DEF 14A of Q2 Holdings, Inc.
Filed Apr 29, 2024 · FY20230001410384-24-000093
ELECTION OF DIRECTORS
ELECTION OF DIRECTORS The following eight individuals, each of whom is currently a director and whose term expires at the 2024 annual meeting of stockholders, are nominated for election at the 2024 annual meeting of stockholders for one-year terms that will expire at the 2025 annual meeting of stockholders, and until their respective successors are duly elected and qualified, or their earlier death, resignation or removal. If any of the nominees declines to serve or becomes unavailable for any reason, or if a vacancy occurs before the election (although we know of no reason to anticipate that this will occur), the proxies may be voted for such substitute nominees as we may designate. The proxies cannot vote for more than eight persons. The eight nominees for director receiving the highest number of votes of shares of common stock will be elected. A "Withhold" vote will have no effect on the outcome of the vote. Broker non-votes will have no effect on the outcome of the vote. We believe that each of our directors has demonstrated business acumen, ethical integrity and an ability to exercise sound judgment as well as a commitment of service to us and our board of directors. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF R. LYNN ATCHISON, JEFFREY T. DIEHL, MATTHEW P. FLAKE, STEPHEN C. HOOLEY, JAMES R. OFFERDAHL, R. H. SEALE, III, MARGARET L. TAYLOR AND LYNN ANTIPAS TYSON AS DIRECTORS. PROXIES WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY OTHERWISE IN THEIR PROXIES. The names of the nominees to be elected at this meeting and certain information about them as of April 29, 2024 is set forth below. Also set forth below are the specific experience, qualifications, attributes or skills that led our nominating and corporate governance committee to conclude that each person should serve as a director.
ELECTION OF DIRECTORS
| Name | Position | Age | Director Since | | R. Lynn Atchison | Director | 64 | 2017 | | Jeffrey T. Diehl | Director | 54 | 2007 | | Matthew P. Flake | Chief Executive Officer and Director | 52 | 2013 | | Stephen C. Hooley | Director | 61 | 2020 | | James R. Offerdahl | Director | 67 | 2010 | | R. H. Seale, III | Executive Chair | 61 | 2005 | | Margaret L. Taylor | Director | 73 | 2020 | | Lynn Antipas Tyson | Director | 61 | 2021 |
Director Experience, Skills and Diversity
Director Experience, Skills and Diversity The collective experience of our directors reflects a balanced diversity of the skills, expertise, background and viewpoints that we believe are integral to a well-functioning board. The following table summarizes those self-reported skills for each current director under several criteria we have identified as highly relevant to our current business strategy.
Director Experience, Skills and Diversity
| Name | Banking/ Financial Services | SaaS/Technology | Executive Leadership "C-Level" | Public Company Board | Finance/Strategy | Global | Compensation/ Talent | Risk Management | Regulatory | ESG | | Ms. Atchison | | ü | ü | ü | ü | ü | ü | ü | | | | Mr. Diehl | ü | ü | ü | ü | ü | ü | ü | | ü | ü | | Mr. Flake | ü | ü | ü | | ü | ü | | | | | | Mr. Hooley | ü | ü | ü | ü | ü | ü | ü | ü | ü | ü | | Mr. Offerdahl | | ü | ü | ü | ü | ü | ü | ü | ü | | | Mr. Seale | ü | ü | ü | | ü | | | | | | | Ms. Taylor | ü | ü | ü | ü | ü | ü | ü | | | | | Ms. Tyson | | ü | | | ü | ü | ü | | ü | ü |
Director Experience, Skills and Diversity
As of April 29, 2024, 37.5% of our board of directors self-identified as female and 12.5% self-identified as non-white.
Directors Nominated for Election at the 2024 Annual Meeting of Stockholders
Directors Nominated for Election at the 2024 Annual Meeting of Stockholders R. Lynn Atchison has been a member of our board of directors since March 2017. Ms. Atchison serves as a director of Bumble, Inc. (Nasdaq: BMBL), an online dating application. Ms. Atchison served as a director of Absolute Software Corporation (Nasdaq: ABST), a provider of endpoint resilience solutions, from August 2019 until July 2023. Ms. Atchison served as Chief Financial Officer of Spredfast, Inc., or Spredfast, a social marketing software provider, from February 2017 until September 2018 when it was acquired by Lithium Technologies, LLC. Prior to her time at Spredfast, Ms. Atchison served as the Chief Financial Officer of HomeAway, Inc., a provider of online vacation rental services, from August 2006 until March 2016 shortly after it was acquired by Expedia, Inc. From February 2004 to August 2006, Ms. Atchison was Chief Financial Officer of Infoglide Software Corporation, an enterprise software provider. Prior to 2004, Ms. Atchison held various consulting, financial leadership and CFO roles, including CFO of Hoover's, Inc., a provider of online business information and was an accountant with Ernst & Young for eight years earlier in her career. Ms. Atchison holds a B.B.A. in Accounting from Stephen F. Austin State University and is National Association of Corporate Directors (NACD) Directorship Certified™. Ms. Atchison's extensive experience managing technology and software companies and her financial expertise make her a valuable member of our board of directors and audit and risk and compliance committees. Jeffrey T. Diehl has been a member of our board of directors since July 2007. Mr. Diehl is the Managing Partner of Adams Street Partners, LLC, a global private equity firm, which he joined as a partner in November 2000. Mr. Diehl serves as a director of Paylocity Holding Corporation (Nasdaq: PCTY), a provider of payroll and human capital management software services, and various private companies. From 1997 until 2000, Mr. Diehl served as a Principal for the Parthenon Group, a strategy consulting and principal investing firm. Mr. Diehl holds an M.B.A. from Harvard Business School and a B.S. in Finance from Cornell University. Mr. Diehl's extensive experience as an investor in, and board member of, a variety of venture and growth-oriented companies in the software, IT-enabled business services and consumer Internet/media sectors brings valuable insight to our board of directors and compensation committee. Matthew P. Flake has served as the Chief Executive Officer of Q2 Software, Inc., our sole operating subsidiary, since December 2011, and as our Chief Executive Officer and a member of our board of directors since October 2013. Mr. Flake also served as our President from March 2008 until August 2016 and from March 2019 until May 2023. From June 2005 until March 2008, Mr. Flake served as our Vice President of Sales. Mr. Flake previously served as a Regional Sales Director at S1 Corporation, a provider of Internet-based financial services solutions from 2002 until May 2005. Prior to that, Mr. Flake was a Regional Sales Manager for Q-Up Systems, Inc., a provider of interactive web-based solutions for community banks and credit unions from August 1999 until 2002. Mr. Flake holds a B.A. in Business from Baylor University. Mr. Flake's extensive experience in the community banking industry and his perspective as our head of sales for multiple years and current Chief Executive Officer make him a valuable member of our board of directors. Stephen C. Hooley has been a member of our board of directors since August 2020. Mr. Hooley currently serves as a director of Stericycle, Inc. (Nasdaq: SRCL), a provider of solutions for regulated medical waste management, secure information destruction, compliance, customer contact, and brand protection, and of Brighthouse Financial, Inc. (Nasdaq: BHF), a provider of annuities and life insurance. Mr. Hooley is the former board chairman and chief executive officer and president of DST Systems, Inc., a provider of technology-based information processing and servicing solutions. Prior to that, he served as chairman of a joint venture between DST Systems and State Street Corporation. Previously, Mr. Hooley served in several executive leadership roles at State Street Corporation. He began his career as an engineer with Texas Instruments. Mr. Hooley previously served on the board of directors for Legg Mason until its acquisition by Franklin Templeton and also previously served as director of DST Systems and Boston Financial Data Services. Mr. Hooley has a mechanical engineering degree from Worcester Polytechnic Institute. Mr. Hooley's extensive experience leading technology and financial services companies and his experience with other boards of directors makes him a valuable member of our board of directors and compensation and nominating and corporate governance committees. James R. Offerdahl has been a member of our board of directors since December 2010. Mr. Offerdahl currently serves on the board of directors of CS Disco, Inc. (NYSE: LAW), a provider of ediscovery solutions, Rev.com, Inc., a privately held provider of automatic speech recognition for transcriptions, captions and subtitles and M-Files Inc., a privately held provider of intelligent information management and content services. Mr. Offerdahl served as Chief Financial Officer of Bazaarvoice, Inc., a provider of online rating and review solutions to brands and retailers worldwide from January 2013 until it was acquired by Marlin Equity Partners in February 2018. Mr. Offerdahl served as the Chief Financial Officer and Vice President of Administration of Convio, Inc., a provider of on-demand constituent engagement solutions, from February 2005 until it was acquired by Blackbaud, Inc. in May 2012. From August 2001 to April 2004, Mr. Offerdahl was President and Chief Executive Officer of Traq-Wireless, Inc., a provider of on-demand mobile resource management software and services. From 1998 to 2001, Mr. Offerdahl served as Chief Operating Officer and Chief Financial Officer of Pervasive Software, Inc., a developer and marketer of data management solutions, and as Chief Financial Officer from 1996 to 1998. From 1993 to 1996, Mr. Offerdahl was the Chief Financial Officer and Vice President of Administration of Tivoli Systems, Inc., a developer and marketer of systems management software, which was acquired by IBM in March 1996. Mr. Offerdahl holds an M.B.A. in Management and Finance from the University of Texas at Austin and a B.S. in Accounting from Illinois State University. Mr. Offerdahl's extensive experience managing technology and software companies and his financial expertise make him a valuable member of our board of directors and audit and risk and compliance committees.
Directors Nominated for Election at the 2024 Annual Meeting of Stockholders
R. H. Seale, III is our founder and Executive Chair of our board of directors and has overseen our growth from inception. Mr. Seale served as our Chief Executive Officer from March 2005 until October 2013, and as our President from March 2005 until March 2008. Mr. Seale previously founded Q-Up Systems, Inc. in 1997, serving as Chairman and Chief Executive Officer until its sale in April 2000 to S1 Corporation. Mr. Seale served as Chief Executive Officer of S1 Corporation's Community and Regional Solutions Group from April 2000 until August 2001. In February 1991, Mr. Seale co-founded Regency Voice Systems, a provider of voice banking solutions to community banks, which was acquired by Transaction System Architects in May 1997. Mr. Seale currently serves on the board of directors of CBANC Network, Inc., Alegion, Inc. and Guidefitter, Inc., all privately held companies, and is President of Seale, Inc., the general partner of R.H.S. Investments-I, L.P. Mr. Seale holds a B.S. in Agricultural Economics from Texas Tech University. Mr. Seale's perspective as our founder, former Chief Executive Officer, and a successful entrepreneur in the community banking and credit union industries make him a valuable member of our board of directors and risk and compliance committee. Margaret L. Taylor has been a member of our board of directors since June 2020. Since January 2005, Ms. Taylor has served as a private investor/advisor. Previously, Ms. Taylor served as President of PeopleSoft Investments, Inc., an investment management and advisory services company and subsidiary of PeopleSoft, Inc., an enterprise software company (acquired by Oracle Corporation), from January 2000 until her retirement in January 2005, and as Senior Vice President of Corporate Operations of PeopleSoft, Inc. from January 1989 to December 1999. From January 2000 to December 2003, Ms. Taylor served as President of Nevada Pacific Development Corp., a consulting services firm. From December 1999 to December 2000, Ms. Taylor served as Chief Executive Officer of Venture Builders, LLC, a consulting company for start-up businesses. From May 1986 to October 1988, Ms. Taylor served as a Vice President of Trust and Investment Management at Hibernia Bank, a financial institution. From January 1983 to October 1985, Ms. Taylor served as Vice President of Organization, Planning, and Development at Bank of California, a financial institution. Ms. Taylor has also served on the board of directors of numerous publicly traded corporations, including Fair Isaac Corporation, a decision analytics company, from December 1999 to February 2012. In addition, Ms. Taylor has served and continues to serve as a member of the board of directors of various private companies. Ms. Taylor holds a B.A. in Communications and Psychology from Lone Mountain College of California. Ms. Taylor has also completed the Corporate Governance Program at Stanford Business School and the Compensation Committees Program at Harvard Business School. Ms. Taylor's extensive experience leading technology and financial services companies and her experience with other boards of directors makes her a valuable member of our board of directors and compensation and nominating and corporate governance committees. Lynn Antipas Tyson has been a member of our board of directors since April 2021. Ms. Tyson has served as the Executive Director of Investor Relations for Ford Motor Company, a car manufacturer, since October 2017 and is also a member of Ford's Enterprise Leadership Team. From July 2015 until June 2017, Lynn was Vice President, Investor Relations, at Atento S.A., a provider of client relationship and business process outsourcing services. Prior to that, from November 2013 until April 2015, Lynn served as Vice President, Investor Relations and Global Corporate Communications, for helicopter-services company CHC Helicopter, and as Senior Vice President, Investor Relations, at AECOM, an infrastructure consulting firm, from June 2012 to November 2013. Lynn twice served as a corporate finance leader at PepsiCo, a food and beverage company, where she started her career in 1985. She also led Investor Relations for Yum! Brands when it was spun off from PepsiCo in 1997. Lynn spent ten years at Dell, Inc., a computer and network infrastructure and services provider, including as Vice President, Investor Relations and Global Corporate Communications and served on Dell's Global Executive Management Committee. Lynn holds a B.S. in Psychology from The City University of New York – City College of New York and an M.B.A. from New York University. Ms. Tyson's extensive experience in corporate finance, strategy, investor relations and strategic communications, including financial disclosures, for companies in a broad range of industries, makes her a valuable member of our board and audit and nominating and corporate governance committees.
