DEF 14A of Rapid7, Inc.
Filed Apr 19, 2024 · FY20230001560327-24-000044
ELECTION OF DIRECTORS
ELECTION OF DIRECTORS In accordance with our certificate of incorporation and bylaws, as amended, each director elected at each annual meeting of stockholders will hold office for a term of one year, expiring at the next annual meeting of stockholders and until his or her respective successor is duly elected and qualified, unless he or she dies, resigns, retires or is removed from office prior to such time. The Board presently has nine members, each of whose term of office expires in 2024. Ms. Kosmowski has not been nominated for re-election at the Annual Meeting. The Board would like to thank Ms. Kosmowski for her service to the Company. Our Board has nominated Mses. Bruner and Sondhi, and Messrs. Berry, Brown, Holzman, Nye, Schodorf and Thomas for re-election at the Annual Meeting and if elected at the Annual Meeting, each of these nominees would serve until the 2025 Annual Meeting of Stockholders and until his or her successor has been duly elected and qualified, or, if sooner, until the director’s death, resignation or removal. Each of the nominees for election at the Annual Meeting was recommended for election by the Nominating and Corporate Governance Committee and is currently serving as a director of the Company. It is our policy to invite directors and nominees for director to attend the Annual Meeting. Three of our directors serving at the time of our 2023 Annual Meeting of Stockholders attended that meeting. Proxies cannot be voted for a greater number of persons than the number of nominees named in the Proxy Statement. Directors are elected by a plurality of the votes of the holders of shares present in person, by remote communication or represented by proxy and entitled to vote on the election of directors. Accordingly, if a quorum is present, the eight nominees receiving the highest number of affirmative votes will be elected. Shares represented by executed proxies will be voted, if authority to do so is not withheld, for the election of the nominees named below. If any nominee becomes unavailable for election as a result of an unexpected occurrence, shares that would have been voted for that nominee will instead be voted for the election of a substitute nominee that we will propose. Each nominee has agreed to serve if elected. Our management has no reason to believe that any nominee will be unable to serve. The following table sets forth the names, ages as of April 19, 2024, and certain other information for each of the nominees to be elected and for our non-continuing director.
ELECTION OF DIRECTORS
| Name | Age | Director Since | Expiration of Term For Which Nominated | Committee Membership | | | | | | | | AC | CC | NCGC | | Director Nominees | | | | | | | | Michael Berry | 61 | 2012 | 2025 | C | | | | Marc Brown | 59 | 2016 | 2025 | | ● | | | Judy Bruner | 65 | 2016 | 2025 | ● | | | | Benjamin Holzman | 49 | 2008 | 2025 | | | C | | J. Benjamin Nye(1) | 58 | 2008 | 2025 | | C | | | Tom Schodorf | 66 | 2016 | 2025 | | ● | | | Reeny Sondhi | 51 | 2020 | 2025 | ● | | ● | | Corey Thomas(2) | 48 | 2012 | 2025 | | | | | Non-Continuing Directors | | | | | | | | Christina Kosmowski | 47 | 2019 | — | | | | | (1) Lead Independent Director | | | | ● - Member | | C - Chair | | (2) Chairman of the Board | | | | | | | | AC - Audit Committee | | | | | | | | CC - Compensation Committee | | | | | | | | NCGC - Nominating and Corporate Governance Committee | | | | | | |
ELECTION OF DIRECTORS
Our Board believes that directors who provide a significant breadth of experience, knowledge, and abilities in areas relevant to our business, while also representing a diversity of age, gender and ethnicity, contribute to a well-balanced and effective Board. The following charts demonstrate our Board’s commitment to Board refreshment and to having diverse and independent perspectives in the boardroom. The following table presents our current Board diversity statistics in accordance with Nasdaq Listing Rule 5605(f), as self-disclosed by our directors.
ELECTION OF DIRECTORS
| Board Diversity Matrix (as of April 19, 2024) | | | | | | Board Size: | | | | | | Total Number of Directors | 9 | | | | | Gender Identity: | Female | Male | Non-Binary | Did Not Disclose Gender | | Directors | 3 | 6 | — | — | | Demographic Background: | | | | | | African American or Black | — | 2 | — | — | | Alaskan Native or Native American | — | — | — | — | | Asian | 1 | — | — | — | | Hispanic or Latinx | — | — | — | — | | Native Hawaiian or Pacific Islander | — | — | — | — | | White | 2 | 3 | — | — | | Two or More Races or Ethnicities | — | 1 | — | — | | LGBTQ+ | — | | | | | Did Not Disclose Demographic Background | 3 (1) | | | |
ELECTION OF DIRECTORS
(1) Three directors did not disclose demographic information related to LGBTQ+ status.
Director Nominees
Director Nominees Michael Berry has served as a member of our Board since November 2012. Mr. Berry currently serves as Executive Vice President and Chief Financial Officer for NetApp, Inc., a position he has held since March 2020. From February 2017 to March 2020, he served as Executive Vice President and Chief Financial Officer for McAfee LLC. He previously served on the board of directors of Certinia (formerly known as FinancialForce.com, Inc.), a cloud-based applications company, and as chair of its audit committee. Mr. Berry received a B.A. in finance from Augsburg College and an M.B.A. in finance from the University of St. Thomas. Our Board believes that Mr. Berry’s financial expertise and experience in the software and technology industries qualify him to serve on our Board. Marc Brown has served as a member of our Board since July 2016. In October 2020, Mr. Brown was named as the Global Head of EQT AB's Growth Equity Fund. Previously, from January 2000 to October 2020, Mr. Brown was employed by Microsoft Corporation, where he most recently served as the Corporate Vice President, Corporate Development, Global Head of M&A and Strategic Investments. Mr. Brown also previously served as a director of Datto Holding Corp., a publicly traded software company offering IT solutions for managed service providers, and as a member of its audit and mergers and acquisitions committee. He received an A.B. from Colgate University, an M.B.A. from the New York University – Leonard N. Stern School of Business and a J.D. from Georgetown University Law Center. Our Board believes that Mr. Brown’s extensive experience with corporate strategy, development and M&A activities in the software and technology industry qualifies him to serve on our Board. Judy Bruner has served as a member of our Board since October 2016. Ms. Bruner most recently served as the Executive Vice President, Administration and Chief Financial Officer of SanDisk Corp, a supplier of flash storage products, from June 2004 until May 2016, when SanDisk was acquired by Western Digital. Ms. Bruner currently serves on the board of directors of Applied Materials, Inc., a publicly traded semiconductor equipment manufacturer and as chair of its corporate governance and nominating committee and as chair of its audit committee. Ms. Bruner also serves on the board of directors of Seagate Technology plc, a publicly traded provider of storage solutions, and as a member of its audit committee and as chair of its nominating and governance committee. Ms. Bruner also serves on the board of directors of Qorvo, Inc., a publicly traded manufacturer of radio frequency solutions, and as the chair of its audit committee and a member of its nominating and governance committee. Ms. Bruner previously served on the board of directors of Brocade Communications Systems, Inc., a publicly traded data and storage networking products company, from January 2009 to November 2017 and served as chair of its audit committee. She also previously served on the board of directors of Varian Medical Systems, Inc., a publicly traded manufacturer of medical devices and software, from August 2016 to April 2021 and as chair of its audit committee and a member of its ethics and compliance committee. Ms. Bruner received a B.A. in Economics from the University of California, Los Angeles and an M.B.A. from the University of Santa Clara. Our Board believes that Ms. Bruner’s financial and business expertise, including her experience in financial management with a range of technology companies qualifies her to serve on our Board. Benjamin Holzman has served as a member of our Board since August 2008. Mr. Holzman currently serves as a partner at Venture Guides, an early stage investment firm. Mr. Holzman has previously served in other executive capacities, including as the Chief Financial Officer for Artemis Health Inc. from 2019 to 2021 and the Chief Operating Officer for MX Technologies, Inc. from 2018 to 2019. His experience includes being an investor in venture capital and growth equity while serving as a Managing Director at Bain Capital Venture Partners, LLC, where he served on the boards of several technology companies. Mr. Holzman received a B.S.E. in biomedical and electrical engineering from Duke University and an M.B.A. from the MIT Sloan School of Management. Our Board believes that Mr. Holzman’s extensive experience with a wide range of technology companies qualifies him to serve on our Board. J. Benjamin Nye has served as a member of our Board since August 2008 and as our lead independent director since February 2019. Mr. Nye is a partner at Venture Guides, an early stage investment firm. Mr. Nye is a Senior Advisor of the technology and infrastructure investing efforts for Bain Capital Venture Partners, LLC, which he joined in October 2004. From September 2013 until January 2022, Mr. Nye also served as the Chief Executive Officer of Turbonomic, Inc., a software company that provides virtualization management solutions for control cloud and virtualized environments, including through its acquisition by IBM Corporation. Mr. Nye received a B.A. in government from Harvard College and an M.B.A. from Harvard Business School. Our Board believes that Mr. Nye’s financial and business expertise, including his experience in managing and directing technology companies, qualifies him to serve on our Board. Tom Schodorf has served as a member of our Board since July 2016. Mr. Schodorf previously served on the board of directors of Tufin Software Technologies Ltd., a publicly traded security policy management company, and as a member of its audit committee. Mr. Schodorf has previously served as the Senior Vice President, Field Operations of Splunk Inc., a provider of log-management and security analytic-systems software, from October 2009 to March 2014. Mr. Schodorf received a B.S.B.A. from The Ohio State University and an M.B.A. from the University of Dayton. Our Board believes that Mr. Schodorf’s experience as an executive in the technology industry qualifies him to serve on our Board. Reeny Sondhi has served as a member of our Board since August 2020. Ms. Sondhi currently serves as the Chief Digital Officer of Twilio, Inc., a position she has held since April 2022. Previously, she was the Chief Security Officer of Autodesk, Inc., a position she held from July 2018 until April 2022, and prior to that, she served as Autodesk’s Vice President, Chief of Product and Cloud Security from August 2015 to July 2018. Ms. Sondhi holds a B.S. in electronics engineering from Government Engineering College, Bhopal and a post graduate diploma in management from the Institute of Management Development and Research. Our Board believes that Ms. Sondhi’s experience in information and network security at multiple large public company qualifies her to serve on our Board. Corey Thomas has served as our Chief Executive Officer and as a member of our Board since October 2012. He was appointed as Chairman of our Board in February 2019. He currently serves on the board of directors of LPL Financial Holdings Inc., a publicly traded financial services company, and as a member of its audit committee and nominating and corporate governance committee. Mr. Thomas also serves as the vice chair of the board of directors of Blue Cross Blue Shield of Massachusetts, chair of its human resources committee and as a member of its finance and business performance committee. In February 2023, Mr. Thomas was appointed to the President’s National Security Telecommunications Advisory Committee. Mr. Thomas received a B.E. in electrical engineering and computer science from Vanderbilt University and an M.B.A. from Harvard Business School. Our Board believes that Mr. Thomas’ financial and business expertise and his daily insight into corporate matters as our Chief Executive Officer qualify him to serve on our Board.
Non-Continuing Directors
Non-Continuing Directors Christina Kosmowski has served as a member of our Board since July 2019. Ms. Kosmowski currently serves as the Chief Executive Officer of LogicMonitor Inc., which she joined in January 2021. Previously, Ms. Kosmowski was employed from February 2017 to January 2021 by Slack Technologies, Inc., where she served as the Global Head of Customer Success and Services. Ms. Kosmowski also serves as a director of Poema Global Holding Corp., a special purpose acquisition company, and as a member of its compensation committee and nominating and corporate governance committee. Ms. Kosmowski holds a B.S. in Industrial Engineering from Northwestern University. The Board has not nominated Ms. Kosmowski for re-election at the Annual Meeting, and accordingly, her service on our Board will end on June 13, 2024, the date of the Annual Meeting. THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE.
