Busse received (1) the Retention Bonus ($2,000,000 and $200,000, respectively), (2) vesting of the CPS PSU (1,000,000 shares and 100,000 shares, respectively); and (3) grant of CPS PSUs (500,000 shares and 50,000 shares, respectively) that are eligible to vest upon the achievement of the 3 Million CPS Target. In February 2024, the 3 Million CPS Target was achieved; accordingly, each of Messrs. McRae and Busse will receive in May 2024, (1) the Retention Bonus ($1,000,000 and $100,000, respectively), (2) vesting of the CPS PSUs (500,000 shares and 50,000 shares, respectively); and (3) grant of CPS PSUs (500,000 RSUs and 50,000 RSUs, respectively) that will vest upon achievement of the 4 Million CPS Target. Performance Achievement for Other Prior Year PSUs In 2022, Messrs. McRae and Busse were granted Cash Balance PSUs (“CB PSUs”) that vest based on achievement of a cash balance milestone at December 31, 2022. The CB PSUs goal was achieved and the resulting CB PSUs eligible to vest do so in three equal annual installments beginning January 2023, subject to continued service. Accordingly, Messrs. McRae and Busse became eligible to vest with respect to 88.88% of the target number of CB PSUs, subject to continuous service over the vesting period described above.
2023 Executive Compensation Program
| Named Executive Officer | Target CB PSUs (in shares) | Achievement of Performance Goals as % of Target | CB PSUs Eligible to Vest (in shares) | | Matthew McRae | 92,203 | 88.88% | $81,950 | | Brian Busse | 31,612 | 88.88% | $28,096 |
2023 Executive Compensation Program
Agreements with Our Named Executive Officers We have entered into employment letters with each of Messrs. McRae, Binder and Busse. The employment letters generally memorialize the executive officer’s initial base salary and target annual bonus, and participation in our employee benefit plans and programs. These individuals’ base salaries, annual bonus opportunities and any equity awards are reviewed annually by the Compensation and Human Capital Committee; the amounts effective for 2023 are described above in this Compensation Discussion and Analysis. Severance and Change in Control Benefits Regardless of the manner in which a named executive officer’s service terminates, the named executive officer is entitled to receive amounts earned during his or her or their term of service, including salary and unused vacation pay. Each of our named executive officers is eligible for payments or benefits in connection with certain types of involuntary terminations and/or a change in control event. None of our named executive officers are entitled to tax gross ups in connection with severance or change in control transactions. Our Compensation and Human Capital Committee periodically reviews the severance and change in control benefits that we provide, including by reference to market data, to ensure that the benefits remain appropriately structured and at reasonable levels. The Compensation and Human Capital Committee believes that severance protection benefits are necessary to provide stability among our executive officers, serve to focus our executive officers on our business operations, and avoid distractions in connection with a potential change in control transaction or period of uncertainty. A more detailed description of each of our named executive officer’s potential payments and benefits upon a termination or change in control is provided below under “Potential Payments upon Termination or Change in Control.” Perquisites, Health, Welfare and Retirement Benefits Our named executive officers are currently eligible to participate in all of our employee benefit plans, including our medical, dental, vision, group life, disability and accidental death and dismemberment insurance plans, in each case on the same basis as our other employees. In addition, we provide a cash subsidy, which is $50 per pay period, to any employee, including a named executive officer, who does not elect coverage under our company-sponsored medical insurance plans. We also provide a 401(k) plan to our employees, including our named executive officers, as discussed in the section below entitled “401(k) Plan.” We do not provide any perquisites or personal benefits to our named executive officers not otherwise also provided to our other employees, and on the same basis as to our other employees. We do, however, pay the premiums for term life insurance and disability insurance for all of our employees, including our current named executive officers. 401(k) Plan We currently maintain a defined contribution employee retirement plan (“401(k) plan”) for our employees. Our named executive officers are eligible to participate in the 401(k) plan on the same basis as our other employees. The 401(k) plan is intended to qualify as a tax-qualified plan under Section 401(k) of the Code. The plan permits us to make discretionary contributions, including matching contributions and discretionary profit-sharing contributions. In fiscal year 2023, we matched 50% of the contributions for employees that remain active through the end of the fiscal year, up to a maximum of $2,000. For fiscal year 2024, we changed our matching contribution maximum and will match 50% of the contributions for employees that remain active through the end of the fiscal year, up to a maximum of $4,000. The 401(k) plan currently does not offer the ability to invest in our securities. Tax and Accounting Considerations As a general matter, the Compensation and Human Capital Committee reviews and considers various tax and accounting implications of compensation programs we utilize. Under Section 162(m) of the Code (“Section 162(m)”), compensation paid to each of the Company’s “covered employees” that exceeds $1 million per taxable year is generally non-deductible, excluding certain performance-based compensation that qualifies for an exception pursuant to the transition relief provided by the Tax Cuts and Jobs Act.
