This excerpt taken from the EBAY DEF 14A filed Mar 19, 2009.
Short-term Cash Incentive Awards
eBay Incentive Plan (eIP). The eIP is a cash incentive program designed to align executive compensation with annual performance and to enable eBay to attract, retain, and reward individuals who contribute to eBays success and motivate them to enhance the value of eBay. The eIP was approved by our stockholders in 2005. The Compensation Committee believes that incentive payouts should be tightly linked to eBays performance, with individual compensation differentiated based on individual performance. As a result, funding and payouts under the eIP are dependent and based on eBays performance and individual performance.
The committee determines the semi-annual, annual, or other performance period under the eIP. For each performance period, the committee establishes (1) performance measures based on business criteria and target levels of performance and (2) a formula for calculating a participants award based on actual performance compared to the pre-established performance goals. Performance measures may be based on a wide variety of business metrics. Management recommends to the committee a proposed approach to setting the performance measures and targets. In 2008, the eIP consisted of only an annual award for employees at the level of senior vice president and above, semi-annual and annual awards for employees at the level of director through vice president, and semi-annual awards for other employees.
The following table outlines the performance measures for the 2008 annual award for executive officers and the committees rationale for selecting those performance measures:
If the minimum revenue and non-GAAP net income thresholds have been met, 75% of the award is based on the companys performance, and 25% of the award is based on individual performance. During the second half of 2008, the committee added a customer retention metric, which we refer to as a net promoter score, for certain employees at the level of vice president and above (which includes all executive officers). Twenty percent of the company performance component of the annual incentive for 2008 was subject to the net promoter score metric. If the target for the net promoter score metric was not met, then the individual would lose up to 20% of the amount he or she would have otherwise received for the company performance component under the eIP. If the target was met, the individual would receive what he or she would have otherwise received under the eIP (and would not receive any additional pay out as a result of the achievement of the net promoter score metric).
The amount by which the eIP is funded is determined based on the companys actual performance measured against the targets set by the committee. The committee sets the annual target in the first quarter. Unless both the minimum revenue and non-GAAP net income thresholds for the year are met, there is no payout for that year. After the end of the year, the companys actual performance is compared to the targets to determine the funding level, and our CEO presents the committee with his assessment of the performance of each of the other executive officers; the committee reviews his assessments and determines the level of performance for each of those executive officers. In addition, the committee reviews (with input from the lead independent director and other members of the Board) and determines the CEOs level of performance against targets set by the Board at the beginning of the year.
The following table sets forth the annual 2008 performance measures set by the committee:
In 2008, the maximum incentive amount that could be paid was 200% of target. In 2008, total annual target incentive amounts for the named executive officers (other than the CEO) were 65% to 100% of base salary, and the target incentive amount for the CEO was 125% of base salary. Based on eBays annual performance, there was no payout for our executive officers under the eIP for 2008.
Special Retention Bonus Plans. Messrs. Donahoe and Swan each have special retention bonus plans that were entered into in connection with their hiring in 2005 and 2006, respectively. The Compensation Committee believed that it was necessary to enter into these special bonus plans to provide each of Messrs. Donahoe and Swan with a total compensation package that would be attractive to them and cause them to join eBay, in each case with particular reference to the compensation he had been receiving at his previous position. Under the terms of Mr. Donahoes plan, he received a special retention bonus of $2,000,000 in cash, of which $500,000 was paid in each of 2005, 2006, 2007, and 2008. Under the terms of Mr. Swans plan, he is eligible to receive a special retention bonus of up to $1,000,000 in cash, of which $200,000 was paid in each of 2006, 2007, and 2008. The plan provides that Mr. Swan will receive two additional bonus payments of $200,000, payable on each of the third and fourth anniversaries of the date of his commencement of employment, assuming his continued employment with eBay. The amounts paid to Messrs. Donahoe and Swan under these bonus plans were in addition to their base salaries.