INFORMATION REGARDING THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE
INFORMATION REGARDING THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE
Independence of the Board of Directors
Independence of the Board of Directors As required under Nasdaq Stock Market (“Nasdaq”) listing rules, a majority of the members of a listed company’s board of directors must qualify as “independent,” as affirmatively determined by the company’s board. The Board consults with the Company’s counsel to ensure that the Board’s determinations are consistent with relevant securities and other laws and regulations regarding the definition of “independent,” including those set forth in pertinent listing standards of Nasdaq, as in effect from time to time. In making this determination, our Board receives information annually from each of our directors regarding each director’s business and personal activities as they relate to us and our management. Each director completes a detailed questionnaire that provides information about relationships that might affect the determination of his or her independence. The Board then takes into account all known relevant facts and circumstances concerning any relationship bearing on the independence of a director or nominee. This process includes evaluating whether any identified relationship otherwise adversely affects a director’s independence and affirmatively determining that the director has no material relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Consistent with these considerations, after review of all relevant identified transactions or relationships between each director, or any of his or her family members, and the Company, our senior management and our independent auditors, the Board has affirmatively determined that the following eight directors are independent directors within the meaning of the applicable Nasdaq listing standards: Mses. Bruner, Kosmowski and Sondhi, and Messrs. Berry, Brown, Holzman, Nye and Schodorf. Mr. Thomas is not an independent director by virtue of his employment with us.
Board Leadership Structure
Board Leadership Structure Corey Thomas serves as our Chairman and Chief Executive Officer and J. Benjamin Nye serves as our lead independent director. The Board believes that our current leadership structure is effective, efficient and in the best interest of Rapid7 and our stockholders. Under our Corporate Governance Guidelines, our Board may separate or combine the roles of Chairman and Chief Executive Officer when and if it believes it advisable and in the best interest of Rapid7 and its stockholders to do so. The Board believes that Mr. Thomas’ role as Chairman promotes a number of important objectives. Since he is the director with the deepest familiarity with our business and is best positioned to lead the execution of our key strategies, his service as Chairman adds a substantial strategic perspective while at the same time providing important continuity to Board leadership. Based on this, the Board has concluded that his continuing service as Chairman remains in the best interests of stockholders. In addition, having Mr. Nye as our lead independent director strengthens the Board’s overall independence and oversight of our business and enhances the Board's communication and effectiveness. Mr. Nye is an active lead independent director. As lead independent director, Nye’s responsibilities set forth under our Corporate Governance Guidelines include:
Board Leadership Structure
| • | establish the agenda for meetings of the independent directors; | | • | preside over meetings of the independent directors; | | • | preside over any portions of meetings of the Board evaluating the performance of the Board; | | • | coordinate the activities of the other independent directors; and | | • | perform such other duties specified by the Board from time to time. |
Board Leadership Structure
Mr. Nye is involved in our Chief Executive Officer succession planning and performance evaluation, as well as our annual Board and Committee self-evaluations, with the other members of the Compensation Committee and Nominating and Corporate Governance Committee. In addition, we have a separate chair for each committee of the Board. At each regular Board meeting, the chairs of each committee are expected to report to the Board on the activities of their committee in fulfilling their responsibilities as detailed in their respective charters or specify any shortcomings should that be the case. Our Bylaws and Corporate Governance Guidelines provide the Board with flexibility to make determinations as circumstances require and in a manner that it believes is in the best interests of the Company. The Board will continue to evaluate our leadership structure periodically and make changes in the future as it deems appropriate.
Executive Summary
Although total revenue, product revenue, ARR per customer, and number of customers are not metrics that were used to determine 2023 awards under our incentive compensation plans, we believe that these metrics are useful indicators of our ability to grow our business consistent with our annual operating plan and provide important context for our Compensation Committee's executive compensation decisions. Summary of 2023 Executive Compensation Actions and Program Changes •We structured 94% of our Chief Executive Officer’s and an average of 92% of our other named executive officers’ target total direct compensation to be “performance-based,” in that the value of the compensation is dependent on our measurable performance and stock price performance, consisting of an annual performance bonus opportunity and long-term equity incentives, including time-based restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”). Target total direct compensation consists of annual base salary, target annual performance bonus opportunity and the target grant date fair value of equity awards approved. The charts below show the pay mix of our Chief Executive Officer and, on average, our other named executive officers and the components of their pay for 2023: •We retained an independent third-party compensation consultant to provide comparable market analysis and to assist our Compensation Committee in assessing our executive compensation programs and making executive compensation decisions. •We updated our peer group of comparable public companies, selected with the assistance of our independent compensation consultant, to inform our decision-making process and to assist in ensuring that our executive compensation program is positioned to be competitive relative to market dynamics and aligned with our business objectives at this stage of our development. •We structured the target annual performance bonus opportunities to be dependent on meeting financial targets for total ARR and Non-GAAP Operating Income Margin* to continue our commitment to our growth and profitability framework. For 2023, our annual performance bonus paid out at 70% of target, as described in more detail under “Annual Performance Bonus” below. •We continued to engage in substantive discussions with our shareholders, with a concentrated focus on the issues that mattered to them, including our executive compensation program. In February 2023, taking into consideration shareholder feedback and shifting market practice, the Compensation Committee enhanced our long-term incentive program with the grant of PSUs with vesting conditioned on the achievement of key performance metrics as well as continued service over a three-year time vesting schedule. For 2023, 67% of our CEO's long-term incentive award, and 33% of other named executive officer's long term incentive awards were comprised of PSUs. However, our ARR and Non-GAAP Operating Income Margin performance did not meet the rigorous thresholds required to achieve vesting for the PSUs and therefore no PSUs were earned in 2023, as described in more detail under "2023 Executive Compensation Program-Long-Term Incentive Compensation" below. *Non-GAAP Operating Income Margin is a non-GAAP financial measure, defined as Non-GAAP Operating Income (Loss) divided by Total Revenue ("Non-GAAP Operating Income Margin"). See Appendix A to this Proxy Statement for a reconciliation of GAAP loss from operations to Non-GAAP Operating Income. Executive Compensation Policies and Practices Our executive compensation program reflects our strong commitment to good governance practices with respect to executive compensation:
Executive Summary
| | WHAT WE DO | | WHAT WE DON'T DO | | P | 100% Independent Directors on the Compensation Committee. | O | No Guaranteed “Single Trigger” Change in Control Payments; Change in Control Equity Vesting Benefits Are Structured to be “Double Trigger” or Limited to Acquiring Company Refusing to Assume or Continue Awards. | | P | Retain an Independent Compensation Advisor. | O | Perquisites and Other Personal Benefits are Not a Material Part of Our NEO Compensation Program. | | P | Review and Reevaluate Executive Compensation Annually. | O | No Tax Reimbursements or Tax Gross Ups on Severance or Change in Control Payments. | | P | Structure a Significant Portion of Executive Compensation to be Performance-Based. | O | No Special Executive Welfare or Health Benefits, or Retirement Plans That Are Not Available to Our Employees Generally. | | P | Tie Performance Bonus Opportunities to Corporate Objectives. | O | No Guaranteed Salary Increases or Bonuses. | | P | Emphasize Long-Term Equity Incentives. | O | No Short Sales or Hedging of Stock Ownership Positions and Transactions Involving Derivatives of Our Common Stock. | | P | Maintain Stock Ownership Guidelines for CEO and Directors. | | | | P | Implement and Enforce a NASDAQ-compliant "Clawback" Policy. | | | | P | Establish Maximum Payout Amounts under the Bonus Plan and Require Threshold Level of Achievement for Payout with Respect to Each Performance Measure. | | | | P | Grant PSU Awards with Rigorous Performance Conditions. | | |
Executive Summary
Commitment to Stockholder Engagement As part of our ongoing stockholder engagement and in response to the support received for our director nominees and say-on-pay proposal at our 2022 Annual Meeting of Stockholders, in the second half of 2022 we reached out to stockholders representing over 50% of our issued and outstanding shares as of December 31, 2022 to gain a better understanding of their views regarding our executive compensation, corporate governance and ESG policies and practices. We engaged in substantive discussions with each of the stockholders that wanted to provide us with feedback at that time, which represented 31% of our issued and outstanding shares as of December 31, 2022. Members of our Nominating and Corporate Governance Committee and our Compensation Committee, including the chair of our Compensation Committee and lead independent director, participated in some of these discussions, and a summary of the relevant feedback was provided to our Compensation Committee. Many of our stockholders with whom we held substantive discussions expressed general support for the Company’s executive compensation program, but also continued to indicate a strong preference for PSUs and emphasized the need for a clear correlation between pay and performance. Our Board and Compensation Committee reviewed this stockholder feedback as part of its annual evaluation of our executive compensation and corporate governance framework. The Compensation Committee considers our RSUs to be performance-based because they provide a return directly in line with our stock price performance and align our executive officers’ interests with those of our stockholders. Our primary design objectives for long-term compensation are to attract, retain and incentivize executives, align executive pay with our performance and the interests of our stockholders, and minimize costs and implementation challenges. Historically, including in 2022, our long-term incentive awards consisted solely of RSUs. However, after taking into consideration shareholders’ feedback and shifting market practice, as noted above, we introduced PSU awards to our long-term incentive program for 2023. Our Compensation Committee, lead independent director and management are committed to maintaining an active dialogue and engaging with our stockholders to understand their priorities and concerns related to executive compensation, corporate governance and ESG initiatives. Additionally, our Investor Relations team, along with our Chief Executive Officer and Chief Financial Officer, frequently engages with our stockholders throughout the year. At our 2023 Annual Meeting, 91% of our stockholders approved, on an advisory basis, the compensation of our named executive officers, as disclosed in our 2023 proxy statement. For more information on the rationale for how we structure our compensation, please refer to the section below entitled “2023 Executive Compensation Program—Long-Term Incentive Compensation”.
Objectives, Philosophy and Elements of Executive Compensation
| • | attract, retain and reward highly qualified executives; | | • | provide incentives that motivate and reward for achievement of our key performance goals that increase stockholder value over the long term; | | • | align our executives’ interests with those of our stockholders; and | | • | link pay to Company's performance. |
Objectives, Philosophy and Elements of Executive Compensation
| Compensation Element | Description | Purpose | | Base Salary (fixed cash) | •Fixed component of pay that generally falls around the median of the market. | •Provides compensation for executive to perform job functions. •Provides financial stability and security. | | Annual Performance Bonus (“at-risk” performance-based cash or equity)* | •Opportunity to earn annually. •Tied to achievement of key corporate goals. •Executives can earn 0-150% of their target award based on achievement of pre-established targets. •Includes a threshold level of performance necessary for any payout and a reasonable cap on payment. | •Motivates and rewards for achievement of key drivers of our annual operating plan. •Provides tangible, achievable goals and reinforces key priorities of the organization. | | Long-Term Incentives (“at-risk” performance-based equity)* | •RSU awards, typically granted annually, that vest over three years, subject to continued employment on the vesting date. •PSU awards granted annually with a one-year performance period that vest over three years, subject to continued employment on the vesting date. | •Vesting period assists with retention. •Aligns executives' interests with stockholder interests and changes in stockholder value over the long-term. •PSUs encourage achievement of key performance metrics. |
Objectives, Philosophy and Elements of Executive Compensation
*In addition to our PSUs, we consider RSUs to be “at-risk” and performance-based because the value delivered is directly dependent on our stock price performance. We also provide our executive officers with severance and change in control-related payment and benefits, as well as benefits available to all our employees, including retirement benefits under our Section 401(k) plan and participation in various employee health and welfare benefit plans. We focus on providing a competitive compensation package to each of our executive officers that provides short-term and significant long-term incentives for the executive officers to drive the achievement of measurable corporate objectives. We believe that this approach provides an appropriate blend of short-term and long-term incentives to maximize stockholder value. We do not have formal policies for allocating compensation among base salary, annual performance bonuses and equity awards, short-term and long-term compensation or among cash and non-cash compensation. Instead, the Compensation Committee uses its judgment to establish a total compensation program for each named executive officer that is a mix of current, short-term and long-term incentive compensation, and cash and non-cash compensation, that it believes appropriate to achieve the goals of our executive compensation program and our corporate objectives. However, we historically have structured a significant portion of our named executive officers’ target total direct compensation so that it is comprised of performance-based bonus opportunities and long-term equity awards, in order to align our executive officers’ incentives with the interests of our stockholders and our corporate objectives.