2023 Executive Compensation Program
The Compensation and Human Capital Committee looks at a variety of factors in making its decisions and retains the flexibility to provide compensation for the Company’s named executive officers in a manner consistent with the goals of the Company’s executive compensation program and the best interests of the Company and its stockholders, which may include providing for compensation that is not deductible by the Company due to the deduction limit under Section 162(m). The Compensation and Human Capital Committee also retains the flexibility to modify compensation that was initially intended to be exempt from the deduction limit under Section 162(m) if it determines that such modifications are consistent with the Company’s business needs. We follow the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718 (“ASC Topic 718”) for our stock-based compensation awards. ASC Topic 718 requires companies to calculate the grant date “fair value” of their stock-based awards using a variety of assumptions. ASC Topic 718 also requires companies to recognize the compensation cost of their stock-based awards in their income statements over the period that an employee is required to render service in exchange for the award. Grants of stock options and restricted stock units and performance-vesting restricted stock units under our equity incentive award plans are accounted for under ASC Topic 718. The Compensation and Human Capital Committee considers the accounting implications of significant compensation decisions, especially in connection with decisions that relate to our equity award programs. As accounting standards change, we may revise certain programs to appropriately align accounting expenses of our equity awards with our overall executive compensation philosophy and objectives.
Other Compensation Policies and Practices
A Covered Individual’s ownership shall be reviewed annually based on the number of such Covered Individual’s Eligible Shares as of the last day of the calendar year to determine if the Covered Individual has met the applicable Guidelines for such year (or, during the Compliance Period, to assess progress towards meeting the Guidelines). If the Guidelines are deemed met for such year, the Covered Individual shall be deemed to comply with the Guidelines for the entire following year. The following shares of common stock are “Eligible Shares” that shall be included in the calculation of a Covered Individual’s stock ownership, whether or not purchased on the open market or obtained through the exercise of stock options or vesting of equity awards granted by Arlo to such Covered Individual: (1) shares owned outright by the Covered Individual and by members of his or her immediate family (as defined in Rule 16a-1(e) under the Exchange Act) (“Family Member”); (2) shares held in trust for the benefit of the Covered Individual, or for the benefit of a Family Member of such Covered Individual; (3) vested shares under any deferred compensation plan; and (4) vested and unvested time-based restricted stock units, net of the estimated number of shares needed to pay the minimum tax withholding for those vested units. Shares of common stock underlying (i) unexercised options (whether vested or unvested) and (ii) unearned performance-vesting restricted stock units will not be considered Eligible Shares in determining whether a Covered Individual has met the applicable Guidelines. If a Covered Individual fails to satisfy the Guidelines, the Board may take a number of actions as it determines appropriate, including prohibiting the Covered Individual from selling any shares acquired through the vesting or the exercise of stock awards, other than shares needed to pay applicable taxes and exercise prices, until the Guidelines are met. Hedging and Pledging of Securities As part of our Insider Trading Compliance Program (“Insider Trading Policy”), we require that our executive officers, directors and certain designated employees limit their transactions in our stock to defined time periods, subject to certain exceptions. We also require that executive officers, directors and certain designated employees notify, and receive approval from, a Company clearing officer prior to engaging in transactions in our stock and observe other restrictions designed to minimize the risk of apparent or actual insider trading. These restrictions apply to any entities or family members whose trading activities are controlled or influenced by such executive officer, director or employee. Further, our Insider Trading Policy prohibits our directors and employees, including our executive officers, from engaging in short sales, transactions in put or call options, hedging of stock ownership positions, pledging Company stock as collateral for a loan, or other inherently speculative transactions with respect to our stock at any time. Risk Assessment Concerning Compensation Practices and Policies Our Compensation and Human Capital Committee has reviewed our compensation policies and practices to assess whether they encourage our employees to take inappropriate risks. After reviewing and assessing our compensation philosophy, policies and practices, including the mix of fixed and variable, short-term and long-term incentives and overall pay, incentive plan structures, and the checks and balances built into, and oversight of, each plan and practice, our Compensation and Human Capital Committee has determined that any risks arising from our compensation policies and practices for our employees are not reasonably likely to have a material adverse effect on our Company as a whole. Further, our Compensation and Human Capital Committee believes that the mix and design of the elements of executive compensation do not encourage management to assume excessive risks; the mix of short-term compensation (in the form of base salary and an annual performance bonus opportunity, if any), and long-term compensation prevents undue focus on short-term results and helps align the interests of our executive officers with the interests of our stockholders.