Compensation of Directors
Compensation of Directors On February 19, 2014, we adopted a director compensation policy which was most recently amended on December 6, 2022 and effective as of May 31, 2023. For the year ended December 31, 2023, the director compensation policy provides that each non-executive-officer director receives an annual cash fee of $30,000 and an annual equity award of $209,000 in restricted stock units, or RSUs. The number of RSUs is determined by dividing $209,000 by the fair market value of our common stock on the date of grant. The RSUs will vest quarterly over 12 months, provided that the director continues to serve as a director through such vesting dates. Directors receive an additional $10,000 annually for serving on our audit committee, an additional $7,500 annually for serving on our compensation committee, an additional $4,000 annually for serving on our nominating and corporate governance committee and an additional $7,500 annually for serving on our risk and compliance committee. In addition to any applicable committee membership fees, the chair of our audit committee receives an additional $15,000 annually, the chair of our compensation committee receives an additional $10,000 annually, the chair of our nominating and corporate governance committee receives an additional $9,000 annually, the chair of our risk and compliance committee receives an additional $10,000 annually. The board Chair receives an additional $60,000 annually and our Lead Independent Director receives an additional $20,000 annually. The Chair and our Lead Independent Director can elect to receive their annual fees as Chair or Lead Independent Director, as applicable, in RSUs, in lieu of cash, with the number of RSUs they would be entitled to receive determined by dividing the applicable stated dollar amount by the fair market value of our common stock on the date of grant. Such RSUs vest quarterly over 12 months, in each case provided that the director continues to serve as a director through such vesting dates. Non-executive-officer members of our board of directors are reimbursed for travel and other out-of-pocket expenses in connection with attending meetings.
2023 Director Compensation Table
2023 Director Compensation Table The following table sets forth information concerning the compensation earned during fiscal 2023 by each director who received such compensation. Our Chief Executive Officer did not receive additional compensation for his service as a director and, consequently, is not included in the table. The compensation received by our Chief Executive Officer as an employee is presented in the "Summary Compensation Table" elsewhere in this Proxy Statement:
2023 Director Compensation Table
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(8) | Total ($) | | R. H. Seale, III(1) | $36,473 | $269,011(9) | $305,484 | | R. Lynn Atchison(2) | 55,651 | 208,994(10) | $264,645 | | Jeffrey T. Diehl(3) | 60,583 | 208,994(10) | $269,577 | | Stephen C. Hooley(4) | 46,281 | 208,994(10) | $255,275 | | James R. Offerdahl(5) | 60,651 | 208,994(10) | $269,645 | | Margaret L. Taylor(6) | 47,747 | 208,994(10) | $256,741 | | Lynn A. Tyson (7) | 43,096 | 208,994(10) | $252,090 |
2023 Director Compensation Table
(1)As of December 31, 2023, Mr. Seale had 4,618 shares underlying unvested RSUs. Fees earned or paid in cash consist of a $30,000 annual fee for service on our board of directors, and $6,473 in annual fees for service on our risk and compliance committee. For 2023, Mr. Seale received his $60,000 annual fee for service as Chair of the board of directors in RSUs in lieu of cash. (2)As of December 31, 2023, Ms. Atchison had 3,588 shares underlying unvested RSUs. Fees earned or paid in cash consist of a $30,000 annual fee for service on our board of directors, $9,178 in annual fees for service on our audit committee, $6,473 in annual fees for service on our risk and compliance committee, and $10,000 in annual fees for service as the chair of our risk and compliance committee. (3)As of December 31, 2023, Mr. Diehl had 3,588 shares underlying unvested RSUs. Fees earned or paid in cash consist of a $30,000 annual fee for service on our board of directors, $6,473 in annual fees for service on our compensation committee, $4,110 in annual fees for service as the chair of our compensation committee through June 9, 2023 and $20,000 in annual fees for service as our lead independent director. (4)As of December 31, 2023, Mr. Hooley had 3,588 shares underlying unvested RSUs. Fees earned or paid in cash consist of $30,000 in annual fee for service on our board of directors, $3,918 in annual fees for service on our nominating and corporate governance committee, $6,473 in annual fees for service on our compensation committee and $5,890 in annual fees for service as the chair of our compensation committee beginning June 10, 2023 . (5)As of December 31, 2023, Mr. Offerdahl had 3,588 shares underlying unvested RSUs. Fees earned or paid in cash consist of a $30,000 annual fee for service on our board of directors, $9,178 in annual fees for service on our audit committee, $15,000 in annual fees for service as the chair of our audit committee, and $6,473 in annual fees for service on our risk and compliance committee. (6)As of December 31, 2023, Ms. Taylor had 3,588 shares underlying unvested RSUs. Fees earned or paid in cash consist of $30,000 in annual fee for service on our board of directors, $3,918 in annual fees for service on our nominating and corporate governance committee, $6,473 in annual fees for service on our compensation committee and $7,356 in annual fees for service as the chair of our nominating and corporate governance committee. (7)As of December 31, 2023, Ms. Tyson had 3,588 shares underlying unvested RSUs. Fees earned or paid in cash consist of $30,000 in annual fee for service on our board of directors, $3,918 in annual fees for service on our nominating and corporate governance committee, and $9,178 in annual fees for service on our audit committee. (8)Amounts represent the aggregate grant date fair value of RSUs granted during the year computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, or FASB ASC Topic 718. Assumptions used in calculating these amounts are described in Note 13 to our consolidated financial statements included in our Annual Report on Form 10-K for fiscal 2023. As required by SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. (9)Consists of RSUs for 9,238 shares of our common stock which vest in equal quarterly installments over one year beginning September 9, 2023 in respect of his annual director equity award grant and his election to receive RSUs for the 2023-2024 director year in lieu of his annual cash Chair fee. (10)Consists of RSUs for 7,177 shares of our common stock which vest in equal quarterly installments over one year beginning September 9, 2023 in respect of each director's annual director equity award grant.
Executive Summary
Executive Summary Fiscal 2023 Business Highlights: •Annual GAAP revenue of $624.6 million, representing 10% year-over-year revenue growth; •Highest annual bookings performance in company history; •Signed 17 total Tier 1 and Enterprise deals in Fiscal 2023; •Adjusted earnings before interest, taxes, depreciation and amortization, or adjusted EBITDA, of $76.9 million, up from $36.9 million for the full-year 2022 (1); •Expanded adjusted EBITDA margin by almost 600 basis points year over year (1); •Generated cash flow from operation of $70.3 million in Fiscal 2023, up from $36.6 million in Fiscal 2022; and •Recognized by the Austin American Statesman for the thirteenth consecutive year as one of Austin's "Top Places to Work." (1)Adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures. For information on adjusted EBITDA and adjusted EBITDA margin, as calculated by Q2, please see Part II, Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures" included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 21, 2024. Focus on Pay-for-Performance Our compensation programs and practices are designed to emphasize our strong pay-for-performance culture and philosophy, communicate our goals and standards of conduct, and reward our NEOs for their achievements. We believe our executive compensation program is reasonable and competitive, and appropriately balances the goals of attracting, motivating, rewarding, and retaining our NEOs, thereby promoting stability in our leadership and incenting the successful execution of our business strategy. To promote alignment of our NEOs' interests with those of our stockholders and to motivate and reward individual initiative and effort, a substantial portion of our NEOs' target annual total direct compensation opportunity is "at-risk." The at-risk elements of our executive compensation program reflect our pay-for-performance philosophy and are structured to appropriately reward our NEOs for: •delivering financial, operational, and strategic results that meet or exceed pre-established goals through our annual cash bonus plan, and •successfully executing our long-term business strategy and creating value for our stockholders through the Performance Stock Units, or PSUs, and Restricted Stock Units, or RSUs, that comprise our long-term incentive compensation program. See “Long-Term Incentive Compensation” section for details. As shown in the charts below, a significant portion of target pay (95% for the CEO and 90% for the other NEOs, on average), is "at risk," with the final value realized based on our stock price performance and/or achievement of pre-established performance goals that are vital to our success, as well as the executive's continued employment with us: As reflected in the foregoing graphic, we believe that equity awards (PSUs and RSUs) granted under our long-term incentive program are a key incentive for our NEOs to drive long-term value creation. The Committee regularly evaluates the relationship between the targeted and reported values of the equity awards granted to our NEOs, the amount of compensation realizable (and, ultimately, realized) from such awards in subsequent years, and our total stockholder return when assessing the appropriateness of our long-term incentive program. Stockholder Advisory Vote on NEO Compensation and Stockholder Outreach At our 2023 annual meeting of stockholders, we conducted a non-binding stockholder advisory vote on the compensation of our NEOs (commonly known as a "Say-on-Pay" vote). Our stockholders approved the Say-on-Pay proposal with approximately 93.5% of the votes cast in favor of the proposal. We believe this result demonstrates our stockholders are strongly supportive of our executive compensation program. We regularly engage with our top stockholders to solicit feedback on our performance, compensation programs and environmental, social, and corporate governance considerations. Through this ongoing process, the Committee gathers important external perspectives and viewpoints. As the Committee has reviewed our executive compensation policies and practices since the 2023 Say-on-Pay vote, it has been mindful of our stockholders' feedback and the level of support our stockholders have expressed for our approach to executive compensation. Following its holistic review, the Committee decided to retain our general approach to executive compensation, including the decision to maintain a program that places a significant majority of our executives' pay at risk and to grant equity awards with performance-based vesting conditions and underlying value tied to our stock price performance. We value the opinions of our stockholders and will continue to consider their prior and future feedback, as well as the outcome of future Say-on-Pay votes, when making compensation decisions for our NEOs. Executive Compensation Policies and Practices We endeavor to maintain sound executive compensation policies and practices, including compensation-related corporate governance standards, consistent with our executive compensation philosophy. The following list summarizes the key elements of our compensation program that we believe serve our stockholders' long-term interests:
Executive Summary
| What We Do | What We Don't Do | | ü Substantial Majority of Compensation "At-Risk" and based on corporate and stock price performance to align the interests of our NEOs and stockholders ü Emphasize Long-Term Performance to focus our NEOs on stockholder value creation and the achievement of strategic objectives ü Multi-Year Performance Periods for PSU Awards ü Multi-Year Vesting Requirements for equity awards ü Comprehensive Clawback Policy that applies to all incentive-based compensation (cash and equity) granted to NEOs ü Stock Ownership Guidelines for our NEOs and non-executive-officer directors ü Annual Executive Compensation Review ü Annual Compensation-Related Risk Assessment ü Independent Compensation Consultant | û No Tax Gross-Ups on severance or perquisites û No Dividends or Dividend Equivalents Payable on Unvested Equity Awards û No Hedging or Pledging of Our Securities including engaging in short sales, puts, calls or other derivative transactions involving our securities; this policy applies to all employees û No Special Executive Retirement Plans û No Significant Perquisites or other personal benefits |
Executive Compensation Philosophy and Program Design
We structure the annual compensation of our NEOs using three principal vehicles: base salary, annual cash bonus opportunities, and long-term incentive compensation opportunities in the form of equity awards (PSUs and RSUs). In the following chart, we provide an overview of each material element of our fiscal 2023 executive compensation program and describe how each element is tied to our compensation objectives. Compensation-Setting Process In consultation with our independent compensation consultant, the Committee reviews the base salary levels, annual cash bonus opportunities, and long-term incentive compensation opportunities of our NEOs at the end of each year, or more frequently as warranted. Adjustments are generally effective at the beginning of the following year. The Committee does not establish a specific target for setting the total direct compensation opportunity of our NEOs. Instead, when selecting and setting the amount of each compensation element, the Committee holistically considers a variety of factors, as outlined below.