How We Determine Executive Compensation
*Added for 2023 The Compensation Committee, with the assistance of Compensia, used data drawn from public filings of the companies in our compensation peer group, as well as data from two custom data cuts drawn from the Radford Global Compensation Database, which included 12 of the companies in our 2022 peer group and 36 other U.S.-based software companies with revenues ranging from $285 million to $1.7 billion and market capitalization ranging from $1.3 billion to $12 billion, with the exception of Zscaler which was chosen based on strong overall comparability and relevance to our Company (together, “market data”), to evaluate the competitive market when determining the 2023 total direct compensation packages for our named executive officers, including base salary, target annual bonus opportunities and long-term incentive compensation opportunities. Compensia prepared, and the Compensation Committee reviewed, a range of market data reference points (generally at the 25th, 50th and 75th percentiles of the market data) with respect to base salary, annual performance bonuses, equity awards (valued based on an approximation of grant date fair value), total target cash compensation (base salary and the target annual performance bonus opportunity) and target total direct compensation (total target cash compensation and equity compensation) with respect to each of our executive officers. The Compensation Committee did not target pay to fall at any particular percentile of the market data, but rather reviewed this market data as a helpful reference point in making 2023 compensation decisions. Competitive market data is only one of the factors that the Compensation Committee considers in making compensation decisions. The Compensation Committee also considers other factors as described below under “Factors Used in Determining Executive Compensation.” In preparation for making 2024 compensation decisions, the Compensation Committee, with input from Compensia, updated its peer group to ensure the peer group remained closely aligned with the Company’s current industry focus, market size and employee headcount. Certain companies in the peer group for 2023 were replaced with companies that were more similar in industry and size primarily due to acquisitions or changes in their market capitalization of such 2023 peer group companies. In July 2023, Compensia recommended, and the Compensation Committee approved, the following companies as our peer group for 2024 executive compensation decisions:
2023 Executive Compensation Program
In determining 2023 base salaries, the Compensation Committee first assessed 2022 base salary levels against the market data provided by Compensia and each named executive officer’s annual performance, as well as recommendations from our Chief Executive Officer (except with respect to his own base salary) and the other factors described above under “Factors Used in Determining Executive Compensation.” Annual Performance Bonus The Rapid7, Inc. Executive Incentive Bonus Plan (the “Bonus Plan”) applies to certain key executive officers, including our named executive officers, that are selected by the Compensation Committee (the “Executives”). The Bonus Plan provides for the opportunity to earn bonuses based upon the attainment of certain corporate, financial and operational measures or objectives appropriate for the respective year (“Corporate Performance Goals”). Each Executive has a target annual performance bonus opportunity that corresponds to achievement of 100% of the Corporate Performance Goals. The Compensation Committee set threshold and maximum achievement levels for the Corporate Performance Goals and capped payout at a maximum of 150% of the Executive's target annual performance bonus opportunity (inclusive of the Net Retention Rate adjustment set forth below). The Corporate Performance Goals and bonus formulas are adopted annually by the Compensation Committee and are measured at the end of each year after our financial statements have been prepared. If the Corporate Performance Goals are met, payments are made as soon as practicable following the end of each year, but not later than 74 days thereafter. Subject to the rights contained in any agreement between us and the Executive, an executive officer must be employed by us on the bonus payment date to be eligible to receive a bonus payment. With respect to any amounts earned under the Bonus Plan for 2023 fiscal year performance, the Compensation Committee permitted Executives to elect to receive such payments in the form of fully-vested RSUs. Each of the named executive officers made this election, as further described below. Target Annual Performance Bonus Opportunities. The 2023 target annual performance bonus opportunities under the Bonus Plan for our named executive officers were set as follows.
2023 Executive Compensation Program
| | Target Bonus ($) | | Corey Thomas | 637,350 | | Tim Adams | 304,500 | | Andrew Burton | 357,000 | | Christina Luconi | 218,400 |
2023 Executive Compensation Program
In determining 2023 target annual performance bonus opportunities, the Compensation Committee first assessed 2022 target annual performance bonus opportunities against the market data provided by Compensia and each named executive officer’s annual performance, as well as recommendations from the Chief Executive Officer (except with respect to his own bonus) and the other factors described above under “Factors Used in Determining Executive Compensation.” As adjusted, the target annual performance bonus opportunity for each of the named executive officers aligned with the 45th percentile of the market data. Performance Goals and Bonus Structure. In February 2023, the Compensation Committee adopted the Corporate Performance Goals, targets and payout formula for 2023 annual performance bonus payments for the Executives under the Bonus Plan. These targets were intended to be rigorous in nature to incentivize the executive officers to execute against the Company's framework of balancing durable growth and scaling profitability and set above our internal plan for 2023. For 2023, 70% of the target annual performance bonus opportunity was based on the company achieving a target Non-GAAP Operating Income Margin for the year and 30% was based on the Company achieving target ARR for the year. The Compensation Committee believed that Non-GAAP Operating Income Margin metric is useful to our stockholders, as a supplement to GAAP financial measures, as it allows for greater transparency with respect to metrics used by our management in its financial and operational decision-making, enhances the overall understanding of our past financial performance and assists in evaluating our ongoing operational performance. Additionally, the Compensation Committee believed that utilizing the ARR metric aligned with the primary driver of revenue growth and orientation of the Company and our sales compensation around ARR. Additionally, the Compensation Committee included a Net Retention Rate Factor (“NRR Factor”) which provided an opportunity to receive up to a 10% incremental bonus increase for each percentage point improvement of NRR (with a maximum of a 50% incremental bonus increase) upon achievement of percentage points improvement on NRR. For the NRR Factor to be applicable, ARR achievement was required to be $837 million. Pursuant to the Bonus Plan, the Compensation Committee may adjust the ultimate annual performance bonus payments to the Executives, at its sole discretion, with input from our Chief Executive Officer (except as it relates to his own performance), based on the individual performance of each Executives. The Compensation Committee did not exercise any such discretion to adjust the Executive's payments under the Bonus Plan for 2023. Based on our financial performance in 2023, we achieved the target performance levels under the Bonus Plans as follows:
2023 Executive Compensation Program
| Corporate Performance Goal | Threshold, Target and Maximum Achievement Levels and Payout Formula(1) | Weight | Actual Achievement | Achievement Percentage of Target | Weighted Payout Percentage | | Non-GAAP Operating Income Margin | Threshold achievement: 7.4% YOY Operating Margin Expansion results in 50% payout funding Target achievement: 8.4% YOY Operating Margin Expansion results in 100% payout funding | 70% | 13.1% (2) | 100% | 70% | | Annualized Recurring Revenue | Threshold achievement: $820 million results in 50% payout funding Target achievement: $837 million results in 100% payout funding | 30% | $805.7 million(3) | 0% | 0% | | Net Retention Rate ("NRR") (4) | Each percentage point improvement upon 2022 NRR equates to a 10% incremental bonus above target achievement of both ARR and Non-GAAP Operating Income Margin. This incremental percentage is up to 50% maximum. | +10% | 0% | 0% | 0% | | Total | | | | | 70.0% |
2023 Executive Compensation Program
| | Bonus Amount Earned ($) | Bonus Amount Earned as % of Target Bonus | | Corey Thomas | 446,145 | 70% | | Tim Adams | 213,150 | 70% | | Andrew Burton | 249,900 | 70% | | Christina Luconi | 152,880 | 70% |
2023 Executive Compensation Program
In February 2023, our Compensation Committee allowed the Executives to elect to receive their annual performance bonus payments under the Bonus Plan in fully vested restricted stock units, instead of cash, in order to further align the interests of our Executives with those of our stockholders. Each named executive officer elected to receive their annual performance bonus payment in fully vested restricted stock units. The number of fully-vested restricted stock units granted to the applicable named executive officer in satisfaction of the amount payable under the Bonus Plan was determined by dividing the earned performance bonus amount payable (expressed as a dollar value) by the 30 day trading day average closing price of our common stock through and including the date of grant pursuant to our 2015 Equity Incentive Plan. The amount of fully vested restricted stock units awarded to our named executive officers is set forth below:
2023 Executive Compensation Program
| | Restricted Stock Unit Award in Lieu of Cash Bonus Payment (# shares) | | Corey Thomas | 7,397 | | Tim Adams | 3,534 | | Andrew Burton | 4,143 | | Christina Luconi | 2,535 |
2023 Executive Compensation Program
Long-Term Incentive Compensation In early 2023, in preparation for making 2023 equity compensation decisions, our Compensation Committee reviewed market data, including equity award practices of our peer companies, our named executive officers’ outstanding equity awards, including the retention value of unvested awards, our current business strategy and projected growth, as well as the other factors described above under “Factors Used in Determining Executive Compensation." The Compensation Committee continues to believe that RSUs deliver retention incentives over the long-term and considers RSU awards to be performance based because they provide a return directly in line with our stock price performance and align our executive officers’ interests with those of our stockholders. However, in February 2023, in consultation with Compensia and taking into consideration shareholder feedback and shifting market practice, the Compensation Committee awarded our executive officers a mix of RSUs and PSUs in furtherance of its pay-for-performance commitment. For 2023, 67% of our CEO's long-term incentive award, and 33% of other named executive officer's long term incentive awards was comprised of PSUs. In determining the size of both the RSU and PSU grants, the Compensation Committee evaluated each executive officer’s target total direct compensation opportunity and took into account the competitive market data provided by Compensia as well as an evaluation of each individual executive officer’s responsibilities and performance, including the criticality of the executive officer to the future success of the Company. The Compensation Committee also took into account the recommendations of our Chief Executive Officer (except with respect to his own equity award) and the other factors described above under “Factors Used in Determining Executive Compensation”. The RSU awards granted to our named executive officers in February 2023 are set forth in the table below. Each of the annual RSU awards for Mr. Thomas, Mr. Adams, Mr. Burton and Ms. Luconi vest in twelve equal quarterly installments, with the first installment for each of the awards vesting on May 15, 2023, subject to the named executive officer’s continued service with us through each such vesting date.
2023 Executive Compensation Program
| Name | Annual 3-Year RSU Award (# shares) | | Corey Thomas | 40,838 | | Tim Adams | 65,336 | | Andrew Burton | 81,652 | | Christina Luconi | 35,939 |
2023 Executive Compensation Program
Each of the PSU awards granted to the named executive officers required the achievement of a strict ARR target and had the potential to be modified upwards or downwards upon the achievement of certain Non-GAAP Operating Income Margin thresholds. In addition, the portion of the PSUs that could be earned was capped at a maximum of 200% of target level payout and if certain preliminary ARR or Non-GAAP Operating Income Margin goals were not met, no PSUs would be earned. The PSU awards had a performance period of one year and if earned, would vest in three equal installments following each of the first, second and third anniversary of the date the Compensation Committee certifies achievement, subject to the participant’s continuous service as of each such date. The PSU awards granted to our named executive officers in February 2023 are set forth in the table below.