Executive Compensation Tables
| Name and Principal Position | Year | Salary | Stock Awards(2) | Non-Equity Incentive Plan Compensation(3) | All Other Compensation(4) | Total | | Matthew McRae Chief Executive Officer | 2023 | $790,000 | $6,550,000 | $2,553,000 | $18,634(5) | $9,911,634 | | | 2022 | $790,000 | $13,818,702 | $790,000 | $7,248 | $15,405,950 | | | 2021 | $750,000 | $8,954,297 | $750,000 | $3,726 | $10,458,023 | | Kurtis Binder Chief Financial Officer | 2023 | $500,000 | $— | $245,000 | $3,184 | $748,184 | | | 2022(1) | $134,615 | $7,020,000 | $94,231 | $2,040 | $7,250,886 | | Brian Busse General Counsel | 2023 | $390,000 | $1,259,500 | $336,500 | $1,184 | $1,987,184 | | | 2022 | $390,000 | $1,831,497 | $195,000 | $26,494 | $2,442,991 | | | 2021 | $350,000 | $715,821 | $175,000 | $2,452 | $1,243,273 |
Potential Payments Upon Termination or Change of Control
Potential Payments Upon Termination or Change of Control Regardless of the manner in which a named executive officer’s service terminates, the named executive officer is entitled to receive amounts earned during his or her term of service, including unpaid salary and unused vacation, as applicable. Involuntary Termination Without Cause or Resignation for Good Reason in Connection with a Change in Control Upon a termination without cause or resignation with good reason that occurs during the one month prior to or 12 months following a change in control, Messrs. McRae, Binder, and Busse would be entitled to (1) lump-sum cash severance equal to a multiple (2 times for Mr. McRae and 1 times for Messrs. Binder and Busse) of the sum of the executive officer’s annual base salary and target annual bonus, (2) a number of months (24 for Mr. McRae and 12 for Messrs. Binder and Busse) of premium payments for health benefits continuation and (3) vesting of all outstanding, unvested time-based equity awards and PSUs for Mr. McRae (in the case of TSR PSUs, only to the extent the performance goals for such awards are determined achieved as of such change in control) and for Messrs. Binder and Busse vesting of all outstanding, unvested time-based equity awards and PSUs (in the case of TSR PSUs, only to the extent the performance goals for such awards are determined achieved as of such change in control). The above severance payments are conditioned upon the execution and non-revocation of a release of claims. In addition to the severance benefits described above, the named executive officers’ Retention Bonus and CPS PSUs granted in 2023 (as described above under “Compensation Discussion and Analysis — Executive Retention Plan”) provide for conversion and acceleration. In the event of a “Change in Control” (as defined in our 2018 Plan) during the performance period, the right to receive any remaining Retention Bonus and CPS PSUs (or value thereof) not previously paid or granted, respectively, shall be converted to a time-based right over the remainder of the performance period, payable and vesting, as applicable, in equal installments on a quarterly basis following such Change in Control, subject to continued employment with the surviving company in such Change in Control. In the event of certain qualifying terminations related to a Change in Control during such remaining performance period, the payment and vesting of such converted award rights will accelerate in full, subject to satisfaction of certain conditions by a participant, including the execution and non-revocation of a release of claims. The agreements do not provide for any excise tax gross ups. If the merger-related payments or benefits of Messrs. McRae, Binder, and Busse are subject to the excise tax under Section 4999 of the Code, then the executive officer will either receive all such payments and benefits subject to the excise tax or such payments and benefits will be reduced so that the excise tax does not apply, whichever approach yields the best after-tax outcome for the executive officer. Involuntary Termination Without Cause or Resignation without a Change in Control Upon a termination without cause or resignation with good reason that does not occur during the period beginning one month prior to, and ending 12 months following a change in control, Messrs. McRae, Binder, and Busse are each entitled to (1) cash severance equal to the executive officer’s annual base salary and, for Messrs. McRae and Binder, an additional amount equal to their target annual bonus, (2) 12 months of premiums for health benefits continuation and (3) accelerated vesting of any unvested equity awards that would have vested during the 12 months following the termination date for Messrs. McRae, Binder, and Busse.