Executive Compensation Philosophy and Program Design
| Factors considered in setting executive compensation: | | ü Company performance. Our performance against the financial and operational objectives established by the Committee and our board of directors, and relative to our compensation and performance peers ü Individual's qualifications. Each individual executive officer's skills, experience and qualifications relative to other similarly-situated executives at companies in our compensation peer group ü Individual's role. Scope of each executive officer's role compared to other similarly-situated executives at companies in our compensation peer group ü Individual's performance. Performance of each individual executive officer, based on objective and subjective assessments of his or her contributions to our overall performance, including ability to lead his or her business unit or function and work as part of a team, all of which reflect our core values ü Internal Parity. Compensation parity among our executive officers ü Peer group practices. Compensation practices of our compensation peer group and the positioning of each executive officer's compensation relative to those of the markets in which we compete both operationally and for executive talent ü Industry practices. Evolving dynamics in both the industry in which we operate and the broader high-tech sector |
Executive Compensation Philosophy and Program Design
| Additional factors considered in setting long-term incentive compensation: | | ü Holdings. Outstanding equity holdings of each executive officer ü Impact. Projected impact of the proposed awards on our earnings and the related potential dilutive impact to our stockholders ü Burn rate. Relative proportion of our total shares outstanding used for annual employee long-term incentive compensation awards (our "burn rate") in relation to those of the companies in our compensation peer group ü Voting power. Relative potential voting power dilution to our stockholders in relation to those of the companies in our compensation peer group ü Other implications. Accounting and tax implications of the long-term incentive awards |
Executive Compensation Philosophy and Program Design
These factors provide the decision-making framework for determining the compensation opportunity for each NEO. For fiscal 2023, no single factor determined NEO pay levels and no specific weightings were applied to any factor. Competitive Positioning and Peer Group To compare our executive compensation against the competitive market, the Committee reviews and considers the compensation levels and practices of a compensation peer group of comparable technology companies. The companies in our peer group are selected based on their similarity to Q2 from industry, business model and company size perspectives, but with no one single selection criteria being necessarily determinative. The Committee reviews our compensation peer group at least annually and adjusts its composition when applicable, taking into account changes in both our business and the businesses of the companies in the peer group. With the assistance of its independent compensation consultant, the Committee reviewed our peer group for fiscal 2023 and made the following changes: removed Anaplan and Bottomline Technologies due to acquisitions, removed HubSpot and Paycom Software due to their size falling outside the preferred revenue range, and added nCino due to its fit in terms of size and other peer group criteria. Our independent compensation consultant, Mercer, analyzed compensation data of the peer group from company public filings, the Radford Global Technology Survey, and other relevant proprietary surveys and databases. This market data was used as a reference point for the Committee to assess the competitiveness of our current compensation levels and the design and elements of our compensation program in the course of its deliberations on our NEOs’ compensation for fiscal 2023. Fiscal 2024 Peer Group With the assistance of its independent compensation consultant, the Committee reviewed our peer group for fiscal 2024 and made the following changes relative to the group listed above: removed 2U, Avalara, Coupa Software, MongoDB, Paylocity Holding, PROS Holdings, SailPoint Technologies, and Zscaler, and added Elastic NV, Guidewire Software, LiveRamp Holdings, Smartsheet, and Sprinklr.
Compensation Elements
(1)The percentage increase for Mr. Coleman reflects the aggregate of the two increases to his base salary during fiscal 2023, as described above. Annual Cash Bonuses For fiscal 2023, the Committee approved an annual performance-based cash bonus program, the 2023 Cash Bonus Plan, for our NEOs and other employees. Target Annual Cash Bonus Opportunities Each participant in the 2023 Cash Bonus Plan was assigned a target annual cash bonus opportunity, the amount of which was calculated as a percentage of his or her base salary. The Committee approved 2023 target annual cash bonus opportunities for the NEOs as outlined below. Bonus opportunities for Messrs. Flake, Mehok, Breeden, and Volanoski as a percentage of their base salaries did not change year over year. Effective January 1, 2023, Mr. Coleman’s target annual cash bonus opportunity was increased from 60% to 70% of base salary to better align with market compensation. In connection with his appointment as President, effective May 3, 2023, Mr. Coleman’s bonus opportunity was increased to 100% of base salary to better align with market compensation levels for his new position and to increase the proportion of his compensation that is at-risk and subject to performance conditions.
Compensation Elements
| Named Executive Officer | 2022 Target Annual Cash Bonus Opportunity (% of base salary) | 2023 Target Annual Cash Bonus Opportunity (% of base salary) | | Mr. Flake | 100% | 100% | | Mr. Mehok | 65% | 65% | | Mr. Coleman | 60% | 100% | | Mr. Breeden | 75% | 75% | | Mr. Volanoski | 100% | 100% |
Compensation Elements
The Committee set the threshold, target, and maximum performance levels and corresponding payout percentages for each of the corporate performance measures in March 2023. The 2023 performance measures were as follows: 2023 Corporate Cash Bonus Plan
Compensation Elements
| Achievement Level | Corporate Bookings (expressed as monthly recurring revenue) | | Corporate Adjusted EBITDA | | | | Value | Payout(1) | Value | Payout | | Maximum | $10,101,386 | 150% | $87,500,000 | 132% | | Target | $8,417,822 | 100% | $70,000,000 | 100% | | Threshold | $6,313,366 | 50% | $56,000,000 | 60% |
Compensation Elements
(1)The maximum payout for the corporate bookings metric was uncapped in Mr. Volanoski's 2023 Cash Bonus Plan (i.e., a payout of more than 150% was possible if Corporate Bookings for 2023 exceeded $10,101,386). As explained below, this was not a factor in the actual 2023 Cash Bonus payout for Mr. Volanoski, because bookings performance for 2023 was below $10,101,386. The target levels for these performance measures were based on our fiscal 2023 operating plan, as reviewed and approved by our board of directors. The amount that each executive officer could earn under the 2023 Cash Bonus Plan was based on our actual achievement of bookings and adjusted EBITDA for fiscal 2023. Linear interpolation was used to determine the achievement percentage and corresponding payout for results between threshold and target, and target and maximum, shown in the table above. 2023 Annual Cash Bonus Payments In January 2024, the Board determined the amounts to be paid under the 2023 Cash Bonus Plan to our NEOs based on our actual performance for fiscal 2023. Achievement of the combined metrics under the 2023 Corporate Cash Bonus Plan resulted in a calculated payout of 118.4% of target as shown in the table below. 2023 Corporate Cash Bonus Plan
Compensation Elements
| Corporate Performance Measure | Target Performance | Actual Performance | (A) Payout Percentage | (B) Weighting | (A)x(B) Weighted Payout Percentage | | Bookings | $8,417,822 | $9,223,792 | 123.9% | 50% | 62.0% | | Adjusted EBITDA | $70,000,000 | $76,940,025 | 112.8% | 50% | 56.4% | | Total - Based on Calculated Results | | | | | 118.4% |
Compensation Elements
| Named Executive Officer | Target Annual Cash Bonus Opportunity (% of base salary) | (A) Target Annual Cash Bonus Opportunity ($) | (B) Weighted Payout as a % of Target (%) | (A) x (B) Actual Annual Cash Bonus Payment ($) | Actual Annual Cash Bonus Payment (% of base salary) | | Mr. Flake | 100% | $520,000 | 118.4% | $615,571 | 118.4% | | Mr. Mehok | 65% | $253,500 | 118.4% | $300,091 | 76.9% | | Mr. Coleman(1) | 100% | $393,178 | 118.4% | $465,440 | 103.4% | | Mr. Breeden | 75% | $300,000 | 118.4% | $355,137 | 88.8% | | Mr. Volanoski | 100% | $400,000 | 118.4% | $473,516 | 118.4% |
Compensation Elements
(1)Mr. Coleman’s cash bonus opportunity and actual payment reflect proration of both his base salary amount and target 2023 bonus opportunity. Long-Term Incentive Compensation The Committee believes long-term incentive compensation focuses our NEOs on aligning executive and long-term stockholder interests, executing our long-term business strategy and creating value for our stockholders. Our fiscal 2023 long-term incentive program was designed to reflect a balance of these factors, as well as related share usage, accounting, and dilution considerations. For fiscal 2023, the Committee modified the design of the performance-based equity awards to include PSUs rather than Market Stock Units, or MSUs, to better align with our long-term business strategy of focusing on profitability, managing expenses, and maximizing long-term shareholder return. The Committee determined to grant our NEOs long-term incentive compensation opportunities in fiscal 2023 as follows:
Compensation Elements
| Component | Target Weighting | Description | Rationale | | Performance Stock Units (PSUs) | 50% | Right to earn shares of common stock based on achievement of: •Adjusted EBITDA margin: Adjusted EBITDA as a percentage of Non-GAAP Revenue for the 12-months ending December 31, 2024 (Adjusted EBITDA Margin PSUs), and •Total stockholder return performance relative to the S&P Software & Services Select Index over a three-year performance period (Relative TSR PSUs). The aggregate target number of PSUs granted is divided equally between Adjusted EBITDA Margin PSUs and Relative TSR PSUs. The performance periods and vesting schedules of the PSUs are described below under "2023 Performance Share Units." For Relative TSR PSUs, if earned, units vest on the third anniversary of grant. | •Aligns the interest of our executives with those of stockholders •Rewards stockholder return performance relative to industry peers •Rewards achievement of a key long-term financial objective, Adjusted EBITDA margin, to encourage behavior that will maximize stockholder value •Balances focus on internal versus. external and absolute versus relative performance measurement perspectives •Multi-year performance and vesting periods emphasize our long-term pay-for-performance philosophy and help facilitate the retention of our executives, as the executives must be employed at the end of the performance period to fully earn the awards | | Restricted Stock Units (RSUs) | 50% | Right to earn shares of common stock based on continued employment over a four-year vesting period (25% of shares vest each year). | •Aligns the long-term interests of our executives with those of our stockholders •Multi-year vesting period promotes retention of our executives |
Compensation Elements
Consistent with the general framework noted above, in March 2023, the Committee granted equity awards for fiscal 2023 to our NEOs as follows: 2023 Annual Equity Awards
Compensation Elements
| Named Executive Officer | PSU Awards (# of shares) | (A) PSU Awards (target $ value) | RSU Awards (# of shares) | (B) RSU Awards (target $ value) | (A) + (B) Total Target LTI Award Value | | Mr. Flake | 142,117 | $4,525,000 | 142,117 | $4,525,000 | $9,050,000 | | Mr. Mehok | 47,111 | $1,500,000 | 47,111 | $1,500,000 | $3,000,000 | | Mr. Coleman | 47,111 | $1,500,000 | 47,111 | $1,500,000 | $3,000,000 | | Mr. Breeden | 53,392 | $1,700,000 | 53,392 | $1,700,000 | $3,400,000 | | Mr. Volanoski | 51,036 | $1,625,000 | 51,036 | $1,625,000 | $3,250,000 |
Compensation Elements