2023 Executive Compensation Program
| Name | PSU Award (# shares) | | Corey Thomas | 81,652 | | Tim Adams | 32,656 | | Andrew Burton | 40,838 | | Christina Luconi | 17,957 |
2023 Executive Compensation Program
However, based on our financial performance in 2023, we did not achieve the threshold for the vesting of the granted PSUs, and therefore no PSUs will be earned, clearly demonstrating the rigor of our performance targets and overall pay-for-performance alignment of our program.
2023 Executive Compensation Program
| Corporate Performance Goal | Threshold, Target and Maximum Achievement Levels and Payout Formula | Actual Achievement | Achievement Percentage of Target | Weighted Payout Percentage | | Annualized Recurring Revenue(1) | Threshold achievement: $815 million results in 50% payout funding Target achievement: $821 million results in 100% payout funding | $805.7 million | 0% | 0% | | Non-GAAP Operating Income Margin (2) | Threshold Achievement 7.4% Operating Income Margin (3% YOY Operating Margin Expansion), 50% payout reduction Target Achievement 8.4% Operating Income Margin (4% YOY Operating Margin Expansion), no change to payout Maximum Achievement 9.4% Operating Income Margin (5% YOY Operating Margin Expansion), 50% increase of payout | | | | | Total | | | | 0% |
2023 Executive Compensation Program
(1) Payout funding is calculated linearly for achievement between the designated performance thresholds and maximums described for ARR. (2) Payout funding adjustments based on Non-GAAP Operating Income Margin are calculated linearly between the designated thresholds and maximums.
Other Features of Our Executive Compensation Program
Other Features of Our Executive Compensation Program Employment Arrangements The initial terms and conditions of employment for each of our named executive officers are set forth in employment offer letters and employment agreements, as applicable. The terms of these letters and agreements are described in greater detail in the section titled “—Employment Arrangements—Agreements with our Named Executive Officers.” Each of our named executive officers is an “at-will” employee. Severance and Change in Control Payments and Benefits In August 2023, after reviewing current market practices and upon the recommendation of Compensia, we entered into updated written agreements with each of our then named executive officers that superseded the terms of their severance and change in control terms set forth in their prior agreements with us, as applicable. Each of these severance agreements provides for severance payments and benefits (cash payments, payments for COBRA premiums and equity award acceleration) upon a termination of employment without cause or a resignation for good reason, in each case, either outside or inside the “Change in Control Period” (which is three months prior to or 12 months following a change in control transaction). We do not provide any tax payments or “gross ups” in connection with a severance or change in control transaction. The Compensation Committee approved these severance payments and benefits, after a review of competitive market data provided by Compensia, to ensure that the payments and benefits remain appropriately structured and at reasonable levels. All change in control payments and benefits are structured to be payable only on a “double-trigger” basis, requiring a termination of employment without cause or a resignation by a named executive officer for “good reason” (each as defined in the applicable agreements), in each case, in connection with the change in control transaction, except that the vesting of equity awards for our named executive officers will be accelerated in connection with a change in control if they are not assumed by the acquirer. The Compensation Committee believes that these severance protections are necessary to provide stability among our executive officers, important from a retention perspective, serve to focus our executive officers on our business operations, and avoid distractions in connection with a potential change in control transaction or period of uncertainty. A more detailed description of our named executive officer severance and change in control payments and benefits is provided below under “Potential Payments upon Termination or Change in Control.” Each of our named executive officers holds stock options, RSU and PSU awards under our equity incentive plans that were granted subject to our form of equity award agreements. A description of the termination and change of control provisions in such equity incentive plans and form of equity award agreements is provided below under “Potential Payments upon Termination or Change in Control.” Section 401(k) Plan, ESPP, Welfare and Health Benefits We maintain a defined contribution retirement plan that provides eligible U.S. employees, including our named executive officers, with an opportunity to save for retirement on a tax advantaged basis (the “401(k) Plan”). Our matching contribution is 50% of employee contributions up to 6% of base salary and up to a $3,000 annual maximum match. Eligible employees may defer eligible compensation on a pre-tax basis, up to the statutorily prescribed annual limits on contributions under the Internal Revenue Code of 1986, as amended (the “Code”). Contributions are allocated to each participant’s individual account and are then invested in selected investment alternatives according to the participants’ directions. Employees are immediately and fully vested in their contributions and any employer contributions after one year of service. The 401(k) Plan is intended to be qualified under Section 401(a) of the Code with the 401(k) Plan’s related trust intended to be tax exempt under Section 501(a) of the Code. As a tax-qualified retirement plan, employer contributions to the 401(k) Plan and earnings on those contributions are not taxable to the employees until distributed from the 401(k) Plan. We also offer eligible employees, including our executive officers, the opportunity to purchase shares of our common stock at a discount under our 2015 Employee Stock Purchase Plan (the “ESPP”), which is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code. Pursuant to the ESPP, all eligible employees, including the eligible named executive officers, may allocate up to 15% of the participant’s gross earnings (as described in ESPP) for that year to purchase our stock at a 15% discount of the lesser of (i) the market value of our common stock at the beginning of each offering period and (ii) the market value of our common stock on the applicable purchase date, subject to specified limits. In addition, we provide other health and welfare benefits to our executive officers, including the named executive officers, on the same basis as to all of our full-time employees. These benefits include, but are not limited to, medical, dental, vision, group life, disability and accidental death and dismemberment insurance plans. 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 generally provide perquisites or other personal benefits to our executive officers, including the named executive officers, 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. We do, however, pay the premiums for term life insurance and disability insurance, subject to certain limitations, for all of our employees, including our named executive officers. No named executive officer received perquisites and other personal benefits with an aggregate value equal to or exceeding $10,000 during 2023. In the future, we may provide perquisites or other personal benefits in limited circumstances. All future practices with respect to perquisites or other personal benefits will be approved and subject to periodic review by the Compensation Committee.
Tax and Accounting Implications
Tax and Accounting Implications We follow Financial Accounting Standard Board Accounting Standards Codification Topic 718 (“ASC Topic 718”) for our stock-based compensation awards. ASC Topic 718 requires companies to estimate and record an expense for each award of equity compensation (including stock options and RSUs) over the vesting period of the award. Under Section 162(m) of the Code (“Section 162(m)”), compensation paid to each of the Company’s “covered employees” that exceeds $1 million per taxable year is generally non-deductible unless the compensation qualifies for certain grandfathered exceptions (including the “performance-based compensation” exception) for certain compensation paid pursuant to a written binding contract in effect on November 2, 2017 and not materially modified on or after such date. Although the Compensation Committee will continue to consider tax implications as one factor in determining executive compensation, the Compensation Committee also looks at other factors in making its decisions and retains the flexibility to provide compensation for the Company’s named executive officers in a manner consistent with the goals of the Company’s executive compensation program and the best interests of the Company and its stockholders, which may include providing for compensation that is not deductible by the Company due to the deduction limit under Section 162(m). The Compensation Committee also retains the flexibility to modify compensation that was initially intended to be exempt from the deduction limit under Section 162(m) if it determines that such modifications are consistent with the Company’s business needs.
Equity Awards Grant Delegation Policy
Equity Awards Grant Delegation Policy The Compensation Committee has delegated authority to our Chief Executive Officer to grant equity awards to our employees (other than our executive officers), subject to the terms and conditions of an equity awards grant delegation policy. Such awards may be granted on scheduled grant dates to newly-hired employees or to existing employees in connection with a promotion or in recognition of their contributions to the Company. In each instance, the policy provides for a limitation on the maximum size of any such awards and the total number of shares to be granted under such policy.
ANALYSIS OF RISKS PRESENTED BY OUR COMPENSATION POLICIES AND PROGRAMS
ANALYSIS OF RISKS PRESENTED BY OUR COMPENSATION POLICIES AND PROGRAMS The Compensation Committee has reviewed our compensation policies and practices, in consultation with Compensia, to assess whether they encourage employees to take excessive or inappropriate risks. After reviewing and assessing our compensation philosophy, policies and practices, including the mix of fixed and variable, short-term and long-term incentives and overall pay, incentive plan structures, and the checks and balances built into, and oversight of, each plan and practice, in February 2023, the Compensation Committee determined that any risks arising from our compensation policies and practices for our employees are not reasonably likely to have a material adverse effect on our Company as a whole. The Compensation Committee believes that the mix and design of the elements of executive compensation do not encourage management to assume excessive risks; rather, it believes the mix of short-term compensation (in the form of base salary and annual performance bonuses, if any, which is based on a variety of performance factors and includes a cap on payout) and long-term compensation (in the form of RSU and PSU awards) in our executive compensation program prevents undue focus on short-term results and helps align the interests of our executive officers with the interests of our stockholders. In addition, our insider trading policy protects against short-term decision making. The Compensation Committee conducts an annual review of our compensation-related risk profile to ensure that our compensation programs do not encourage excessive or inappropriate risk-taking and that the level of risk that they do encourage is not reasonably likely to have a material adverse effect on us.
Summary Compensation Table
Summary Compensation Table The following table sets forth information regarding the compensation of our named executive officers as of December 31, 2023, in accordance with SEC rules.
Summary Compensation Table
Summary Compensation Table
Summary Compensation Table
| Name and Principal Position | Year | Salary ($) | Stock Awards ($)(1) | Non-Equity Incentive Plan Compensation ($)(2) | All Other Compensation ($)(3) | Total ($) | | Corey Thomas Chief Executive Officer | 2023 | 443,000 | 2,694,768 | — | 3,000 | 3,140,768 | | | 2022 | 443,000 | 8,000,001 | — | 3,000 | 8,446,001 | | | 2021 | 443,000 | 9,723,052 | 684,251 | 3,000 | 10,853,303 | | Tim Adams Chief Financial Officer(4) | 2023 | 410,000 | 3,596,128 | — | 3,000 | 4,009,128 | | | 2022 | 390,000 | 11,999,997 | — | 3,000 | 12,392,997 | | Andrew Burton President and Chief Operating Officer | 2023 | 430,000 | 4,470,628 | — | 3,000 | 4,903,628 | | | 2022 | 369,000 | 8,000,001 | — | 3,000 | 8,372,001 | | | 2021 | 369,000 | 8,592,536 | 486,567 | 3,000 | 9,451,103 | | Christina Luconi Chief People Officer | 2023 | 392,000 | 2,029,007 | — | 3,000 | 2,424,007 | | | 2022 | 316,000 | 2,300,003 | — | 3,000 | 2,619,003 | | | 2021 | 316,000 | 2,713,437 | 341,391 | 3,000 | 3,373,828 |
Summary Compensation Table
| (1) Except as described below, this column reflects the aggregate grant date fair value for RSU awards granted during the year as measured pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 as stock-based compensation in our consolidated financial statements. The assumptions we used in valuing RSU awards are described in Notes 2(r) and 13 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 26, 2024, and do not necessarily correspond to the actual economic value recognized or that may be recognized by the named executive officers. The amounts included under the Stock Awards column in the Proxy Statement for the prior year assumes the highest level of achievement related to the Bonus Plans RSUs. Once the awards are granted in the subsequent year, the actual value of the Bonus Amount earned is recorded under the Non-Equity Incentive Plan Compensation column, as described below. See “Compensation Discussion and Analysis — 2023 Executive Compensation Program — Annual Performance Bonus” above for a description of the material terms of the plan pursuant to which this compensation was awarded and the fiscal 2023 cash achievement for each named executive officer. | | (2) The amounts reported represent the aggregate annual performance-based cash incentive earned in the applicable fiscal year pursuant to the Bonus Plan, based upon the achievement of certain company metrics. For 2023, the named executive officers were granted fully-vested RSU awards in lieu of the cash incentive payable under our Bonus Plan that were earned for performance in 2023 but paid during the first quarter of 2024 (the “Bonus Plan RSUs”), with the amounts representing the fair value of the awards measured pursuant to ASC Topic 718 at the service inception date, based upon the target level of achievement, which was the then-probable outcome of performance. Assuming the highest level of achievement related to the Bonus Plan RSUs, the fair value of the awards would be $956,025 for Mr. Thomas, $456,750 for Mr. Adams, $535,500 for Mr. Burton, and $327,600 for Ms. Luconi. The RSU awards were granted on February 15, 2024, in respect of the following number of shares: Mr. Thomas: 7,397 shares; Mr. Adams: 3,534 shares; Mr. Burton: 4,143 shares; and Ms. Luconi: 2,535 shares. The number of RSUs was determined by dividing the earned cash incentive payable (expressed as a dollar value) by the closing price of our common stock on the date of grant pursuant to our 2015 Equity Incentive Plan. For more information about our Bonus Plan, see “Compensation Discussion and Analysis – 2023 Executive Compensation Program – Annual Performance Bonus" above. | | (3) Represents matching contributions made under our Section 401(k) plan. See “Compensation Discussion and analysis — Employment Arrangements —401(k) Plan” above for further information. | | (4) Mr. Adams commenced employment with the Company effective as of January 3, 2022. |
Grants of Plan-Based Awards
Grants of Plan-Based Awards The following table shows certain information regarding grants of plan-based awards during the fiscal year ended December 31, 2023 to our named executive officers.