Potential Payments Upon Termination or Change of Control
| 48 | |
Potential Payments Upon Termination or Change of Control
Further, if during the performance period, a participant is subject to certain qualifying terminations not related to a change in control, Messrs. McRae and Busse will each be entitled to the next incremental Retention Bonuses under the Executive Retention Plan and Messrs. McRae, Binder, and Busse will each be entitled to the acceleration of vesting of the next incremental CPS PSUs that would otherwise have been vested had the next applicable milestone been satisfied.The aforementioned payments and accelerations are subject to satisfaction of certain conditions by a participant, including the execution and non-revocation of a release of claims. The following table shows the potential payments upon termination of employment or a change in control for the named executive officers. The table assumes that the triggering event took place on December 31, 2023. The closing market price of a share of our common stock on December 29, 2023 (the last trading day of 2023) was $9.52.
Potential Payments Upon Termination or Change of Control
| Name | Benefit | Involuntary Termination Without Cause or Resignation for Good Reason in Connection with a Change in Control ($) | Involuntary Termination Without Cause Not in Connection with a Change in Control ($) | | Matthew McRae | Severance Payments | $3,160,000 | $1,580,000 | | | Vesting Acceleration | 40,665,727(1) | 11,936,014 | | | Retention Bonus Acceleration | 4,000,000 | 1,000,000 | | | COBRA Payments | 72,779 | 36,389 | | | Benefit Total | $47,898,506 | $14,552,403 | | Kurtis Binder | Severance Payments | $850,000 | $500,000 | | | Vesting Acceleration | 12,852,000 | 3,808,000 | | | COBRA Payments | 54,584 | 36,389 | | | Benefit Total | $13,756,584 | $4,344,389 | | Brian Busse | Severance Payments | $585,000 | $390,000 | | | Vesting Acceleration | 5,883,322 | 1,537,147 | | | Retention Bonus Acceleration | 400,000 | 100,000 | | | COBRA Payments | 54,065 | 36,043 | | | Benefit Total | $6,922,387 | $2,063,190 |
Potential Payments Upon Termination or Change of Control
| (1) The value above includes an assumption that all CEO PSUs will vest, with the value calculated, based on the closing stock price on the last trading day of December 2023. |
Potential Payments Upon Termination or Change of Control
| | Arlo Technologies, Inc. Notice of 2024 Annual Meeting and Proxy Statement 49 |
Item 402(v) Pay Versus Performance
Item 402(v) Pay Versus Performance The disclosure included in this section is prescribed by SEC rules and does not necessarily align with how the Company or the Compensation and Human Capital Committee view the link between the Company’s performance and named executive officer pay. For additional information about our pay-for-performance philosophy and how we align executive compensation with Company performance, refer to the Compensation Discussion and Analysis beginning on page 27. Required Tabular Disclosure of Pay Versus Performance The following table reports the compensation of our principal executive officer (“PEO”) and the average compensation of the other named executive officers (“NEO”) as disclosed in the Summary Compensation Table (“SCT”) for the past three fiscal years, as well as their “compensation actually paid,” as defined and calculated pursuant to Item 402(v) of Regulation S-K, and certain performance measures required by the rules. The table also provides information on our cumulative total shareholder return (“TSR”), the cumulative TSR of our peer group, net income (loss), and non-GAAP operating income (loss). Use of the term “compensation actually paid” (“CAP”) is required by the SEC’s rules and as a result of the calculation methodology required by the SEC, such amounts differ from compensation actually received by the individuals and the compensation decisions described in the “Compensation Discussion and Analysis” section above.