2023 Promotion Awards for Mr. Coleman In addition to his 2023 annual grant, Mr. Coleman received an equity award with a target value of $2,000,000 in connection with his appointment as President, effective May 3, 2023. This one-time award aligns Mr. Coleman’s interests with those of the Company and stockholders and highlights the importance of his role to the Company’s long-term business objectives. Consistent with the annual equity awards, Mr. Coleman’s additional award was split evenly between PSU awards and RSU awards. The PSU performance and vesting conditions and the RSU vesting conditions are consistent with the design of the 2023 annual equity awards. For the PSUs, shares of our common stock may be earned based on achievement of two equally weighted performance metrics: Adjusted EBITDA as a percentage of Non-GAAP Revenue, or Adjusted EBITDA Margin PSUs, and our total stockholder return, or TSR, performance relative to the S&P Software & Services Select Index, or Relative TSR PSUs, as follows: 2023 Performance Share Units
Compensation Elements
| Achievement Level | Adjusted EBITDA Margin (% of target) | Company's TSR Relative to Index | Payout Percentage (% of target # of PSUs) | | Maximum | 120% or more | 90th percentile or higher | 200% | | Target | 100% | 50th percentile | 100% | | Threshold | 80% | 25th percentile | 50% |
Compensation Elements
For the Adjusted EBITDA Margin portion of the PSUs, performance is measured in the second year of the award, over a 12-month period commencing January 1, 2024 and ending December 31, 2024. Adjusted EBITDA Margin is calculated as Adjusted EBITDA as a percentage of non-GAAP Revenue.(1) No shares are earned if Adjusted EBITDA Margin is less than 80% of target. 100% of target shares are earned if our Adjusted EBITDA Margin is 100% of target. Payouts are capped at 200% of the target number of PSUs granted for Adjusted EBITDA Margin of 120% or more of target. Linear interpolation is used to determine the number of shares of our common stock earned for performance between the defined levels shown in the table above. Up to 100% of the target shares earned for Adjusted EBITDA Margin will vest on the date of the Committee’s determination of the level of Adjusted EBITDA Margin achievement. Any above-target shares earned for Adjusted EBITDA Margin achievement will vest on the third anniversary of the date of grant. Payouts are subject to continued employment of the officer. (1)We define non-GAAP revenue as total revenue excluding the impact of purchase accounting. For information on non-GAAP revenue, as calculated by Q2, please see Part II, Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures" included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 21, 2024. For the Relative TSR portion of the PSUs, performance is measured over a three-year performance period, commencing on March 2, 2023 and ending on March 2, 2026, relative to the S&P Software & Services Select Index, or Index. The Committee determined that the Index is the most relevant comparator from both an industry and company size perspective. No shares are earned if our TSR is less than the 25th percentile of the Index. 100% of the target shares will be earned if our TSR is at the 50th percentile of the Index. Payouts are capped at 200% of the target number of PSUs granted for performance at or above the 90th percentile of the Index. Linear interpolation is used to determine the number of shares of our common stock earned for performance between the defined levels shown in the table above. Payouts are subject to continued employment of the officer. For purposes of the Relative TSR PSU awards, TSR for Q2 and the Index are calculated by dividing the difference between the starting and ending share price for the performance period (taking into account any dividends) by the starting share price. For purposes of calculating both our TSR and the TSR for the companies in the Index, the share price will be calculated using the average of the opening and closing prices of the common stock for the 30 trading days preceding the starting and ending dates. Results of Prior MSU Grants Prior to fiscal 2023, the performance-based equity awards granted to our executive officers were MSUs, earned based on TSR performance relative to the TSR performance of the Russell 2000 Index over a three-year performance period. For the 2020 MSU awards, up to one-third of the target number of shares subject to each award was eligible to be earned after the first and second years of the performance period, respectively, and up to 200% of the full target number of shares subject to each award were eligible to be earned after the completion of the full performance period (less any shares earned for years one and two). For the 2021 and 2022 MSU awards, up to one-third of the target number of shares subject to each award are eligible to be earned after the second year of the performance period (based on performance for the first two years of the performance period), and up to 200% of the full target number of shares subject to each award are eligible to be earned after the completion of the full three-year performance period (less any shares earned for the first two years). Information with respect to the number of shares earned under outstanding MSUs for performance periods ending during fiscal 2023 are shown below. With respect to our March 2020 MSU grants to Messrs. Flake and Breeden, our three-year TSR of -60.12% for the performance period ending March 13, 2023 placed us at the 12.3 percentile of the Russell 2000 Index. Accordingly, no shares of common stock were earned by our NEOs for the three-year period of the March 2020 MSU grants. 2020 MSU Grant - Year 3 Results
Key Participants' Roles in Our Executive Compensation-Setting Process
(1)In fiscal 2023, the Committee considered the specific independence factors adopted by the SEC and NYSE and determined that Mercer is independent and that its work did not raise any conflicts of interest. Retirement, Health and Welfare Benefits We have established a tax-qualified Section 401(k) employee savings and retirement plan for all employees who satisfy certain eligibility requirements, including requirements relating to age and length of service. Under our Section 401(k) plan, employees may elect to reduce their current compensation by up to the statutory limits and have us contribute the amount of this reduction to our Section 401(k) plan. We intend for our Section 401(k) plan to qualify under Section 401 of the Code so that contributions by employees or by us to the plan, and income earned on plan contributions, are not taxable to employees until withdrawn from the plan, except in certain cases where ROTH treatment applies. We match 50% of employee contributions, up to 6% of an employee's earnings, under our Section 401(k) plan for all employees. In addition, we provide other benefits to our NEOs, on the same basis as all of our full-time employees. These benefits include medical, dental and vision benefits, short-term and long-term disability insurance, life and accidental death and dismemberment insurance and health savings account contributions. Our NEOs are also eligible to obtain an annual executive physical health screening at the Company’s expense. We design our employee benefits programs to be affordable and competitive in relation to the market, as well as compliant with applicable laws and practices. We adjust our employee benefits programs as needed based upon regular monitoring of applicable laws and practices and the competitive market. Perquisites and Other Personal Benefits Currently, we do not view perquisites or other personal benefits as a significant component of our executive compensation program. Accordingly, we do not provide perquisites or other personal benefits to our NEOs except in situations where we believe it is appropriate to assist an individual in the performance of his or her duties, to make our executive officers more efficient and effective, and for recruitment and retention purposes. Where we provide perquisites, we do not provide tax gross-ups on the value of perquisites. During fiscal 2023, none of the NEOs received perquisites or other personal benefits that were, in aggregate, $10,000 or more for each individual. In the future, we may provide perquisites or other personal benefits in limited circumstances, such as those described in the preceding paragraph. All future practices with respect to perquisites or other personal benefits for our executive officers will be approved and subject to periodic review by the Committee. Employment Agreements In September 2021, we entered into amended and restated employment agreements with each of our NEOs. The new employment agreements replaced the prior form of agreement we began using in 2014 and were authorized and approved by the Committee to adjust the severance and other post-employment compensation arrangements to terms more reflective of the current market. In connection with his appointment as President, on May 2, 2023, we entered into an amended and restated employment agreement with Mr. Coleman, which increased his annual base salary and target annual bonus opportunity, both effective May 3, 2023. In addition, Mr. Coleman’s amended and restated employment agreement provided for a one-time equity award as described above in "2023 Promotion Awards for Mr. Coleman" section. Each of these employment agreements provides for "at will" employment and sets forth the initial compensation arrangements for the executive officer, including an initial base salary, an annual cash bonus opportunity, and, in the case of newly-hired executive officers, an equity award recommendation. These agreements also set forth the rights and responsibilities of each party and protect both parties' interests in the event of certain terminations of employment by providing the executive officer with the opportunity to receive certain post-employment payments and benefits in the event of certain terminations of employment, including following a change in control of Q2. These post-employment compensation arrangements and other specific terms and conditions of the employment agreements are described in more detail in "Compensation Discussion and Analysis - Post-Employment Compensation" below and "Compensation of Named Executive Officers - Potential Payments upon Termination and Change in Control" elsewhere in this Proxy Statement. Post-Employment Compensation We believe that having in place reasonable and competitive post-employment compensation arrangements is essential to attracting and retaining highly-qualified executive officers. Each of our employment agreements with our NEOs contains post-employment compensation arrangements in the event of an involuntary termination of employment, death or disability, and certain terminations of employment in connection with a change in control of Q2. These post-employment compensation arrangements are described in more detail in "Compensation of Named Executive Officers - Potential Payments upon Termination and Change in Control" elsewhere in this Proxy Statement. These post-employment compensation arrangements are designed to provide reasonable compensation to NEOs who leave Q2 under certain circumstances to facilitate their transition to new employment. Further, we seek to mitigate any potential employer liability and avoid future disputes or litigation by requiring a departing executive officer to sign a separation and release agreement acceptable to us as a condition to receiving post-employment compensation payments or benefits. In determining payment and benefit levels under the various circumstances triggering the post-employment compensation provisions of our employment agreements with our NEOs, the Committee has drawn a distinction between voluntary terminations of employment and terminations of employment for cause and terminations of employment without cause, for death or disability, or as a result of certain termination events following a change in control of Q2. Payment in the latter circumstances has been deemed appropriate in light of the benefits to us described above, as well as the likelihood that the executive officer's departure is due, at least in part, to circumstances not within his or her control. In contrast, we believe that payments are not appropriate in the event of a termination of employment for cause or a voluntary resignation without good reason because such events often reflect either inadequate performance or an affirmative decision by the executive officer to end his or her relationship with us. The nature and extent of the severance and other benefits payable depend upon the specific circumstances of the termination. For additional information on the severance benefits payable, see "Compensation of Named Executive Officers - Potential Payments upon Termination and Change in Control" elsewhere in this Proxy Statement.