Grants of Plan-Based Awards
| Name | Grant Type | | Estimated Possible Payouts Under Equity Incentive Plan Awards(2) | | | All Other Stock Awards: Number of Shares of Stock or Units (#) | Grant Date Fair Value of Stock Awards ($) (5) | | | | Grant Date(1) | Threshold ($) | Target ($) | Maximum ($) | | | | Corey Thomas | Annual RSU Grant | 2/15/2023 | — | — | — | 40,838(3) | 1,667,007 | | | Annual PSU Grant | 2/15/2023 | 40,826(4) | 81,652(4) | 163,304(4) | — | 3,333,035 | | | Annual Performance-Based Bonus Award | 2/15/2023 | 318,675 | 637,350 | 956,025 | — | 637,350 | | Tim Adams | Annual RSU Grant | 2/15/2023 | — | — | — | 65,336(3) | 2,667,016 | | | Annual PSU Grant | 2/15/2023 | 16,328(4) | 32,656(4) | 65,312(4) | — | 1,333,018 | | | Annual Performance-Based Bonus Award | 2/15/2023 | 152,250 | 304,500 | 456,750 | — | 304,500 | | Andrew Burton | Annual RSU Grant | 2/15/2023 | — | — | — | 81,652(3) | 3,333,035 | | | Annual PSU Grant | 2/15/2023 | 20,419(4) | 40,838(4) | 81,676(4) | — | 1,667,007 | | | Annual Performance-Based Bonus Award | 2/15/2023 | 178,500 | 357,000 | 535,500 | — | 357,000 | | Christina Luconi | Annual RSU Grant | 2/15/2023 | — | — | — | 35,939(3) | 1,467,030 | | | Annual PSU Grant | 2/15/2023 | 8,978(4) | 17,957(4) | 35,914(4) | — | 733,005 | | | Annual Performance-Based Bonus Award | 2/15/2023 | 109,200 | 218,400 | 327,600 | — | 218,400 |
Grants of Plan-Based Awards
| (1) The amounts set forth in the “Annual Performance-Based Bonus Award” rows are as of the service inception date of February 15, 2023, which preceded the grant date of February 15, 2024 for the Bonus Plan RSUs. For more information about our Bonus Plan, see “Compensation Discussion and Analysis – 2023 Executive Compensation Program – Annual Performance Bonus” above. | | (2) For the Bonus Plan RSUs, the amounts set forth in these columns represent the threshold, target and maximum bonus amounts for each named executive officer as of the service inception date of February 15, 2023, and do not represent either additional or actual compensation earned by our named executive officers for the year ended December 31, 2023. Maximum amounts reported in this row under “Estimated Possible Payouts Under Equity Incentive Plan Awards” represent 150% of each named executive officer's target bonus, which is the maximum possible amount of cash that could have been paid to the executive under our Bonus Plan. Pursuant to the Bonus Plan and each named executive officer's election, the actual bonus awards would have been paid in fully-vested RSUs, instead of cash. As described above, there was 70% achievement of targets against the plan. For more information about our Bonus Plan, see “Compensation Discussion and Analysis – 2023 Executive Compensation Program – Annual Performance Bonus” above. | | (3) The RSU awards were granted pursuant to our 2015 Equity Incentive Plan. The shares of our common stock subject to the RSU awards vest over a three year period in 12 equal quarterly installments, with the first installment vesting on May 15, 2023, subject to the named executive officer’s continued service with us through each such vesting date. See “Compensation Discussion and Analysis – 2023 Executive Compensation Program - Long-Term Incentive Compensation.” | | (4) The PSU awards were granted pursuant to our 2015 Equity Incentive Plan. The PSU awards had a performance period of one year and if earned, would vest in three equal installments following each of the first, second and third anniversary of the vesting commencement date, subject to the named executive officer's continuous service as of each such date. As described above, the targets for 2023 were not achieved. See “Compensation Discussion and Analysis – 2023 Executive Compensation Program - Long-Term Incentive Compensation.” | | (5) The dollar amounts in this column represent the aggregate grant date fair value of each RSU award, granted or awarded to our named executive officers in 2023 on the grant date, or in the case of the Bonus Plan RSUs, the service inception date. These amounts have been calculated in accordance with ASC Top 718. The assumptions we used in valuing these awards are described in Notes 2(r) and 12 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on February 26, 2024 and do not necessarily correspond to the actual economic value recognized or that may be recognized by our named executive officers. |
Outstanding Equity Awards at Fiscal Year-End
Outstanding Equity Awards at Fiscal Year-End The following table sets forth certain information about outstanding equity awards granted to our named executive officers that were outstanding as of December 31, 2023.
Outstanding Equity Awards at Fiscal Year-End
| | Option Awards(1) | | | | | Stock Awards(1) | | | Name | Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($)(2) | Option Expiration Date | Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#) | Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($) | | Corey Thomas | 2/15/2023 | — | — | — | — | 30,629(3) | 1,748,916 | | | 2/15/2022 | — | — | — | — | 45,937(4) | 2,623,003 | | | 2/2/2021 | — | — | — | — | 25,529(5) | 1,457,706 | | | 2/2/2021 | — | — | — | — | 11,140(6) | 636,094 | | | 1/30/2020 | — | — | — | — | 8,224(7) | 469,590 | | | 1/31/2017 | 134,000 | — | 12.47 | 1/31/2027 | — | — | | | 2/2/2016 | 200,000 | — | 12.98 | 2/2/2026 | — | — | | | 2/4/2015 | 200,000 | — | 9.77 | 2/4/2025 | — | — | | Tim Adams | 2/15/2023 | — | — | — | — | 49,002(3) | 2,798,014 | | | 1/3/2022 | — | — | — | — | 57,117(8) | 3,261,381 | | Andrew Burton | 2/15/2023 | — | — | — | — | 61,239(3) | 3,496,747 | | | 2/15/2022 | — | — | — | — | 45,937(4) | 2,623,003 | | | 2/2/2021 | — | — | — | — | 21,166(5) | 1,208,579 | | | 2/2/2021 | — | — | — | — | 14,699(6) | 839,313 | | | 1/30/2020 | — | — | — | — | 3,386(7) | 193,341 | | | 1/31/2019 | — | — | — | — | 2,000(9) | 228,400 | | | 1/31/2017 | 2,500 | — | 12.47 | 1/31/2027 | — | — | | Christina Luconi | 2/15/2023 | — | — | — | — | 26,955(3) | 1,539,131 | | | 2/15/2022 | — | — | — | — | 13,207(4) | 754,120 | | | 2/2/2021 | — | — | — | — | 5,415(5) | 309,197 | | | 2/2/2021 | — | — | — | — | 5,569(6) | 317,990 | | | 1/30/2020 | — | — | — | — | 8,464(7) | 287,607 | | | 1/31/2019 | — | — | — | — | 1,693(9) | 96,670 |
Outstanding Equity Awards at Fiscal Year-End
| (1) All of the option awards listed in the table above and granted before our initial public offering on July 22, 2015 were granted under our 2011 Stock Option and Grant Plan; all other option awards and all stock awards listed in the table above were granted under our 2015 Equity Incentive Plan. | | (2) All of the option awards listed in the table above and granted before our initial public offering on July 22, 2015 were granted with a per share exercise price equal to the fair market value of one share of our common stock on the date of grant, as determined in good faith by our Board with the assistance of a third-party valuation expert; all option awards listed in the table above and granted after our initial public offering in July 2015 were granted with a per share exercise price equal to the closing market price of our common stock on The Nasdaq Global Market on the date of grant. | | (3) The RSU award vests over a three year period in twelve equal quarterly installments, with the first installment vesting on May 15, 2023, subject to the named executive officer's continued service with us. See “—Potential Payments upon Termination or Change of Control” for a description of vesting acceleration applicable to awards held by our named executive officers. | | (4) The RSU award vests over a four year period in sixteen equal quarterly installments, with the first installment vesting on May 15, 2022, subject to the named executive officer's continued service with us. See “—Potential Payments upon Termination or Change of Control” for a description of vesting acceleration applicable to awards held by our named executive officers. | | (5) The RSU award vests over a four year period in sixteen equal quarterly installments, with the first installment vesting on May 15, 2021, subject to the named executive officer's continued service with us. See “—Potential Payments upon Termination or Change of Control” for a description of vesting acceleration applicable to awards held by our named executive officers. | | (6) The RSU award vests over a five year period in twenty equal quarterly installments, with the first installment vesting on May 15, 2021, subject to the named executive officer's continued service with us. See “—Potential Payments upon Termination or Change of Control” for a description of vesting acceleration applicable to awards held by our named executive officers. |
Outstanding Equity Awards at Fiscal Year-End
| (7) The RSU award vests over a four year period in sixteen equal quarterly installments, with the first installment vesting on May 15, 2020, subject to the named executive officer's continued service with us. See “—Potential Payments upon Termination or Change of Control” for a description of vesting acceleration applicable to awards held by our named executive officers. | | (8) The RSU award vests over a four year period with 25% of the common stock underlying the award vesting on February 15, 2023 and 6.25% of the common stock underlying the award vesting on each quarterly anniversary thereafter, subject to Mr. Adams’ continuous service through each vesting date. See “—Potential Payments upon Termination or Change of Control” for a description of vesting acceleration applicable to awards held by Mr. Adams. | | (9) The RSU award vests over a four year period in sixteen equal quarterly installments, with the first installment vesting on May 15, 2019, subject to the named executive officer's continued service with us. See “—Potential Payments upon Termination or Change of Control” for a description of vesting acceleration applicable to awards held by our named executive officers. |
Option Exercises and Stock Vested in Fiscal Year 2023
Option Exercises and Stock Vested in Fiscal Year 2023 The following table shows the number of shares of our common stock acquired and the aggregate value realized upon the exercise of stock options for our named executive officers during the year ended December 31, 2023. In addition, the table also shows the number of shares of our common stock acquired on vesting of RSU awards granted to our named executive officers and the aggregate value realized upon such vesting during the year ended December 31, 2023.