Item 402(v) Pay Versus Performance
| | | | | | Value of initial fixed $100 investment based on: | | | | | Year (1) | Summary compensation table total for PEO | Compensation actually paid to PEO(2) | Average SCT total for Non-PEO NEOs | Average compensation actually paid to Non-PEO NEOs(2) | Arlo total shareholder return(3) | Peer group total shareholder return(3) | Net income (loss) (in thousands)(4) | Non-GAAP operating income (loss) (in thousands)(5) | | 2023 | $9,911,634 | $36,543,991 | $1,367,684 | $8,011,446 | $122.21 | $102.64 | $(22,036) | $24,957 | | 2022 | $15,405,950 | $(4,020,347) | $4,282,541 | $(18,473) | $45.06 | $89.18 | $(56,626) | $(6,064) | | 2021 | $10,458,023 | $17,399,037 | $1,691,808 | $2,843,554 | $134.66 | $113.69 | $(56,029) | $(11,226) |
Item 402(v) Pay Versus Performance
| (1) Mr. McRae served as our PEO for 2023, 2022, and 2021. The non-PEO NEOs included for purposes of calculating the average amounts in each applicable year are as follows: (i) for 2023, Kurtis Binder and Brian Busse; (ii)for 2022, Kurtis Binder, Brian Busse and Gordon Mattingly; and (iii) for 2021, Brian Busse and Gordon Mattingly. |
Item 402(v) Pay Versus Performance
| (2) Represents compensation actually paid to Mr. McRae and the average amount paid to our non-PEO NEOs as a group, as computed in accordance with Item 402(v) of Regulation S-K. The dollar amounts do not reflect the actual amount of compensation earned during the applicable year. In accordance with the requirements of Item 402(v) of Regulation S-K, the following adjustments were made to Mr. McRae’s total compensation and average total reported compensation for our non-PEO NEOs as a group for each year as reported in the Summary Compensation Table to determine the CAP. |
Item 402(v) Pay Versus Performance
| Year and position | Summary compensation table total | Less: Grant date fair value of equity awards reported in the summary compensation table | Plus: Fair value of equity awards granted during the year that remain unvested as of year end | Plus: Fair value of equity awards granted during the year that vested during the year | Change in fair value of prior years’ equity awards that outstanding and unvested as of year end | Change in fair value of prior years’ equity awards vested during the year* | Less: Fair value of prior years’ equity awards that failed to meet vesting conditions | Compensation actually paid | | PEO | | | | | | | | | | 2023 | $9,911,634 | $6,550,000 | $13,090,000 | $— | $9,792,219 | $10,300,138 | $— | $36,543,991 | | 2022 | $15,405,950 | $13,818,702 | $6,667,578 | $— | $(11,529,152) | $(746,021) | $— | $(4,020,347) | | 2021 | $10,458,023 | $8,954,297 | $13,512,337 | $181,540 | $2,678,829 | $(477,395) | $— | $17,399,037 | | Average Non-PEO Named Executive Officers | | | | | | | | | | 2023 | $1,367,684 | $629,750 | $1,428,000 | $— | $4,513,101 | $1,332,411 | $— | $8,011,446 | | 2022 | $4,282,541 | $3,854,616 | $2,019,945 | $— | $(1,435,189) | $(234,257) | $796,897 | $(18,473) | | 2021 | $1,691,808 | $1,101,269 | $1,268,440 | $— | $1,223,275 | $(238,700) | $— | $2,843,554 |
Item 402(v) Pay Versus Performance
| * Reflects the value of equity calculated in accordance with the SEC methodology for determining CAP for each year shown. We use the closing price on the applicable date as a basis for fair value. Fair values for each PSU award are measured using a Monte Carlo simulation model as PSUs contain a market condition at the time of grant (as calculated in accordance with FASB ASC Topic 718), and the valuation assumptions used to calculate fair values did not materially differ from those disclosed at the time of the grant. |