Key Participants' Roles in Our Executive Compensation-Setting Process
For outstanding awards made under our 2014 Equity Incentive Plan, under the equity award agreements applicable to our NEOs, if within 12 months of a change in control of Q2, his or her employment is terminated without cause or if he or she resigns for good reason, or if the acquiring company does not assume or substitute for any outstanding equity awards held by him or her, then all of the outstanding equity awards will become immediately vested and exercisable in full. Except in the case of the MSU awards granted to date, we use this "double-trigger" arrangement to protect against the loss of retention power following a change in control of Q2 and to avoid windfalls, both of which could occur if vesting accelerated automatically as a result of the transaction. With respect to the MSU awards, upon a change in control of Q2, the number of shares of our common stock earned pursuant to the awards, if any, will be determined by using the proposed transaction price (rather than the 30-day average price of our common stock), which maintains a performance orientation to the now-truncated awards, and such shares will be deemed to have vested as of the closing date of the change in control transaction. For outstanding awards made under our 2023 Equity Incentive Plan, under the award agreements applicable to our NEOs, the total number of outstanding equity awards will vest upon either (i) the consummation of a change in control in which the acquiror elects not to assume or substitute the award with a substantially equivalent award in connection with the change in control, provided that the participant’s service has not terminated prior to the date of the change in control or (ii) the cessation of the participant’s service as a result of a termination after a change in control on or prior to the first anniversary of the change in control ("double-trigger"). We believe that these arrangements align the interests of our executive officers and stockholders when considering the long-term future for Q2, as they keep our executive officers focused on pursuing all corporate transaction activity that is in the best interests of stockholders regardless of whether those transactions may result in their own job loss. Enhanced severance benefits are provided for a qualifying termination that occurs in connection with a change-in-control because the severance benefits are also intended to eliminate, or at least reduce, the reluctance of our executive officers to diligently consider and pursue potential change-in-control transactions that may be in the best interests of our stockholders. We do not have any obligations in place to cover excise tax payments (or "gross-up") relating to a change in control of Q2 with respect to any of our NEOs. For information on the post-employment compensation arrangements for the NEOs, as well as an estimate of the potential payments and benefits payable under these arrangements as of the end of fiscal 2023, see "Compensation of Named Executive Officers - Potential Payments upon Termination and Change in Control" elsewhere in this Proxy Statement.
Other Compensation Policies and Practices
Other Compensation Policies and Practices Policy Regarding the Pricing and Timing of Equity Awards While we have not yet adopted a formal policy regarding the timing of equity awards, including stock options, PSUs and RSUs, it has been our practice as a public company, which we expect to continue, that the granting of equity awards occurs after the release of any earnings statement and that stock options have an exercise price not less than the fair value of the underlying shares of our common stock on the date of grant. All outstanding equity awards granted to our NEOs have been reflected in our consolidated financial statements, based upon the applicable accounting guidance, at the closing price of our common stock on the date of grant. Compensation Recovery ("Clawback") Policy Effective December 1, 2023, we adopted a new Policy on the Recovery of Incentive Compensation, or clawback policy. This clawback policy provides for the recovery of incentive compensation if (A) the incentive compensation was calculated based on financial statements that were required to be restated due to noncompliance of Q2 with any financial reporting requirement, and (B) the noncompliance resulted in overpayment during the three fiscal years preceding the date the restatement was required. This policy is effective for all incentive compensation received by an executive officer on or after October 2, 2023, and it replaced and superseded our prior clawback policy. This policy is designed to comply with, and shall be interpreted to be consistent with, Section 10D of the Securities Exchange Act of 1934, as amended, Rule 10D-1. For compensation received prior to October 2, 2023, the Company’s prior Policy on the Recoupment of Incentive Compensation, which was effective March 3, 2021 (the "March 2021 clawback policy"), applies. Under the March 2021 clawback policy, Q2 may, in its sole discretion, based upon the recommendation of the Committee, and to the extent legally permitted, require the return, repayment, or forfeiture of any cash or equity-based incentive compensation payment or award made to any current or former executive officer of Q2 during the three completed fiscal years immediately preceding the date on which Q2 is required to prepare a restatement of its financial statements due to material noncompliance of Q2 with any financial reporting requirement under the federal securities laws, or a Restatement, if: 1.The payment or award was made or granted: (A) based wholly or in part upon the attainment of a Q2 financial reporting measure (including, without limitation, (a) any measure that is determined and presented in accordance with the accounting principles used in preparing Q2's financial statements, and/or (b) any measure that is derived wholly or in part from such measure); or, (B) pursuant to an equity incentive plan of Q2, including awards containing time- or performance-based vesting criteria; 2.The board of directors determines that the executive officer engaged in or was otherwise involved in fraud or intentional misconduct that resulted in the need for the Restatement; and 3.A lower payment or award would have been made or granted to the executive officer based upon the restated financial results had there not been a Restatement. Hedging and Pledging Prohibitions Our Insider Trading Policy provides that no one subject to the policy, including all of our employees, executive officers and directors, may purchase any financial instrument that is designed to hedge against or offset any decrease in the value of our stock, such as short sales, puts, calls or other derivative transactions involving our securities. It further provides that no one subject to the policy, including all of our employees, executive officers and directors, may engage in hedging or monetization transactions involving our securities, pledge our securities as collateral for a loan or hold our securities in a margin account. Risk Considerations The Committee has reviewed our compensation programs for employees, including NEOs, and concluded that the programs do not create risks that are reasonably likely to have a material adverse effect on us. In reaching this conclusion, the Committee considered factors including: •compensation programs are designed to reward sustained long-term profitable growth and encourage behaviors aligned with the long-term interests of stockholders; •incentive plans incorporate design features that reduce the likelihood of excessive risk taking, such as combinations of performance metrics, reasonable performance targets, capped payouts, and a balance of cash and equity-based awards; •we maintain policies to mitigate compensation risk, including stock ownership guidelines and a clawback policy; and •the Committee exercises an appropriate level of independent oversight of compensation decisions and related risks.
Summary Compensation Table
Summary Compensation Table The following table presents compensation information for fiscal 2023, 2022 and 2021 paid to, or earned by, our principal executive officer, principal financial officer and our three other most highly compensated executive officers as of December 31, 2023. We refer to these executive officers as our "named executive officers" or "NEOs" in this Proxy Statement. For fiscal 2023 our NEOs were Matthew P. Flake, David J. Mehok, Kirk L. Coleman, John E. Breeden and Michael A. Volanoski. No disclosure is provided for persons for years prior to the executive officer becoming an NEO. In accordance with the rules promulgated by the SEC, certain columns relating to information that is not applicable have been omitted from this table.
Summary Compensation Table
| Name and Principal Position | Year | Salary | Bonus | Stock Awards(1) | Non-Equity Incentive Plan Compensation | All Other Compensation (3) | Total | | Matthew P. Flake | 2023 | $520,000 | — | $10,182,690 | $615,571(2) | $36,325 | $11,354,586 | | Chief Executive Officer | 2022 | 520,000 | — | 7,141,018 | 425,932(2) | 32,102 | 8,119,052 | | | 2021 | 520,000 | — | 6,808,263 | 520,000(2) | 34,702 | 7,882,966 | | David J. Mehok | 2023 | 390,000 | — | 3,375,497 | 300,091 | 31,905 | 4,097,493 | | Chief Financial Officer | 2022 | 389,423 | — | 3,104,855 | 207,642 | 29,715 | 3,731,635 | | | 2021 | 360,000 | — | 930,392 | 180,000(2) | 30,364 | 1,500,757 | | Kirk L. Coleman | 2023 | 431,058 | — | 5,733,100 | 465,440 | 30,313 | 6,659,911 | | President | | | | | | | | | John E. Breeden | 2023 | 400,000 | — | 3,825,537 | 355,137(2) | 38,656 | 4,619,330 | | Chief Operating Officer | 2022 | 400,000 | — | 3,016,092 | 245,730(2) | 34,075 | 3,695,897 | | | 2021 | 400,000 | — | 2,875,441 | 300,000(2) | 30,325 | 3,605,766 | | Michael A. Volanoski | 2023 | 400,000 | — | 3,656,729 | 473,516(2) | 35,464 | 4,565,709 | | Chief Revenue Officer | 2022 | 400,000 | — | 3,595,092 | 327,640(2) | 33,283 | 4,356,015 | | | 2021 | 223,077 | $650,000(4) | 1,770,615 | — | 11,011 | 2,654,703 |
Summary Compensation Table
(1)Amounts represent the aggregate grant date fair value of RSUs, MSUs and PSUs granted during the applicable year computed in accordance with FASB ASC Topic 718. Assumptions used in calculating these amounts are described in Note 13 to our consolidated financial statements included in our Annual Report on Form 10-K for fiscal 2023. The table below presents the aggregate grant date fair value of the stock awards for the periods presented assuming achievement at the maximum level for any performance-based vesting stock awards, computed by multiplying the maximum number of shares that can be earned by the closing price of our common stock on the date of grant:
Summary Compensation Table
| Name | Year | RSU Awards | MSU Awards | PSU Awards | Total Stock Awards at Maximum Level | | Matthew P. Flake | 2023 | $4,580,431 | — | $9,160,862 | $13,741,293 | | | 2022 | 3,943,598 | 7,887,196 | — | 11,830,794 | | | 2021 | 3,984,917 | 7,969,834 | — | 11,954,751 | | David J. Mehok | 2023 | 1,518,388 | — | 3,036,775 | 4,555,163 | | | 2022 | 1,714,655 | 3,429,271 | — | 5,143,926 | | | 2021 | 544,551 | 1,089,102 | — | 1,633,653 | | Kirk L. Coleman | 2023 | 2,562,864 | — | 5,125,727 | 7,688,591 | | John E. Breeden | 2023 | 1,720,824 | — | 3,441,648 | 5,162,472 | | | 2022 | 1,665,624 | 3,331,249 | — | 4,996,873 | | | 2021 | 1,683,034 | 3,366,068 | — | 5,049,102 | | Michael A. Volanoski | 2023 | 1,644,890 | — | 3,289,781 | 4,934,671 | | | 2022 | 2,403,466 | 2,939,391 | — | 5,342,857 | | | 2021 | 985,106 | 1,970,212 | — | 2,955,318 |
Summary Compensation Table
(2)Amounts represent the annual cash bonuses paid under the formulaic calculation of our cash bonus plan for the applicable year. For a detailed discussion of the 2023 Corporate Cash Bonus Plan, see "Compensation Discussion and Analysis—Individual Compensation Elements—Annual Cash Bonuses." (3)Consists of (i) the employer's portion of premiums paid for medical, dental, vision, short-term disability, long term disability, life and accidental death and dismemberment insurance consistent with such amounts payable for all of our employees, (ii) employer paid health savings account contributions available for all of our employees, (iii) employer paid 401(k) matching contributions available for all of our employees, and (iv) in certain years, the cost of an annual executive wellness physical for participating named executive officers, none of which individually exceeds $25,000 in value. (4)Represents a $250,000 sign-on bonus paid on Mr. Volanoski's start date and Mr. Volanoski's guaranteed bonus payment of $400,000 for 2021 pursuant to the terms of his employment agreement.
Grants of Plan-Based Awards in Fiscal 2023
Grants of Plan-Based Awards in Fiscal 2023 The following table sets forth information regarding grants of plan-based awards made to our NEOs during fiscal 2023.