Option Exercises and Stock Vested in Fiscal Year 2023
| | Option Awards(1) | | Stock Awards(2) | | | Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | | Corey Thomas | — | — | 96,395 | 4,776,552 | | Tim Adams | — | — | 60,757 | 3,020,144 | | Andrew Burton | — | — | 91,538 | 4,526,628 | | Christina Luconi | — | — | 31,058 | 1,537,523 |
Option Exercises and Stock Vested in Fiscal Year 2023
| (1) The value realized on exercise of the stock options is based on the difference between the closing market price of the shares of our common stock on the date of exercise and the applicable exercise price of those options and does not represent actual amounts received by our named executive officers as a result of the option exercises. | | (2) The value realized upon the vesting and settlement of RSU awards is based on the closing market price of the shares of our common stock on the date of settlement, and does not represent actual amounts received by our named executive officers as a result of the vesting of restricted stock unit awards. |
Pension Benefits
Pension Benefits None of our named executive officers participate, or have an account balance, in any qualified or non-qualified defined benefit plans sponsored by us.
Nonqualified Deferred Compensation
Nonqualified Deferred Compensation None of our named executive officers participate in any nonqualified deferred compensation plan sponsored by us.
Potential Payments Upon Termination or Change in Control
Potential Payments Upon Termination or Change in Control We have entered into post-employment compensation arrangements with each of our named executive officers. Corey Thomas. Pursuant to his employment agreement, as amended in April 2016, March 2017 and August 2023, if Mr. Thomas’ employment with us ends due to his resignation for “good reason” or his termination of employment by us other than for “cause” and other than as a result of his death or disability (“Qualifying Termination”), he will be entitled to (1) continued payment of his base salary for 12 months following his termination of employment, (2) payment of premiums for continued health benefits under COBRA for up to 12 months and (3) a pro-rated portion of his target performance bonus for the year in which the termination of employment occurs; provided, however, if the Qualifying Termination occurs within three months prior to or 12 months following a change in control of our Company, Mr. Thomas will be entitled to (1) continued payment of his base salary for 18 months following his termination, (2) payment of premiums for continued health benefits under COBRA for up to 18 months, (3) 150% of his target performance bonus for the year in which the termination of employment occurs and (4) accelerated vesting of all of his equity awards then outstanding on such date of termination of employment. In addition, in the event that any relevant equity award held by Mr. Thomas is not assumed or continued by our Company’s successor in a change in control, then all of the then unvested portion of such award(s) shall vest upon the closing of such change in control transaction. Mr. Thomas’ payments and benefits are conditioned, among other things, on his complying with his post-termination obligations set forth in his employment agreement and signing a general release of claims in our favor. Tim Adams. Pursuant to the severance and change in control arrangement approved on August 7, 2023, by the Compensation Committee and the severance and equity award vesting acceleration agreement entered into by Mr. Adams on August 30, 2023, in the event of a Qualifying Termination, Mr. Adams will be entitled to: (1) continued payment of base salary for six months following his termination of employment and (2) payment of premiums for continued health benefits under COBRA for up to six months; provided, however, if the Qualifying Termination occurs within three months prior to or 12 months following a change in control of our Company, Mr. Adams will be entitled to: (1) continued payment of his base salary for 12 months following his termination of employment, (2) payment of premiums for continued health benefits under COBRA for up to 12 months, (3) 100% of Mr. Adams’ target performance bonus for the year in which the termination of employment occurs, and (4) accelerated vesting of all of Mr. Adams’ equity awards then outstanding on such date of termination of employment. In addition, in the event that any relevant equity award held by Mr. Adams is not assumed or continued by our Company’s successor in connection with a change in control, then all of the then unvested portion of such award(s) shall vest upon the closing of such change in control transaction. Mr. Adams’s payments and benefits are conditioned, among other things, on his complying with his post-termination obligations set forth in his severance and equity award vesting acceleration letter agreement and signing a general release of claims in our favor. Andrew Burton. Pursuant to the severance and equity award vesting acceleration agreement entered into by Mr. Burton on August 8, 2023, in the event of a Qualifying Termination, Mr. Burton will be entitled to: (1) continued payment of his base salary for nine months and (2) payment of premiums for continued health benefits under COBRA for up to nine months; provided, however, if the Qualifying Termination occurs within three months prior to or 12 months following a change in control of our Company, Mr. Burton will be entitled to (1) continued payment of his base salary for 12 months following his termination, (2) payment of premiums for continued health benefits under COBRA for up to 12 months, (3) 100% of his target performance bonus for the year in which the termination of employment occurs and (4) accelerated vesting of all of his equity awards then outstanding on such date of termination of employment. In addition, in the event that any relevant equity award held by Mr. Burton is not assumed or continued by our Company’s successor in connection with a change in control, then all of the then unvested portion of such award(s) shall vest upon the closing of such change in control transaction. Mr. Burton’s payment or benefits are conditioned, among other things, on his complying with his post-termination obligations set forth in his offer letter agreement and signing a general release of claims in our favor. Christina Luconi. Pursuant to the severance and equity award vesting acceleration agreement entered into by Ms. Luconi on August 8, 2023,which provides that in the event of a Qualifying Termination, she will be entitled to (1) continued payment of her base salary for six months following her termination of employment and (2) payment of premiums for continued health benefits under COBRA for up to six months; provided, however, if the Qualifying Termination occurs within three months prior to or 12 months following a change in control of our Company, Ms. Luconi will be entitled to (1) continued payment of her base salary for 12 months following her termination, (2) payment of premiums for continued health benefits under COBRA for up to 12 months, (3) 100% of her target performance bonus for the year in which the termination of employment occurs and (4) accelerated vesting of all of her equity awards then outstanding on such date of termination of employment. In addition, in the event that any relevant equity award held by Ms. Luconi is not assumed or continued by our Company’s successor in connection with a change in control, then all of the then unvested portion of such award(s) shall vest upon the closing of such change in control transaction. Ms. Luconi’s payments and benefits are conditioned, among other things, on her complying with her post-termination obligations set forth in her severance and equity award vesting acceleration letter agreement and signing a general release of claims in our favor. Equity Plan Terms. Each of our named executive officers hold equity awards under the terms of our 2015 Equity Incentive Plan and, for those awards granted prior to our initial public offering, our 2011 Stock Option and Grant Plan. The terms of such plans upon a termination or change in control transaction are summarized below; please refer to the plan documents filed as exhibits to our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 26, 2024 for a complete description of the terms of such plans. Under the terms of the 2015 Equity Incentive Plan and the 2011 Stock Option and Grant Plan, stock awards generally cease vesting and terminate upon the holder’s termination of service with us and options generally remain exercisable for a short period of time following the holder’s termination of service with us (generally ranging from three months to eighteen months depending on the type of termination), but in no event beyond the expiration of its original term. In the event of certain specified significant corporate transactions, the Board (or its authorized committee) has the discretion to take any of the following actions with respect to stock awards granted under the 2015 Equity Incentive Plan:
Potential Payments Upon Termination or Change in Control
| • | arrange for the assumption, continuation or substitution of a stock award by a surviving or acquiring entity or parent company; | | • | arrange for the assignment of any reacquisition or repurchase rights held by us to the surviving or acquiring entity or parent company; | | • | accelerate the vesting of the stock award and provide for its termination prior to the effective time of the corporate transaction; | | • | arrange for the lapse of any reacquisition or repurchase right held by us; | | • | cancel or arrange for the cancellation of the stock award in exchange for such cash consideration, if any, as our board of directors may deem appropriate or for no consideration; or | | • | make a payment equal to the excess of (1) the value of the property the participant would have received upon exercise of the stock award over (2) the exercise price or strike price otherwise payable in connection with the stock award. |
Potential Payments Upon Termination or Change in Control
We are not obligated to treat all stock awards under the 2015 Equity Incentive Plan, even those that are of the same type, in the same manner. Under the 2015 Equity Incentive Plan, a significant corporate transaction is generally the consummation of (1) a sale or other disposition of all or substantially all of our consolidated assets, (2) a sale or other disposition of at least 50% of our outstanding securities, (3) a merger, consolidation or similar transaction following which we are not the surviving corporation or (4) a merger, consolidation or similar transaction following which we are the surviving corporation but the shares of our common stock outstanding immediately prior to such transaction are converted or exchanged into other property by virtue of the transaction. The Board (or its authorized committee) may provide, in an individual award agreement or in any other written agreement between a participant and us that the stock award will be subject to additional acceleration of vesting and exercisability or settlement in the event of a change in control. Under the 2015 Equity Incentive Plan, a change in control is generally (1) the acquisition by a person or entity of more than 50% of our combined voting power other than by merger, consolidation or similar transaction; (2) a consummated merger, consolidation or similar transaction immediately after which our stockholders cease to own more than 50% of the combined voting power of the surviving entity; or (3) a consummated sale, lease or exclusive license or other disposition of all or substantially all of our consolidated assets. Under the 2011 Stock Option and Grant Plan, in the event of a sale event, the Board (or its authorized committee) has the discretion to arrange for the assumption or continuation of a stock award by the surviving or acquiring entity or for the substitution of the shares subject to the stock award for new stock awards or other awards with an equitable or proportionate adjustment as to the number and kind of shares and if appropriate, the per share exercise price, as we and the successor entity agree. In the event that a successor entity does not assume, continue or substitute stock awards, the stock awards shall terminate upon, or be forfeited immediately prior to, the effective time of the sale event. In addition to or in lieu of the foregoing, with respect to outstanding options that are exercisable or will become exercisable as a result of the sale event, the plan administrator may provide that the option must be exercised within a time period provided by the plan administrator otherwise such option shall either terminate outright at the time of the sale event or terminate in exchange for a cash payment equal to the excess of the value of the consideration payable per share of our common stock pursuant to the sale event times the number of shares subject to the stock options being cancelled over the aggregate exercise price of such vested options. If not assumed, continued or substituted, outstanding options that are not exercisable and will not become exercisable as a result of the sale event, and restricted shares and RSUs that will not become vested as a result of the sale event, will terminate or be forfeited upon the effective time of the sale event (in the event of forfeiture of restricted shares in connection with the sale event, we will repurchase such shares from the holder at a price equal to the lower of the original per share purchase price paid by the holder or the then current fair market value of the shares). If not assumed, continued or substituted, the plan administrator may make or provide for a cash payment to holders of restricted shares and RSU awards that will become vested as a result of the sale event in exchange for the cancellation of such stock awards in an amount equal to the value of the consideration payable per share of our common stock pursuant to the sale event times the number of shares subject to the stock awards that will vest. Under the 2011 Stock Option and Grant Plan, a sale event is generally (1) our dissolution or liquidation, (2) the sale of all or substantially all of our assets, (3) consummation of a merger or consolidation after which the outstanding voting securities held by our stockholders immediately prior to the transaction represent less than a majority of the combined voting power of the outstanding voting securities of the surviving or acquiring entity after the transaction, (4) the acquisition of all or a majority of our outstanding voting stock by a person or group of persons or capital stock or (5) any other acquisition of our business, as determined by the plan administrator.
Summary of Estimated Amounts Payable upon a Termination or Change in Control
Summary of Estimated Amounts Payable upon a Termination or Change in Control The following table shows estimated payments that would be made to each named executive officer in the event of a termination of employment under various termination situations, including following a change in control of the Company, assuming the applicable termination event occurred on December 31, 2023.