Item 402(v) Pay Versus Performance
| (3) Arlo TSR is cumulative for the measurement periods beginning on December 31, 2020 and ending on December 31 of each of 2023, 2022, and 2021, respectively, calculated in accordance with Item 201(e) of Regulation S-K. Peer Group TSR is calculated based on the Russell 2000 Index, which is used for purposes of Item 201(e) of Regulation S-K. |
Item 402(v) Pay Versus Performance
| 50 | |
Item 402(v) Pay Versus Performance
| (4) Net income (loss) as reported in our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, 2022, and 2021. |
Item 402(v) Pay Versus Performance
| (5) As required by Item 402(v) of Regulation S-K, we have determined that non-GAAP operating income (loss) is the company selected measure. Non-GAAP operating income (loss) is a non-GAAP financial measure, which represents the GAAP operating income (loss), excluding stock-based compensation expense and other expenses, such as: restructuring charges, impairment charges, separation expense, amortization of development of software cost, and litigation reserves, net. Non-GAAP operating income (loss) may not have been the most important financial performance measure for fiscal years 2022 and 2021 and we may determine a different financial performance measure to be the most important financial performance measure in future years. Non-GAAP operating income (loss) drives our annual performance bonus program in which our NEOs participate and is further described in the Compensation Discussion and Analysis section above. Non-GAAP operating income (loss) as reported and included in our Earnings Release on Form 8-K for the fiscal year ended December 31, 2023, 2022, and 2021. |
Item 402(v) Pay Versus Performance
Required Tabular Disclosure of Most Important Financial Performance Measures Listed below are the financial measures that in our assessment represent the most important performance measures we use to link CAP for the last fiscal year to company performance:
Item 402(v) Pay Versus Performance
| • | Non-GAAP operating income (loss) |
Item 402(v) Pay Versus Performance
| • | Cash Balance |
Item 402(v) Pay Versus Performance
| • | Arlo stock price |
Item 402(v) Pay Versus Performance
| • | Cumulative paid subscriber accounts |
Item 402(v) Pay Versus Performance
Required Disclosure of the Relationship Between Compensation Actually Paid and Financial Performance Measures As required by Item 402(v) of Regulation S-K, we are providing the following graphs to illustrate the relationship between the pay and performance figures that are included in the pay versus performance tabular disclosure above. In addition, the first graph below further illustrates the relationship between Company total shareholder return and that of the Russell 2000 Index. As noted above, CAP for purposes of the tabular disclosure and the following graphs were calculated in accordance with SEC rules and do not fully represent the actual final amount of compensation earned by or actually paid to our named executive officers during the applicable years.
Item 402(v) Pay Versus Performance
| | Arlo Technologies, Inc. Notice of 2024 Annual Meeting and Proxy Statement 51 |
Item 402(v) Pay Versus Performance
All information provided above under the “Item 402(v) Pay Versus Performance” heading will not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing, except to the extent the Company specifically incorporates such information by reference.