Grants of Plan-Based Awards in Fiscal 2023
| Name | Grant Date | Estimated Future Payments Under Non-Equity Incentive Plan Awards(1) | | | Estimated Future Payments Under Equity Incentive Plan Awards | | | All Other Stock Awards: Number of Shares of Stock or Units (#) (2) | Grant Date Fair Value of Stock and Option Awards ($)(3) | | | | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | | | | Matthew P. Flake | n/a | $286,000 | $520,000 | $733,720 | — | — | — | — | $— | | | 3/2/2023 | — | — | — | 35,530 | 71,059 | 142,118(4) | — | 3,312,060 | | | 3/2/2023 | — | — | — | 35,529 | 71,058 | 142,116(5) | — | 2,290,199 | | | 3/2/2023 | — | — | — | — | — | — | 142,117 | 4,580,431 | | David J. Mehok | n/a | 139,425 | 253,500 | 357,689 | — | — | — | — | — | | | 3/2/2023 | — | — | — | 11,778 | 23,555 | 47,110(4) | — | 1,097,899 | | | 3/2/2023 | — | — | — | 11,778 | 23,556 | 47,112(5) | — | 759,210 | | | 3/2/2023 | — | — | — | — | — | — | 47,111 | 1,518,388 | | Kirk L. Coleman | n/a | 216,248 | 393,178 | 554,774 | — | — | — | — | — | | | 3/2/2023 | — | — | — | 11,778 | 23,555 | 47,110(4) | — | 1,097,899 | | | 3/2/2023 | — | — | — | 11,778 | 23,556 | 47,112(5) | — | 759,210 | | | 3/2/2023 | — | — | — | — | — | — | 47,111 | 1,518,388 | | | 5/31/2023 | — | — | — | 8,967 | 17,934 | 35,868(4) | — | 790,889 | | | 5/31/2023 | — | — | — | 8,967 | 17,934 | 35,868(5) | — | 522,238 | | | 5/31/2023 | — | — | — | — | — | — | 35,868 | 1,044,476 | | John E. Breeden | n/a | 165,000 | 300,000 | 423,300 | — | — | — | — | — | | | 3/2/2023 | — | — | — | 13,348 | 26,696 | 53,392(4) | — | 1,244,301 | | | 3/2/2023 | — | — | — | 13,348 | 26,696 | 53,392(5) | — | 860,412 | | | 3/2/2023 | — | — | — | — | — | — | 53,392 | 1,720,824 | | Michael A. Volanoski | n/a | 220,000 | 400,000 | n/a | — | — | — | — | — | | | 3/2/2023 | — | — | — | 12,759 | 25,518 | 51,036(4) | — | 1,189,394 | | | 3/2/2023 | — | — | — | 12,759 | 25,518 | 51,036(5) | — | 822,445 | | | 3/2/2023 | — | — | — | — | — | — | 51,036 | 1,644,890 |
Grants of Plan-Based Awards in Fiscal 2023
(1)The amounts reported in this column represent the threshold, target and maximum amounts potentially payable under our 2023 Corporate Cash Bonus Plan. Actual bonuses received by the NEOs are reported in the Summary Compensation Table under the column entitled "Non-Equity Incentive Plan Compensation." (2)Represents RSUs which vest in four equal annual installments approximately on the anniversary of the grant date. (3)Amounts represent the aggregate grant date fair value of RSUs and PSUs granted during the year computed in accordance with FASB ASC Topic 718. Assumptions used in calculating these amounts are described in Note 13 to our consolidated financial statements included in our Annual Report on Form 10-K for fiscal 2023. (4)Represents Relative TSR PSUs which vest, to the extent earned, on approximately the third anniversary of the grant date. The final number of shares of common stock to be earned and settled will be subject to the terms of the applicable award agreements. For a discussion of the Relative TSR PSUs, see "Compensation Discussion and Analysis—Compensation Elements—Long-Term Incentive Compensation." (5)Represents Adjusted EBITDA Margin PSUs which vest, to the extent earned, in two installments on approximately the second and third anniversary of the grant date. The final number of shares of common stock to be earned and settled will be subject to the terms of the applicable award agreements. For a discussion of the Adjusted EBITDA Margin PSUs, see "Compensation Discussion and Analysis—Compensation Elements—Long-Term Incentive Compensation."
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table Employment Agreements. Each of our NEOs has entered into a written employment agreement with us that provides for payment of base salary, target annual cash incentive compensation, eligibility for employee benefit programs and potential severance benefits. For further information regarding the base salaries, bonuses and incentive compensation payable to our NEOs and their eligibility for our employee benefit programs, please see our "Compensation Discussion and Analysis" above. For further information regarding the severance benefits provided under their employment agreements, please see "Potential Payments Upon Termination and Change in Control" below. Equity Awards. We have granted equity awards to our NEOs under our equity incentive plan. For further information regarding such equity awards, including the vesting schedules, please see the "Grants of Plan-Based Awards" table and related footnotes above and in "Compensation Discussion and Analysis—Long-Term Incentive Compensation" above. Option Repricings and Equity Award Modifications. We did not reprice any stock options or otherwise modify any outstanding equity awards during the year ended December 31, 2023 for our NEOs. Salary and Annual Incentive Bonus Compared to Total Compensation. The ratio of salary and annual incentive bonus to total compensation in 2023 (each as set forth in the Summary Compensation Table above) is set forth above under "Compensation Discussion and Analysis—Focus on Pay-for-Performance."
Outstanding Equity Awards at December 31, 2023
Outstanding Equity Awards at December 31, 2023 The following table sets forth information regarding outstanding equity awards held by our NEOs at December 31, 2023.
Outstanding Equity Awards at December 31, 2023
| | OPTION AWARDS | | | | STOCK AWARDS | | | | | Name | Number of Securities Underlying Unexercised Options Exercisable(1) | Number of Securities Underlying Unexercised Options Unexercisable(1) | Option Exercise Price | Option Expiration Date | Number of Shares or Units That Have Not Vested(1) | Market Value of Shares of Units of Stock That Have Not Vested(1) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested(1) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested(1) | | Matthew P. Flake | 184,730(2) | —(2) | $35.80 | 2/21/2024 | | | | | | | | | | | 11,760(3) | $510,502 | | | | | | | | | 17,512(4) | $760,196 | | | | | | | | | 51,296(5) | $2,226,759 | | | | | | | | | 142,117(6) | $6,169,299 | | | | | | | | | | | 23,349(7) | $1,013,580 | | | | | | | | | 68,394(8) | $2,968,984 | | | | | | | | | 71,059(9) | $3,084,671 | | | | | | | | | 71,058(10) | $3,084,628 | | David J. Mehok | | | | | 3,005(11) | $130,447 | | | | | | | | | 2,393(4) | $103,880 | | | | | | | | | 22,303(5) | $968,173 | | | | | | | | | 47,111(6) | $2,045,089 | | | | | | | | | | | 3,191(7) | $138,521 | | | | | | | | | 29,737(8) | $1,290,883 | | | | | | | | | 23,555(9) | $1,022,523 | | | | | | | | | 23,556(10) | $1,022,566 | | Kirk L. Coleman | | | | | 5,750(12) | $249,608 | | | | | | | | | 55,804(13) | $2,422,452 | | | | | | | | | 47,111(6) | $2,045,089 | | | | | | | | | 35,868(14) | $1,557,030 | | | | | | | | | | | 15,333(15) | $665,606 | | | | | | | | | 23,555(9) | $1,022,523 | | | | | | | | | 23,556(10) | $1,022,566 | | | | | | | | | 17,934(16) | $778,515 | | | | | | | | | 17,934(17) | $778,515 | | John E. Breeden | | | | | 2,786(3) | $120,940 | | | | | | | | | 7,396(4) | $321,060 | | | | | | | | | 21,666(5) | $940,521 | | | | | | | | | 53,392(6) | $2,317,747 | | | | | | | | | | | 9,861(7) | $428,066 | | | | | | | | | 28,887(8) | $1,253,985 | | | | | | | | | 26,696(9) | $1,158,873 | | | | | | | | | 26,696(10) | $1,158,873 | | Michael A. Volanoski | | | | | 5,188(18) | $225,211 | | | | | | | | | 19,117(5) | $829,869 | | | | | | | | | 27,902(13) | $1,211,226 | | | | | | | | | 51,036(6) | $2,215,473 | | | | | | | | | | | 6,917(19) | $300,267 | | | | | | | | | 25,489(8) | $1,106,477 | | | | | | | | | 25,518(9) | $1,107,736 | | | | | | | | | 25,518(10) | $1,107,736 |
Outstanding Equity Awards at December 31, 2023
(1)The securities underlying options and units that have not vested or are unearned are shares of the Company’s common stock. The market values included in the table are based on the closing price of the Company’s common stock on December 29, 2023 of $43.41. (2)This option grant vested as to 1/4 of the total option grant on February 21, 2018, and thereafter as to 1/48 of the total option grant monthly. (3)These RSUs were granted on March 13, 2020 and vest in four equal annual installments on March 3 of each of the first four anniversaries of the grant date. (4)These RSUs were granted on March 3, 2021 and vest in four equal annual installments on March 3 of each of the first four anniversaries of the grant date. (5)These RSUs were granted on March 10, 2022 and vest in four equal annual installments on March 3 of each of the first four anniversaries of the grant date. (6)These RSUs were granted on March 2, 2023 and vest in four equal annual installments on March 3 of each of the first four anniversaries of the grant date. (7)These MSUs were granted on March 3, 2021 and vest, to the extent earned, in two installments on the second and third anniversary of the grant date. The final number of shares of common stock to be earned and settled will be subject to the terms of the applicable award agreements. (8)These MSUs were granted on March 10, 2022 and vest, to the extent earned, in two installments on the second and third anniversary of the grant date. The final number of shares of common stock to be earned and settled will be subject to the terms of the applicable award agreements. (9)These Relative TSR PSUs were granted on March 2, 2023 and vest, to the extent earned, on the third anniversary of the grant date. The final number of shares of common stock to be earned and settled will be subject to the terms of the applicable award agreements. (10)These Adjusted EBITDA Margin PSUs were granted on March 2, 2023 and vest, to the extent earned, in two installments on the second and third anniversary of the grant date. The final number of shares of common stock to be earned and settled will be subject to the terms of the applicable award agreements. (11)These RSUs were granted on November 24, 2020 and vest in four equal annual installments on each anniversary of the grant date. (12)These RSUs were granted on December 7, 2021 and vest in four equal annual installments on December 9 of each of the first four anniversaries of the grant date. (13)These RSUs were granted on December 6, 2022 and vest in four equal annual installments on December 9 of each of the first four anniversaries of the grant date. (14)These RSUs were granted on May 31, 2023 and vest in four equal annual installments on June 9 of each of the first four anniversaries of the grant date. (15)These MSUs were granted on December 7, 2021 and vest, to the extent earned, in two installments on the second and third anniversary of the grant date. The final number of shares of common stock to be earned and settled will be subject to the terms of the applicable award agreements. (16)These Relative TSR PSUs were granted on May 31, 2023 and vest, to the extent earned, on the third anniversary of the grant date. The final number of shares of common stock to be earned and settled will be subject to the terms of the applicable award agreements. (17)These Adjusted EBITDA Margin PSUs were granted on May 31, 2023 and vest, to the extent earned, in two installments on the second and third anniversary of the grant date. The final number of shares of common stock to be earned and settled will be subject to the terms of the applicable award agreements. (18)These RSUs were granted on June 9, 2021 and vest in four equal annual installments on each anniversary of the grant date. (19)These MSUs were granted on June 9, 2021 and vest, to the extent earned, in two installments on the second and third anniversary of the grant date. The final number of shares of common stock to be earned and settled will be subject to the terms of the applicable award agreements.
Option Exercises and Stock Vested in Fiscal 2023
Option Exercises and Stock Vested in Fiscal 2023 The following table sets forth the number of shares of common stock acquired during fiscal 2023 by our NEOs upon the exercise of stock options and the vesting of RSUs and MSUs and the value realized upon such exercise or vesting.
Option Exercises and Stock Vested in Fiscal 2023
| | OPTION AWARDS | | STOCK AWARDS | | | Name | Number of Shares Acquired Upon Exercise (#) | Value Realized on Exercise ($)(1) | Number of Shares Acquired Upon Vesting (#) | Value Realized on Vesting ($)(2) | | Matthew P. Flake | — | $— | 55,523 | $1,833,925 | | David J. Mehok | — | — | 11,635 | 399,474 | | Kirk L. Coleman | | | 25,341 | 964,985 | | John E. Breeden | 25,397 | $189,462 | 17,004 | 561,642 | | Michael A. Volanoski | — | — | 18,266 | 637,010 |
Option Exercises and Stock Vested in Fiscal 2023
(1)Calculated by multiplying (i) the fair market value of common stock on the exercise date, which was determined using the closing price on NYSE of a share of common stock on the date of exercise, or if such day is a holiday, on the immediately preceding trading day, less the applicable exercise price, by (ii) the number of shares of common stock acquired upon exercise. (2)Calculated by multiplying (i) the fair market value of common stock on the vesting date, which was determined using the closing price on NYSE of a share of common stock on the vesting date, or if such day is a holiday or weekend, on the immediately preceding trading day, by (ii) the number of shares of common stock acquired upon vesting.