Summary of Estimated Amounts Payable upon a Termination or Change in Control
| Name | | Benefit | Termination Not in Connection with a Change in Control ($)(1) | Termination in Connection with a Change in Control ($)(2) | Change in Control Where the Acquirer Refuses to Assume ($)(3) | | Corey Thomas | | Cash Severance Payment | 443,000 | 664,500 | — | | | | Lump Sum Target Bonus Payment | 637,350 | 956,250 | — | | | | COBRA Payments | 26,756 | 40,134 | — | | | | Vesting Acceleration of RSUs(4) | — | 6,935,309 | 6,935,309 | | | | Benefit Total | 1,107,106 | 8,596,193 | 6,935,309 | | Tim Adams | | Lump Sum Cash Severance Payment | 205,000 | 410,000 | — | | | | Lump Sum Target Bonus Payment | — | 304,500 | — | | | | COBRA Payments | 9,403 | 18,807 | — | | | | Vesting Acceleration of RSUs(4) | — | 6,059,395 | 6,059,395 | | | | Benefit Total | 214,403 | 6,792,702 | 6,059,395 | | Andrew Burton | | Cash Severance Payment | 322,500 | 430,000 | — | | | | Lump Sum Target Bonus Payment | — | 257,000 | — | | | | COBRA Payments | 26,777 | 35,703 | — | | | | Vesting Acceleration of RSUs(4) | — | 8,589,382 | 8,589,382 | | | | Benefit Total | 349,277 | 9,312,085 | 8,589,382 | | Christina Luconi | | Cash Severance Payment | 196,000 | 392,000 | — | | | | Lump Sum Target Bonus Payment | — | 218,400 | — | | | | COBRA Payments | 4,465 | 8,931 | — | | | | Vesting Acceleration of RSUs(4) | — | 3,017,107 | 3,017,107 | | | | Benefit Total | 200,465 | 3,636,438 | 3,017,107 | | (1) | These benefits would be payable by us under each named executive officer’s individual agreement(s) if his or her employment is terminated without cause or if he or she resigns for good reason and such termination or resignation does not occur during the period within three months (or, with respect to Mr. Adams, within 90 days) prior to or 12 months following a change in control of the Company, subject to the respective named executive officer’s execution of an effective release and waiver of claims in favor of us, assuming such termination of employment took place on December 31, 2023. | | | | | | (2) | These benefits would be payable by us under each named executive officer’s individual agreement(s) if his or her employment is terminated without cause or if he or she resigns for good reason and such termination or resignation occurs during the period within three month prior to or 12 months following a change in control of the Company, subject to the respective named executive officer’s execution of an effective release and waiver of claims in favor of us, assuming such termination of employment took place on December 31, 2023. | | | | | | (3) | These benefits would be payable by us under each named executive officer’s individual agreement(s) if, in connection with a change in control of the Company, an equity award shall terminate and will not be assumed or continued by the acquiring company or substituted for a similar award of the acquiring company, assuming such change in control took place on December 31, 2023. | | | | | | (4) | The value of the vesting acceleration of RSUs is based on the closing market price of our common stock on December 29, 2023, which was $57.10 multiplied by the number of unvested RSU shares subject to acceleration. | | | | |
CEO Pay Ratio
CEO Pay Ratio Under SEC rules, we are required to provide a reasonable estimate of the ratio of the annual total compensation of Mr. Thomas, our Chief Executive Officer, to the median of the annual total compensation of our other employees. For our last completed fiscal year, which ended December 31, 2023:
CEO Pay Ratio
| • | The median of the annual total compensation of all of our employees (other than Mr. Thomas), including employees of our consolidated subsidiaries, was approximately $136,065. This annual total compensation is calculated in accordance with Item 402(c)(2)(x) of Regulation S-K, and reflects, among other things, salary and bonus earned and aggregate “grant date fair value” of RSU awards granted during 2023. | | • | Mr. Thomas' annual total compensation for 2023, as reported in the Summary Compensation Table included in this Proxy Statement, was $3,140,768. | | • | Based on the above, for fiscal 2023, the ratio of Mr. Thomas' annual total compensation to the median of the annual total compensation of all employees was approximately 23 to 1. |
CEO Pay Ratio
This pay ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K under the Securities Act of 1933, as amended and based upon our reasonable judgment and assumptions. The SEC rules do not specify a single methodology for identification of the median employee or calculation of the pay ratio, and other companies may use assumptions and methodologies that are different from those used by us in calculating their pay ratio. Accordingly, the pay ratio disclosed by other companies may not be comparable to our pay ratio as disclosed above. The methodology, including any material assumptions, adjustments and estimates, we used to calculate the pay ratio is described below.
CEO Pay Ratio
| • | For purposes of the pay ratio calculation, we included all of our full-time, part-time and temporary employees globally as of December 31, 2023. Our workforce consisted of 2,228 employees (including individuals employed by our consolidated subsidiaries), 1,277 of whom were U.S. employees (or approximately 57% of our total employee population as of December 31, 2023), and 951 of whom were located outside of the United States. | | • | To identify the median employee from the employee population described above, we determined the sum of each employee's (i) annual base salary as of December 31, 2023 (calculated as annual base pay using a reasonable estimate of hours worked during 2023 for hourly employees and using annual base salary for our remaining employees), plus (ii) earned annual cash incentive bonus or commission, as applicable, for fiscal 2023, plus (iii) aggregate grant date fair value of equity awards (as determined in accordance with footnote 1 of the 2023 Summary Compensation Table) granted in fiscal 2023. Permanent employees who joined in 2023 were assumed to have worked for the entire year, and thus we annualized the pay of such new hires. This compensation measure was consistently applied to all employees included in the calculation and reasonably reflects the annual compensation of all of our employees. Compensation paid in foreign currency was converted to U.S. dollars using a spot exchange rate on December 31, 2023. In determining the median compensated employee, we did not make any cost of living adjustments to the compensation paid to any employee outside of the U.S. |
CEO Pay Ratio
Once we identified our median employee, we calculated the median employee’s annual total compensation in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, yielding the median annual total compensation disclosed above. With respect to Mr. Thomas' annual total compensation, we used the amount reported in the “Total” column of our 2023 Summary Compensation Table.
Pay vs. Performance
Pay vs. Performance As required by Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(v) of Regulation S-K, we are providing the following information about the relationship between executive compensation actually paid and certain financial performance of the Company. The following table sets forth information regarding compensation for our principal executive officer (“PEO”) and average compensation related to our other named executive officers (“NEOs”), both as reported in the Summary Compensation Table and with certain adjustments to reflect the “compensation actually paid” to such individuals, as defined under the SEC rules, for each of 2023, 2022, 2021 and 2020. The table also provides information on our cumulative total shareholder return (“TSR”), the cumulative TSR of our peer group, our Net Income (Loss) and Revenue over such years in accordance with the SEC rules. Although we selected Revenue as our “most important financial performance measure” used to link “compensation actually paid” to our PEO and other NEOs to our performance for 2023, we consider ARR to be the most important performance measure for purposes of linking executive compensation to our performance. As discussed in more detail in the Compensation Discussion and Analysis section of this Proxy Statement, our Compensation Committee believes that utilizing the ARR metric aligns with the primary driver of revenue growth and orientation of the Company and our sales compensation around ARR. It is also the key performance measure that we use in determining the payout under our annual Bonus Plan as well as in our 2023 PSU design. However, ARR is not considered a “financial performance measure” within the meaning of the SEC’s pay versus performance rules, so we selected Revenue for purposes of the table below. For further information regarding our performance-based approach to executive compensation and how the Company aligns executive compensation with the Company’s performance, see “Compensation Discussion and Analysis.”
Pay vs. Performance
| | | | | | Value of Initial Fixed $100 Investment Based On: | | | | | Year | Summary Compensation Table Total for PEO (5) | Compensation Actually Paid to PEO (6) | Average Summary Compensation Total for Non-PEO NEOs (5) | Average Compensation Actually Paid to Non-PEO NEOs (6) | Company Total Share Return (7) | Peer Group Total Share Return (7) | Net Income (Loss) (in thousands) (8) | Revenue (in thousands) (8) | | 2023 (1) | $3,140,768 | $6,142,857 | $3,778,921 | $7,771,595 | $101.93 | $212.86 | $(149,260) | $777,707 | | 2022 (2) | $8,446,001 | $(10,330,753) | $5,867,923 | $(1,399,218) | $60.66 | $129.82 | $(124,717) | $685,083 | | 2021 (3) | $10,853,303 | $18,283,167 | $6,107,485 | $9,373,883 | $210.09 | $199.80 | $(146,334) | $535,404 | | 2020 (4) | $8,736,832 | $16,594,512 | $3,076,447 | $6,536,815 | $160.94 | $157.33 | $(98,849) | $411,486 |
Pay vs. Performance
| (1) For 2023, the PEO was our CEO, Corey Thomas, and the other NEOs were Tim Adams, Andrew Burton and Christina Luconi. | | (2) For 2022, the PEO was our CEO, Corey Thomas, and the other NEOs were Tim Adams, Andrew Burton, Christina Luconi and Jeff Kalowski. Mr. Kalowski retired from his role as Chief Financial Officer effective as of January 3, 2022 and he continued to consult with the Company in an advisory capacity from January 3, 2022 through March 31, 2022, for which he received $87,692. The Average Summary Compensation Total for Non-PEO NEOs excluding Jeff Kalowski was $7,794,667, and the Average Compensation Actually Paid to Non-PEO NEOs excluding Jeff Kalowski was $(1,894,856). | | (3) For 2021, the PEO was our CEO, Corey Thomas, and the other NEOs were Jeff Kalowski, Andrew Burton, Christina Luconi and Lee Weiner. | | (4) For 2020, the PEO was our CEO, Corey Thomas, and the other NEOs were Jeff Kalowski, Andrew Burton, Christina Luconi and Lee Weiner. | | (5) Amounts in these columns represent the amounts in the “Total” column for the PEO and the average amounts from the "Total" column for the other NEOs set forth in the Summary Compensation Table (“SCT”) on page 40. See the footnotes to the SCT for further detail regarding the amounts in these columns. | | (6) The amounts reported in these columns represent the amounts of "compensation actually paid” for the PEO and average compensation “actually paid” for our non-PEO NEOs. The dollar amounts do not reflect the actual amounts of compensation earned by or paid to such individuals during the applicable year. The amounts are computed in accordance with Item 402(v) of Regulation S-K by deducting and adding the following amounts from the “Total" column of the SCT (pursuant to SEC rules, fair value at each measurement date is computed in a manner consistent with the fair value methodology used to account for share-based payments in our financial statements under GAAP). |
Pay vs. Performance
| Adjustments | 2023 | | 2022 | | 2021 | | 2020 | | | | PEO | Non-PEO NEOs | PEO | Non-PEO NEOs | PEO | Non-PEO NEOs | PEO | Non-PEO NEOs | | SCT Total Compensation | $3,140,768 | $3,778,921 | $8,446,001 | $5,867,923 | $10,853,303 | $6,107,485 | $8,736,832 | $3,076,447 | | Less: Amounts reported under the Stock Awards column of the SCT for the applicable year | (2,694,768) | (3,365,254) | (8,000,001) | (5,575,000) | (9,723,052) | (5,421,524) | (7,965,974) | (2,541,636) | | Add: Fair value of awards granted during the applicable year that remain unvested as of the applicable year end, determined as of the applicable year end | 1,748,916 | 2,611,297 | 2,254,709 | 1,588,319 | 10,288,107 | 5,723,206 | 9,638,194 | 3,075,448 | | Add: Change in fair value of awards granted in prior years that remain unvested as of the applicable year end, determined based on change in fair value from prior year end to applicable year | 2,099,990 | 3,277,331 | (9,263,516) | (2,570,734) | 3,371,104 | 1,326,981 | 4,596,132 | 2,263,678 | | Add: Fair value of awards granted and vested in the applicable year, determined as of the vesting date | 502,555 | 750,398 | 878,092 | 282,636 | 2,074,234 | 1,107,920 | 1,444,332 | 460,661 | | Add: Change in fair value of awards granted in prior years that vested during the applicable year, determined based on change in fair value from prior year end to the vesting date | 1,345,396 | 718,902 | (4,646,038) | (992,362) | 1,419,471 | 529,815 | 144,996 | 202,217 | | Total compensation actually paid | $6,142,857 | $7,771,595 | $(10,330,753) | $(1,399,218) | $18,283,167 | $9,373,883 | $16,594,512 | $6,536,815 |
Pay vs. Performance
| (7) TSR is cumulative for the measurement periods beginning on December 31, 2019 and ending on December 31 of each of 2023, 2022, 2021 and 2020, respectively, calculated in accordance with Item 201(e) of Regulation S-K. The peer group for purposes of this table is the Nasdaq Computer Index, which is one of the peer groups used for purposes of the Stock Performance Graph set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the "Peer Group"). | | (8) Reflects “Net Income (Loss)” for each applicable year as set forth in our Consolidated Statements of Operations included in our Annual Report on Form 10-K for each of the applicable years. |