Item 402(v) Pay Versus Performance
| 52 | |
Nominees for Election for a Three-Year Term Expiring at the 2027 Annual Meeting
Nominees for Election for a Three-Year Term Expiring at the 2027 Annual Meeting
Nominees for Election for a Three-Year Term Expiring at the 2027 Annual Meeting
| | Business Experience: Matthew McRae has served as our Chief Executive Officer since February 2018 and as a member of our Board since August 2018. Mr. McRae served as Senior Vice President of Strategy of NETGEAR, Inc. (“NETGEAR”) from October 2017 until August 2018. Mr. McRae previously served as the Chief Technology Officer of Vizio Inc., a consumer electronics company, from 2010 to 2017, and prior to that served as its Vice President and General Manager, Advanced Products Group, from 2008 to 2010. From 2007 to 2008, Mr. McRae was Vice President of Marketing and Business Development of Fabrik (now part of HGST, Inc.), a provider of data storage and next generation web services, and prior to that, from 2001 to 2007, was the Senior Director, Worldwide Business Development at Cisco Systems Inc., a leader in networking services. Mr. McRae has served on the board of directors of two private technology companies: Violux since September 2020 and Within since May 2021. He previously served on the board of directors of Dedicated Hosting Services, Inc., UC Irvine Institute for Innovation and the Leatherby Center for Entrepreneurship and Business Ethics at the Business School of Chapman University. Qualifications: The Nominating and Corporate Governance Committee believes that Mr. McRae’s extensive industry experience in leadership positions at consumer electronics and technology companies qualifies him to serve as a member of our Board. | | Matthew McRae | | | Age 50 Director since 2018 Board Committees: None Other Current Public Company Boards: None | |
Nominees for Election for a Three-Year Term Expiring at the 2027 Annual Meeting
| | Business Experience: Catriona Fallon has served as a member of our Board since August 2021. She is an executive advisor, chief financial officer (“CFO”) and investor, helping companies achieve outpaced performance. Ms. Fallon currently serves on the board of directors for Palomar Holdings, Inc., a publicly traded specialty insurance company and General Fusion, a privately held Canadian company which is pursuing the fastest and most practical path to commercial fusion energy. Ms. Fallon previously served on the board of directors of publicly-traded company Cray Inc., until its acquisition by Hewlett Packard Enterprise. In addition to her directorships, Ms. Fallon also has served as CFO for several technology companies, including Aktana from 2021 to 2022, a software and services company, and Hitachi Vantara from 2019 to 2020, a multi-billion-dollar digital solutions subsidiary of Hitachi, Ltd. Prior to her employment at Hitachi Vantara, Ms. Fallon was CFO at Silver Spring Networks from 2017 to 2018 where she helped to execute the sale of the company to Itron. From 2015 to 2017, Ms. Fallon was EVP and CFO at Marin Software, a company providing software as a service to optimize online advertising. Ms. Fallon additionally has held leadership positions across a variety of technology companies including Cognizant Technology Solutions and Hewlett-Packard. She also has served as an equity analyst at Citigroup Investment Research and held roles with Piper Jaffray & Company, and McKinsey & Company. Qualifications: Ms. Fallon brings more than twenty years of strategic finance expertise and leadership experience to her role as a board member via her significant operational and finance experience as a board member and executive of various technology companies. The Nominating and Corporate Governance Committee believes that Ms. Fallon’s understanding of finance, financial reporting, strategy, corporate efficiencies and risk management qualifies her to serve as a member of our Board. | | Catriona M. Fallon | | | Age 53 Director since 2021 Board Committees: Audit (Chair), Cybersecurity and Privacy Other Current Public Company Boards: Palomar Holdings, Inc. | |
Nominees for Election for a Three-Year Term Expiring at the 2027 Annual Meeting
| THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE NAMED NOMINEES. |
Nominees for Election for a Three-Year Term Expiring at the 2027 Annual Meeting
| | Arlo Technologies, Inc. Notice of 2024 Annual Meeting and Proxy Statement 57 |
Nominees for Election for a Three-Year Term Expiring at the 2027 Annual Meeting
| RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
Nominees for Election for a Three-Year Term Expiring at the 2027 Annual Meeting
The Audit Committee has appointed Deloitte & Touche LLP (“Deloitte”) to serve as our independent registered public accounting firm for the fiscal year ending December 31, 2024 on March 27, 2024. Deloitte has been engaged as our independent registered public accounting firm effective April 13, 2024. Although ratification of the appointment of Deloitte by our stockholders is not required by our amended and restated bylaws or other governing documents, the Board is submitting the appointment of Deloitte to our stockholders for ratification as a matter of good corporate governance. If the appointment is not ratified, the Audit Committee will, but is not obligated to, consider whether it is appropriate to appoint another independent registered public accounting firm. PricewaterhouseCoopers LLP (“PwC”) served as our independent registered public accounting firm for the fiscal year ended December 31, 2023. We expect representatives of both Deloitte and PwC to be present at the Annual Meeting. They will have an opportunity to make a statement if they so desire and are expected to be available to respond to appropriate questions by stockholders.