Pension Benefits and Nonqualified Deferred Compensation
Pension Benefits and Nonqualified Deferred Compensation The tables disclosing pension benefits and nonqualified deferred compensation are omitted because we do not have any such plans.
Potential Payments Upon Termination and Change in Control
Potential Payments Upon Termination and Change in Control Each of our NEOs is subject to certain obligations relating to non-competition, non-solicitation, proprietary information and assignment of inventions. Pursuant to these obligations, each NEO has agreed (i) not to solicit our employees or customers during employment and for a period of two years after the termination of employment, (ii) not to compete with us or assist any other person to compete with us during employment and for a period of two years after the termination of employment and (iii) to protect our confidential and proprietary information and to assign to us intellectual property developed during the course of employment. In addition, we have entered into employment agreements with each of our NEOs. The following is a summary of the employment agreements with our NEOs as in effect on December 31, 2023. Matthew P. Flake is party to an amended and restated employment agreement with us effective September 23, 2021. This employment agreement has no specific term and constitutes at-will employment. Mr. Flake's current annual base salary is $520,000. Mr. Flake is also eligible to receive benefits that are substantially similar to those of our other employees. His employment agreement also specifies his eligibility for an annual incentive bonus, which is currently targeted at $520,000 for fiscal 2023. Payment of any bonus to Mr. Flake is subject to approval by our board of directors. Mr. Flake's employment agreement provides that in the event that we terminate his employment for any reason, other than for "cause" (as such term is defined below) or certain other triggering events noted below, Mr. Flake would be entitled to the following severance benefits: (i) payments in equal installments over a 24-month period an amount equal to the sum of (a) 200% of his then-current annual base salary and (b) a pro-rata amount of his then-current annual cash incentive bonus at target for the fiscal year of his termination, pro-rated for his number of days of employment in such year; (ii) immediate acceleration of the vesting of any equity awards subject to time-based vesting which would have otherwise occurred had he remained employed over the 12 months following his termination; (iii) continued eligibility to vest in the portion of any then-outstanding performance based equity awards that would have otherwise vested had he remained employed and based upon attainment of relevant performance goals within the 12 months following his termination; and, (iv) payment of the monthly amount of Consolidated Omnibus Budget Reconciliation Act, or COBRA, continuation coverage for up to 24 months, subject to his continued eligibility for COBRA coverage. Mr. Flake's employment agreement also provides that in the event that we terminate his employment for any reason, other than for "cause," or if Mr. Flake resigns for "good reason" (as such term is defined below), in either case during the period of time extending from 60 days prior to and 24 months following the closing of any "change in control" (as defined in the employment agreement), Mr. Flake would be entitled to the following severance benefits: (i) we will be obligated to pay him in one lump sum an amount equal to the sum of (a) 250% of his then-current annual base salary and (b) a pro-rata amount of the greater of his then-current annual cash incentive bonus for the fiscal year of his termination, (x) at target, or (y) based upon attainment of applicable performance goals through the date of determination, in either case pro-rated for his number of days of employment in such year; (ii) immediate acceleration of the vesting of any equity awards subject to time-based vesting; (iii) continued eligibility to vest in any then-outstanding performance based equity awards for the remainder of their applicable terms; and, (iv) payment of the monthly amount of COBRA continuation coverage for up to 30 months, subject to his continued eligibility for COBRA coverage. Mr. Flake's employment agreement also provide that in the event of the termination of his employment as a result of his death or "disability" (as defined in the employment agreement), he or his estate would be entitled to the following severance benefits: (i) immediate acceleration of the vesting of any equity awards subject to time-based vesting; and, (ii) continued eligibility to vest in any then-outstanding performance based equity awards for the remainder of their applicable terms. David J. Mehok is party to an amended and restated employment agreement with us effective September 24, 2021. This employment agreement has no specific term and constitutes at-will employment. Mr. Mehok's current annual base salary is $390,000. Mr. Mehok is also eligible to receive benefits that are substantially similar to those of our other executive-level employees. His employment agreement also specifies his eligibility for an annual incentive bonus, which is currently targeted at $253,500 for fiscal 2024. Payment of any bonus to Mr. Mehok is subject to approval by our board of directors. Kirk L. Coleman is party to an amended and restated employment agreement with us effective May 3, 2023. This employment agreement has no specific term and constitutes at-will employment. Mr. Coleman's current annual base salary is $450,000. Mr. Coleman is also eligible to receive benefits that are substantially similar to those of our other executive-level employees. His employment agreement also specifies his eligibility for an annual incentive bonus, which is currently targeted at $450,000 for fiscal 2024. Payment of any bonus to Mr. Coleman is subject to approval by our board of directors. John E. Breeden is party to an amended and restated employment agreement with us effective February 17, 2024. This employment agreement has no specific term and constitutes at-will employment. Mr. Breeden's current annual base salary is $400,000. Mr. Breeden is also eligible to receive benefits that are substantially similar to those of our other executive-level employees. His employment agreement also specifies his eligibility for an annual incentive bonus, which is currently targeted at $300,000 for fiscal 2024. Payment of any bonus to Mr. Breeden is subject to approval by our board of directors. Michael A. Volanoski is party to an amended and restated employment agreement with us effective September 23, 2021. This employment agreement has no specific term and constitutes at-will employment. Mr. Volanoski's current annual base salary is $400,000. Mr. Volanoski is also eligible to receive benefits that are substantially similar to those of our other executive-level employees. His employment agreement also specifies his eligibility for an annual incentive bonus, which is currently targeted at $400,000 for fiscal 2024. Payment of any bonus to Mr. Volanoski is subject to approval by our board of directors. The employment agreements for Messrs. Mehok, Coleman, Breeden and Volanoski provide that in the event that we terminate their employment for any reason, other than for "cause" (as such term is defined below) or certain other triggering events noted below, such executive officer would be entitled to the following severance benefits: (i) payments in equal installments over an 18-month period an amount equal to the sum of (a) 150% of their then-current annual base salary and (b) a pro-rata amount of their then-current annual cash incentive bonus at target for the fiscal year of their termination, pro-rated for
Potential Payments Upon Termination and Change in Control
their number of days of employment in such year; (ii) immediate acceleration of the vesting of any equity awards subject to time-based vesting which would have otherwise occurred had they remained employed over the 12 months following their termination; (iii) continued eligibility to vest in the portion of any then-outstanding performance based equity awards that would have otherwise vested had they remained employed and based upon attainment of relevant performance goals within the 12 months following their termination; and, (iv) payment of the monthly amount of COBRA continuation coverage for up to 18 months, subject to their continued eligibility for COBRA coverage. The employment agreements for Messrs. Mehok, Coleman, Breeden and Volanoski also provide that in the event that we terminate their employment for any reason, other than for "cause," or if any such executive officer resigns for "good" reason (as such term is defined below), in either case during the period of time extending from 60 days prior to and 24 months following the closing of any "change in control" (as defined in the employment agreements), such executive officer would be entitled to the following severance benefits: (i) payment in one lump sum an amount equal to the sum of (a) 200% of their then-current annual base salary and (b) a pro-rata amount of the greater of their then-current annual cash incentive bonus for the fiscal year of termination, (x) at target, or (y) based upon attainment of applicable performance goals through the date of determination, in either case pro-rated for their number of days of employment in such year; (ii) immediate acceleration of the vesting of any equity awards subject to time-based vesting; (iii) continued eligibility to vest in any then-outstanding performance based equity awards for the remainder of their applicable terms; and, (iv) payment by of the monthly amount of COBRA continuation coverage for up to 24 months, subject to their continued eligibility for COBRA coverage. The employment agreements for Messrs. Mehok, Coleman, Breeden and Volanoski also provide that in the event of the termination of their employment as a result of their death or "disability" (as defined in the employment agreements), such executive officer or their estate would be entitled to the following severance benefits: (i) immediate acceleration of the vesting of any equity awards subject to time-based vesting; and, (ii) continued eligibility to vest in any then-outstanding performance based equity awards for the remainder of their applicable terms. "Cause" is defined under the NEOs' employment agreements as: (a) acts or omissions constituting gross negligence, recklessness or willful misconduct on the part of the executive officer with respect to the NEO’s obligations or otherwise relating to our business; (b) the NEO’s material breach of the employment agreement or the Confidentiality, Non-Competition and Proprietary Rights Assignment Agreement, or PRIA, entered into between us and the NEO; (c) the NEO’s conviction or entry of a plea of nolo contendere for fraud, misappropriation or embezzlement, or any felony or crime of moral turpitude; or, (d) the NEO’s willful failure to perform his or her material duties as determined in the sole and our exclusive discretion (other than any such failure resulting from a "disability" (as defined in the employment agreements)). "Good reason" is defined in the NEOs' employment agreements as the occurrence of any of the following actions taken by us without the executive officer’s prior written consent: (i) a material reduction in base salary; (ii) a material reduction in the NEO’s authorities, duties or responsibilities and, in the case of the NEOs other than Mr. Flake, a material diminution in the authority, duties, or responsibilities of the supervisor specified in the employment agreements to whom such executive officer is required to report; (iii) in the case of Mr. Flake, a requirement that he report to a corporate officer or employee instead of reporting directly to our board of directors; (iv) a material diminution in the budget over which the executive officer retains authority; (v) relocation of executive officer’s principal place of employment to a place that increases the executive officer’s one-way commute by more than 30 miles as compared to the executive officer’s then-current principal place of employment immediately prior to such relocation; or, (vi) any material breach by us of the terms of the employment agreements. In order to resign for "good reason," an executive officer must provide written notice to us within 30 days after the first occurrence of the event giving rise to "good reason" setting forth the basis for the NEO’s resignation, allow us at least 30 days from receipt of such written notice to cure such event, and if such event is not reasonably cured within such period, the NEO must resign from all positions the NEO then holds with us not later than 30 days after the expiration of such cure period. Each NEO's entitlement to the severance payments described above is conditioned upon execution of a separation agreement including a general release of all claims in a form satisfactory to us, and such payments will cease if any such named executive officer materially breaches the obligations in their PRIA or the release of claims. In addition, each of the NEOs' equity award agreements provide for potential benefits due upon a termination of employment upon a change in control as described below under "Potential Payments Upon Termination and Change in Control—Change in Control Acceleration." To the extent that any severance or other compensation payment to any of our NEOs pursuant to an employment agreement or any other agreement constitutes an "excess parachute payment" within the meaning of Sections 280G and 4999 of the Internal Revenue Code of 1986, as amended, or the Code, then such NEO will receive the full amount of such severance and other payments, or a reduced amount intended to avoid the application of Sections 280G and 4999 of the Code, whichever provides the executive with the highest amount on an after-tax basis. Change in Control Acceleration Under our 2014 Equity Incentive Plan, or the 2014 Plan, and our 2023 Equity Incentive Plan, or the 2023 Plan, the stock option and RSU agreements applicable to the NEOs as of December 31, 2023 provide that if the officer, within twelve months of a change of control, (i) is terminated without cause or (ii) resigns for good reason, or if the acquiring company does not assume or substitute for any options or RSUs held by such executive officer, then all of the unvested stock options and RSUs shall become immediately vested and exercisable in full.