Pay vs. Performance
| (9) Reflects “Revenue” for each applicable year as set forth in our Consolidated Statements of Operations included in our Annual Report on Form 10-K for each of the applicable years. |
Relationship Between “Compensation Actually Paid” and Performance Measures
Relationship Between “Compensation Actually Paid” and Performance Measures We believe the “compensation actually paid” in each of the years reported above and over the four-year cumulative period are reflective of the Compensation Committee’s emphasis on “performance-based compensation” and demonstrated by the fluctuations year-over-year, primarily due to the result of our stock performance and our varying levels of achievement against pre-established performance goals under our executive compensation program. Compensation Actually Paid versus Company TSR For the four years presented above, the "compensation actually paid" for both our PEO and Non-PEO NEOs as a group (excluding our PEO) has been aligned with the Company’s TSR. The correlation between compensation actually paid with the Company’s TSR over the period presented is because a significant portion of the "compensation actually paid" to the PEO and the Non-PEO NEOs is comprised of equity awards, the value of which is subject to change due to volatility of our stock price. As reflected in the tables above, changes in the market price of our common stock from one measurement date to another can have a significant impact on the calculation of “compensation actually paid” to our NEOs, as determined pursuant to the SEC rule. As noted above, in the case of equity-based awards, “compensation actually paid” is calculated based on the fair value of such awards as of particular measurement dates and does not reflect compensation actually earned, realized or received by our NEOs. In particular, the price of our common stock was at a relative high point as of December 31, 2021 ($117.69) and at a relative low point as of December 30, 2022 ($33.98) resulting in a decline of almost $10 million in the fair value of stock options and RSUs held by our PEO that were outstanding and unvested on both dates, thereby resulting in a significant amount of negative “compensation actually paid” for 2022. For 2023, our stock price remained relatively constant, which is reflected in the amounts set forth in the above table. Compensation Actually Paid versus Peer Group TSR; Company TSR versus Peer Group TSR While there is no direct link between “compensation actually paid” to our PEO and Non-PEO NEOs and the TSR of our Peer Group, the two were generally aligned in respect of three years presented above due to the alignment between “compensation actually paid” and the Company’s TSR over the period. The Company’s TSR has generally moved in a manner consistent with the TSR of our Peer Group. However, Company TSR in 2021 exceeded that of the Nasdaq Computer Index and reflected our growth and Company performance during that period. Generally, our TSR and the TSR of our Peer Group has fluctuated over the period presented due to various factors, including but not limited to, economic instability caused by the COVID-19 pandemic and macroeconomic pressures. Compensation Actually Paid versus Net Income (Loss) We expect to continue to incur losses for the foreseeable future. Consequently, we did not use Net Income (Loss) as a performance measure in our executive compensation program. As shown in the Pay versus Performance table above, the Company’s Net Income (Loss) has varied over the three-year measurement period and the changes are not proportionally correlated with the “compensation actually paid” to our PEO or Non-PEO NEOs. As such, we do not believe there is any meaningful relationship between our Net Income (Loss) and compensation actually paid to our PEO or Non-PEO NEOs during the periods presented. Compensation Actually Paid versus Revenue As noted above, while ARR is the key performance measure that we use in determining the payout under our annual Bonus Plan we utilized Revenue for purposes of the table. For the periods presented, there is an inverse correlation between Revenue and “compensation actually paid” to our PEO or Non-PEO NEOs, largely due to the change in the value of the equity awards due to stock volatility described above and our levels of achievement against our performance goals.
DIRECTOR COMPENSATION
DIRECTOR COMPENSATION The following table sets forth information regarding the compensation earned for service on the Board during the year ended December 31, 2023 by our directors who were not also our employees. Corey Thomas, our Chief Executive Officer, is also a member of the Board, but does not receive any additional compensation for his service as a director. Mr. Thomas' compensation is described under “Executive Compensation” above.
DIRECTOR COMPENSATION
| Name | | Fees Earned or Paid in Cash ($) | | Stock Awards ($)(1)(2)(3) | | Total ($) | | Michael Berry | | 55,000 | | 199,982(3) | | 254,982 | | Marc Brown | | 53,265(5) | | 271,437(3)(4) | | 325,062 | | Judy Bruner | | 45,000 | | 199,982(3) | | 244,982 | | Benjamin Holzman | | 43,000 | | 199,982(3) | | 242,982 | | Christina Kosmowski | | 48,750 | | 264,941(3)(4) | | 313,691 | | J. Benjamin Nye | | 50,692(5) | | 273,971(3)(4) | | 324,663 | | Tom Schodorf(4) | | 71,500(5)(6) | | 199,982(3) | | 271,482 | | Reeny Sondhi | | 45,000 | | 199,982(3) | | 244,982 | | (1) | This column reflects the aggregate grant date fair value for RSU awards granted during the year as measured pursuant to ASC Topic 718 as stock-based compensation in our financial statements. The assumptions we used in valuing RSU awards are described in Notes 2(r) and 13 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 26, 2024. | | | | | | | (2) | The table below shows the aggregate number of shares of our common stock subject to outstanding unvested RSU awards and outstanding unexercised stock option awards for each of our non-employee directors as of December 31, 2023: | | | | | | | Name | | | Stock Awards (#) | | Option Awards (#) | | | Michael Berry | | | 4,297 | | — | | | Marc Brown | | | 5,073 | | 45,063 | | | Judy Bruner | | | 4,297 | | — | | | Benjamin Holzman | | | 4,297 | | 21,558 | | | Christina Kosmowski | | | 5,002 | | — | | | J. Benjamin Nye | | | 5,100 | | — | | | Tom Schodorf | | | 4,297 | | 33,928 | | | Reeny Sondhi | | | 4,297 | | — | |
DIRECTOR COMPENSATION
| (3) Represents the grant date fair value associated with a RSU award covering 4,297 shares of our common stock. The RSU award vests in full on the earlier of: (i) the date of our next annual meeting of stockholders held after June 8, 2023 or (ii) the first anniversary of June 8, 2023, in each case subject to the grantee's continued service with us through the applicable vesting date. |
DIRECTOR COMPENSATION
| (4) Represents that the director elected to receive the annual cash compensation that he or she would otherwise be entitled to under the director compensation policy in the form of additional RSUs which will vest in equal quarterly installments and will vest in full upon the earlier of: (i) the date of our next annual meeting of stockholders held after June 8, 2023 or (ii) the first anniversary of June 8, 2023, in each case subject to the grantee's continued service with us through the applicable vesting date. | | (5) Reflects a pro-rata increase to compensation paid to non-employee directors for membership on certain committees and for certain committee roles, approved by the Board on April 24, 2023. | | (6) In October of 2023, the Board disbanded the Operations Committee and therefore Mr. Schodorf received a pro-rated cash payment for his partial quarter of service. As Mr. Brown and Ms. Kosmowski elected to received their annual cash compensation in the form of additional RSUs, there was no adjustment to their compensation as a result of the Operations Committee being disbanded. |
Non-Employee Director Compensation Policy
Non-Employee Director Compensation Policy Overview Our directors play a critical role in guiding our strategic direction and overseeing management. The Compensation Committee reviews pay levels for our non-employee directors on an annual basis with assistance from its compensation consultant, Compensia, which prepares a comprehensive assessment of our non-employee director compensation program. Such assessment includes comparing our current director compensation against competitive market practices using the same compensation peer group used for executive compensation purposes and an update on recent trends in director compensation. Following such review, the Board, upon recommendation of the Compensation Committee, approves any updates to the non-employee director compensation policy. Non-Employee Director Compensation Policy The Board has adopted a director compensation policy for our non-employee directors, which was most recently amended by the Board in April 2023 upon the recommendation of the Compensation Committee and Compensia. Non-employee directors receive a combination of cash and equity compensation under this policy. The Compensation Committee periodically evaluates the compensation for non-employee directors with the assistance of Compensia, taking into consideration compensation paid by the Company’s 2023 peer group. The description below reflects the director compensation policy in place for 2023. Cash Compensation Under the policy, each non-employee director receives an annual board service retainer of $35,000. The Chairman of the Board receives an additional annual board service retainer of $15,000 and the lead independent director receives an additional annual board service retainer of $20,000. The chair of each of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee receive additional annual committee chair service retainers of $20,000, $15,000 and $8,000, respectively. Other members of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee receive additional annual committee service retainers of $10,000, $6,500 and $4,000, respectively. The annual cash compensation amounts set forth above are payable in equal quarterly installments, payable in arrears following the end of each calendar quarter in which the Board service occurs, pro-rated for any partial quarters of service. Reimbursement of Expenses We also reimburse all reasonable out-of-pocket expenses incurred by non-employee directors in attending meetings of the Board or any committee of the Board in accordance with our policy. Equity Compensation In addition to cash compensation, each non-employee director is eligible to receive RSU awards as described below under our 2015 Equity Incentive Plan. Each non-employee director who is first elected or appointed to the Board is automatically granted an initial one-time RSU award having an aggregate grant date fair value of $400,000, which vests in three substantially equal annual installments on each of the first three anniversaries of the date of grant, provided that the applicable non-employee director is, as of such vesting date, then a director of our Company. In addition, each continuing non-employee director as of the date of the annual meeting is automatically, on the date of each Annual Meeting of Stockholders, granted a RSU award having an aggregate grant date fair value of $200,000, which vests in full on the earlier of the first anniversary of such grant date or the date of the next annual stockholders’ meeting, provided that the applicable non-employee director is, as of such vesting date, then a director of our Company. Any such annual award shall be pro-rated for a non-employee director who has served on the Board for less than one full year at the time of grant. Any equity awards granted to a non-employee director pursuant to this policy that are subject to vesting will become fully vested upon a change in control of the Company as long as such director is providing continuous service as of the date of such change in control. Election to Receive Annual Cash Compensation in RSUs Effective as of October 27, 2022, a non-employee director may elect to receive the annual cash compensation that he or she would otherwise be entitled to under the director compensation policy in the form of additional RSUs by submitting to the Company an election on such form as specified by the Company from time to time. If the non-employee director makes such an election, on the date of the Annual Meeting of Stockholders, the non-employee director will automatically be granted an award of RSUs under our 2015 Equity Incentive Plan equal to an aggregate grant date fair market value of the non-employee director’s expected annual cash compensation pursuant to the non-employee director compensation policy for the upcoming year of service, without any further action by the Board. To be valid, the election shall be made in accordance with the practices and procedural requirements (including as to timing of elections) determined by the Compensation Committee from time to time, in its sole discretion. The RSUs issued in lieu of cash compensation will vest in equal quarterly installments and will vest in full on the earlier of (i) the first anniversary of the grant date or (ii) the date of the next Annual Meeting of Stockholders, provided that the applicable non-employee director is providing continuous service as of such vesting date; provided, however, that if a non-employee director’s service terminates for any reason prior to the applicable vesting date, such non-employee director shall vest in the RSUs granted in lieu of annual cash compensation on a prorated basis for the quarter in which his or her service terminated. Director Compensation Limits Director compensation limits that are in place may not be increased without shareholder approval. Under the terms of the 2015 Equity Incentive Plan, non-employee directors may not receive in one calendar year more than (i) 55,000 shares of our common stock or (ii) such number of shares of our common stock that has a total value on the grant date equal to $750,000, whichever is greater.