Potential Payments Upon Termination and Change in Control
Under the 2014 Plan, "good reason" is defined in the award agreements as any one or more of the following (i) we materially reduce the NEO's title or position or assign to the NEO authority or duties which are materially inconsistent with the usual and customary operational authority and duties of a person in the NEO's position in similarly-situated companies, (ii) we materially reduce the NEO’s base compensation, or (iii) we require the NEO to relocate to any place outside a fifty (50) mile radius of the NEO's designated primary work location. Under the 2014 Plan, "cause" is defined in the award agreements as a grantee's: (i) theft, dishonesty, or falsification of our documents or records, (ii) improper use or disclosure of our confidential or proprietary information, (iii) any action which has a material detrimental effect on our reputation or business, (iv) the failure or inability to perform any reasonable assigned duties after written notice from us of, and a reasonable opportunity to cure, such failure or inability, (v) any material breach of any employment agreement with us, which breach is not cured pursuant to the terms of such agreement or (vi) the conviction (including any plea of guilty or nolo contendere) of any criminal act which impairs the participant's ability to perform his or her duties with us. Under the 2023 Plan, "good reason" is defined in the award agreements as any one or more of the following (i) any failure by us to pay, or any material reduction us of, the NEO’s base salary in effect immediately prior to the date of an applicable change in control event (unless reductions comparable in amount and duration are concurrently made for all other of our employees with responsibilities, organizational level and title comparable to the NEOs), or (ii) any failure by us to (1) continue to provide the NEO with the opportunity to participate, on terms no less favorable than those in effect for the benefit of any employee or service provider group which customarily includes a person holding the employment or service provider position or a comparable position with us then held by the NEO, in any benefit or compensation plans and programs, including, but not limited to, our life, disability, health, dental, medical, savings, profit sharing, stock purchase and retirement plans, if any, in which the NEO was participating immediately prior to the date of an applicable change in control, or their equivalent, or (2) provide the NEO with all other fringe benefits (or their equivalent) from time to time in effect for the benefit of any employee or service provider group which customarily includes a person holding the employment or service provider position or a comparable position with us then held by the NEO. Under the 2023 Plan, "cause" has the meaning ascribed to it in the NEO's employment agreement. Under the 2014 Plan and 2023 Plan, the MSU agreements and relative TSR PSU agreements applicable to the NEOs as of December 31, 2023 provide that in the event of a change of control, the determination date of the number of previously unearned shares of our common stock earned pursuant to the awards will be accelerated to the date immediately prior to the change of control, and the number of previously unearned shares of our common stock earned, if any, will be determined by using the change of control transaction price (rather than the 30-day average price of our common stock) and such shares will be deemed to have vested as of the date immediately prior to the closing date of the change in control transaction. Under the 2014 Plan and 2023 Plan, the Adjusted EBITDA Margin PSU agreements applicable to the NEOs as of December 31, 2023 provide that in the event of a change of control, the target number shares will be deemed to have vested as of the date immediately prior to the closing date of the change in control transaction.
CEO Pay Ratio
CEO Pay Ratio As required by Section 953(b) of 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 CEO, Mr. Flake: For 2023: •the annual total compensation of our median employee was $140,922; •the annual total compensation of our CEO was $11,354,586; and •the ratio of the annual total compensation of our CEO to the median of the annual total compensation of our employees was 80.6 to 1. This ratio is a reasonable estimate calculated in a manner consistent with SEC rules. We identified the employee with compensation at the median of the annual total compensation of all our employees in 2023 using the following methodology: •In determining our employee population, we considered the individuals, excluding our CEO, who were employed by us and our consolidated subsidiaries on December 31, 2023, whether employed on a full-time, part-time, seasonal or temporary basis. We did not include any contractors or other non-employee workers in our employee population. •To identify our median employee, we chose to use the sum of the following amounts: (i) salary or gross wages paid for fiscal 2023 and (ii) bonuses and cash incentives paid for fiscal 2023 (excluding allowances, relocation payments, and profit-sharing). We selected the foregoing compensation elements because they represented our principal broad-based compensation elements. Payments not made in U.S. dollars were converted to U.S. dollars. After identifying the median employee, we calculated annual total compensation for the median employee according to the methodology used to report the annual compensation of our NEOs in the 2023 Summary Compensation Table. •For permanent employees hired during 2023, we annualized their salary or base pay as if they had been employed for the entire measurement period. For simplicity, for hourly employees we calculated annual base pay using a reasonable estimate of the hours worked during 2023 for hourly employees and stated base salary as of December 31, 2023 for our remaining employees. We did not make any cost-of-living adjustment. As disclosed in the 2023 Summary Compensation Table, the annual total compensation for our CEO was $11,354,586. Because SEC rules for identifying the median of the annual total compensation of all employees allow companies to adopt a variety of methodologies, apply certain exclusions, and make reasonable estimates and assumptions that reflect their employee population and compensation practices, the pay ratio reported by other companies may not be comparable to our pay ratio, as other companies have different employee populations and compensation practices and may have used different methodologies, exclusions, estimates and assumptions in calculating their pay ratios. As explained by the SEC when it adopted these rules, the rule was not designed to facilitate comparisons of pay ratios among different companies, even companies within the same industry, but rather to allow stockholders to better understand and assess each particular company's compensation practices and pay ratio disclosures.
PAY VERSUS PERFORMANCE
PAY VERSUS PERFORMANCE The following information sets forth the relationship between executive "compensation actually paid" or "CAP" as calculated as described below and certain financial performance of the Company in accordance with SEC rules. It includes compensation for our Principal Executive Officer, or PEO, and average compensation for our NEOs other than our PEO, or the non-PEO NEOs.
PAY VERSUS PERFORMANCE
| | | | | | Value of Initial Fixed $100 Investment Based on(3): | | | | | Year | Summary Compensation Table Total for PEO(1) | Compensation Actually Paid to PEO(1), (2) | Average Summary Compensation Table Total for Non-PEO NEOs(1) | Average Compensation Actually Paid to Non-PEO NEOs (1), (2) | Total Share-holder Return | S&P Software & Services Select Index Total Stockholder Return | Net Income (in millions) | Non-GAAP Revenue(4) (in millions) | | 2023 | $11,354,586 | $18,092,410 | $4,985,611 | $7,971,755 | $54 | $151 | $(65.4) | $625.0 | | 2022 | $8,119,052 | $(2,081,882) | $3,633,784 | $481,741 | $33 | $109 | $(109.0) | $566.3 | | 2021 | $7,882,966 | $(5,731,441) | $2,296,154 | $416,081 | $98 | $165 | $(112.7) | $500.8 | | 2020 | $5,313,200 | $18,822,216 | $1,733,910 | $4,210,305 | $156 | $153 | $(137.6) | $407.2 |
PAY VERSUS PERFORMANCE
(1)The PEO and non-PEO NEOs for each year are as follows:2023: PEO: Matthew P. Flake; Non-PEO NEOs: David J. Mehok, Kirk L. Coleman, John E. Breeden, and Michael A. Volanoski. 2022 and 2021: PEO: Matthew P. Flake; Non-PEO NEOs: John E. Breeden, Michael A. Volanoski, Jonathan A. Price. 2020: PEO: Matthew P. Flake; Non-PEO NEOs: David J. Mehok, Adam D. Blue, William M. Furrer, John E. Breeden, Jennifer N. Harris. (2)Compensation Actually Paid, or CAP, was calculated beginning with the Summary Compensation Table, or SCT total for the PEO and average of the totals for the non-PEO NEOs. The amounts listed in the table below were deducted from or added to the applicable SCT total compensation to determine CAP. Equity award fair value amounts below are computed in accordance with FASB ASC Topic 718, consistent with the fair value methodology used to account for share-based payments in our financial statements under generally accepted accounting principles.
PAY VERSUS PERFORMANCE
| | Fiscal 2023 | | | | PEO | Average non-PEO NEO | | Summary Compensation table total for applicable year | $11,354,586 | $4,985,611 | | Deduction for amounts reported under the "Stock Awards" and "Option Awards" columns in the Summary Compensation table for applicable year | (10,182,690) | (4,147,716) | | Increase based on ASC Topic 718 fair value of awards granted during applicable year that remain unvested as of applicable year end, determined as of applicable year end | 13,909,001 | 5,770,781 | | Increase/deduction for awards granted in prior years that were outstanding and unvested as of applicable year end, determined based on change in ASC Topic 718 fair value from the prior year end to the applicable year end | 2,669,492 | 1,195,915 | | Increase/deduction for awards granted in prior years that vested during the applicable year, determined based on change in ASC Topic 718 fair value from the prior year end to the vesting date | 342,022 | 169,267 | | Deduction for fair value at the end of the prior year of equity awards that failed to meet vesting conditions in the year | — | (2,103) | | Compensation Actually Paid | $18,092,410 | $7,971,755 |
PAY VERSUS PERFORMANCE
(3) The values disclosed in these TSR columns represent the measurement period value of an initial fixed investment of $100 (assuming reinvestment of dividends, if any) in our stock or in the S&P Software & Services Select Index TSR on December 31, 2019, and then valued again on each of December 31, 2020, December 31, 2021, December 31, 2022 and December 31, 2023. (4) Non-GAAP revenue is calculated as GAAP revenue adjusted to exclude the impact of deferred revenue from purchase accounting. Please see Part II, Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures" included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 21, 2024.
Pay versus Performance Relationship
Pay versus Performance Relationship See the Compensation Discussion & Analysis for a description of how our compensation committee assesses the relationship between executive compensation and performance. The chart below provides a comparison between (i) the total stockholder return of Q2 and of the S&P Software & Services Select Index assuming a fixed $100 initial investment on December 31, 2019 and reinvestment of dividends, and (ii) the compensation actually paid to our PEO and the average compensation actually paid to our non-PEO NEOs for the years ended December 31, 2020, 2021, 2022, and 2023. As shown below, stockholder return has increased year over year, and compensation actually paid to our executives has increased year over year as well.
Pay versus Performance Relationship
| | Fiscal 2020 | Fiscal 2021 | Fiscal 2022 | Fiscal 2023 | | PEO Compensation Actually Paid | $18,822,216 | $(5,731,441) | $(2,081,882) | $18,092,410 | | Avg. non-PEO NEO Compensation Actually Paid | $4,210,305 | $416,081 | $481,741 | $7,971,755 | | Company TSR | $156 | $98 | $33 | $54 | | S&P Software & Services Select Index TSR | $153 | $165 | $109 | $151 |
Pay versus Performance Relationship
The chart below provides a comparison between (i) the Company’s Net Income and (ii) compensation actually paid to our PEO and average compensation actually paid to our non-PEO NEOs for the years ended December 31, 2020, 2021, 2022, and 2023.
Pay versus Performance Relationship
| | Fiscal 2020 | Fiscal 2021 | Fiscal 2022 | Fiscal 2023 | | PEO Compensation Actually Paid | $18,822,216 | $(5,731,441) | $(2,081,882) | $18,092,410 | | Avg. non-PEO NEO Compensation Actually Paid | $4,210,305 | $416,081 | $481,741 | $7,971,755 | | Net Income (in millions) | $(137.60) | $(112.70) | $(109.00) | $(65.40) |
Pay versus Performance Relationship
The chart below provides a comparison between (i) the Company’s Non-GAAP annual revenue and (ii) compensation actually paid to our PEO and average compensation actually paid to our non-PEO NEOs for the years ended December 31, 2020, 2021, 2022 and 2023.
Pay versus Performance Relationship
| | Fiscal 2020 | Fiscal 2021 | Fiscal 2022 | Fiscal 2023 | | PEO Compensation Actually Paid | $18,822,216 | $(5,731,441) | $(2,081,882) | $18,092,410 | | Avg. non-PEO NEO Compensation Actually Paid | $4,210,305 | $416,081 | $481,741 | $7,971,755 | | Non-GAAP Revenue (in millions) | $407.2 | $500.8 | $566.3 | $625.0 |