Kenexa DEF 14A 2012
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(Amendment No. __ )>
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WAYNE, PENNSYLVANIA 19087
April 3, 2012
To our Shareholders:
You are cordially invited to attend the 2012 Annual Meeting of Shareholders of Kenexa Corporation. Our Annual Meeting will be held on Thursday, May 3, 2012, at 8:00 a.m. EDT at the offices of Pepper Hamilton LLP, Eighteenth & Arch Streets, 3000 Two Logan Square, Philadelphia, PA 19103-2799.
We describe in detail the actions we expect to take at our Annual Meeting in the attached Notice of 2012 Annual Meeting of Shareholders and proxy statement. Included with this proxy statement is a copy of our Annual Report for our year ended December 31, 2011. We encourage you to read our Annual Report. It includes information on our operations, products and services, as well as our audited financial statements.
Please use this opportunity to take part in our corporate affairs by voting on the business to come before this meeting. Whether or not you plan to attend the meeting, please complete, sign, date and return the accompanying proxy in the enclosed postage-paid envelope or vote electronically via the Internet or telephone. See “How Do I Vote?” in the proxy statement for more details. Returning the proxy or voting electronically does NOT deprive you of your right to attend the meeting or to vote your shares owned of record by you in person for the matters acted upon at the meeting.
We look forward to seeing you at the Annual Meeting.
650 EAST SWEDESFORD ROAD, SECOND FLOOR
WAYNE, PENNSYLVANIA 19087
NOTICE OF 2012 ANNUAL MEETING OF SHAREHOLDERS
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
MAY 3, 2012
We are providing these proxy materials to you in connection with our 2012 Annual Meeting of Shareholders, which we refer to in these proxy materials as the Annual Meeting. This proxy statement, form of proxy card and our Annual Report on Form 10-K for the year ended December 31, 2011 were first mailed to our shareholders beginning on or about April 6, 2012. This proxy statement contains important information for you to consider when deciding how to vote on the matters brought before the Annual Meeting. Please read it carefully.
Our board of directors is soliciting your vote at the 2012 Annual Meeting of Shareholders.
You will be voting on:
Our board of directors recommends a vote:
Our board of directors set March 30, 2012 as the record date for the Annual Meeting, which we refer to in these proxy materials as the record date. All shareholders who owned our common stock at the close of business on March 30, 2012 may vote at the Annual Meeting, either in person or by proxy.
You have one vote for each share of our common stock that you owned at the close of business on the record date, provided that on the record date those shares were either held directly in your name as the shareholder of record or were held for you as the beneficial owner through a broker, bank or other nominee.
Most of our shareholders hold their shares through a broker, bank or other nominee rather than directly in their own name. As summarized below, there are some distinctions between shares held of record and those owned beneficially.
Shareholder of Record. If your shares are registered directly in your name with our transfer agent, StockTrans, a Broadridge Company, you are considered to be the shareholder of record with respect to those shares, and these proxy materials are being sent directly to you by us. As a shareholder of record, you have the right to grant your voting proxy directly to us or to vote in person at the Annual Meeting. We have enclosed a proxy card for you to use.
Beneficial Owner. If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered to be the beneficial owner of shares held in “street name,” and these proxy materials are being forwarded to you by your broker, bank or nominee (which is considered to be the shareholder of record with respect to those shares). As a beneficial owner, you have the right to direct your broker, bank or nominee on how to vote and are also invited to attend the Annual Meeting. Your broker, bank or nominee has enclosed a voting instruction card for you to use in directing the broker, bank or nominee regarding how to vote your shares. However, since you are not the shareholder of record, you may not vote these shares in person at the Annual Meeting unless you obtain a proxy, executed in your favor, from the holder of record of such shares.
Each share of our common stock is entitled to one vote. There is no cumulative voting. Shares of common stock outstanding and entitled to vote on the record date were 27,295,336.
A majority of the outstanding shares of our common stock as of the record date must be present at the Annual Meeting in order to hold the Annual Meeting and conduct business. This is called a “quorum.” Your shares will be counted as being present at the Annual Meeting if either you are present and vote in person at the Annual Meeting or a proxy card has been properly submitted by you or on your behalf and such proxy card indicates a vote on at least one matter to be considered at the Annual Meeting. Both abstentions and “broker non-votes” (under certain circumstances described below) are counted as present for the purpose of determining the presence of a quorum.
If you return your signed proxy card in the enclosed envelope but do not mark selections, your shares will be voted in accordance with the recommendations of our board of directors. If you indicate a choice with respect to any matter to be acted upon on your proxy card your shares will be voted in accordance with your instructions.
If you are a beneficial owner and hold your shares in street name through a broker and do not give voting instructions to the broker, the broker will determine if it has the discretionary authority to vote on the particular matter. Under applicable rules, brokers have the discretion to vote on routine matters, such as the ratification of the selection of accounting firms, but do not have discretion to vote on non-routine matters. Recent regulatory changes applicable to New York Stock Exchange member brokerage firms (many of whom are the record holders of shares of NYSE-listed companies like us) have changed the matters that are considered “routine” matters: for example, the uncontested election of directors is no longer considered a routine matter. As a result, if you are a beneficial owner and hold your shares in street name, but do not give your broker or other nominee instructions on how to vote your shares with respect to the election of directors, no votes will be cast on your behalf.
If you do not provide voting instructions to your broker and your broker indicates on its proxy card that it does not have discretionary authority to vote on a particular proposal, your shares will be considered to be “broker non-votes” with regard to that matter. Proxy cards that reflect a broker non-vote with respect to at least one proposal to be considered at the Annual Meeting (so long as they do not apply to all proposals to be considered) will be considered to be represented for purposes of determining a quorum but generally will not be considered to be entitled to vote with respect to that proposal. Broker non-votes are not counted in the tabulation of the voting results with respect to proposals that require a plurality of the votes cast or proposals that require a majority of the votes cast. With respect to a proposal that requires a majority of the outstanding shares (of which there are presently none for this Annual Meeting), a broker non-vote has the same effect as a vote against the proposal.
With respect to Proposal No. 1, you may vote For all nominees, Withhold your vote as to all nominees, or For all nominees except those specific nominees from whom you Withhold your vote. The three nominees receiving the most For votes will be elected. A properly executed proxy marked Withhold with respect to the election of one or more directors will not be voted with respect to the director or directors indicated. Proxies may not be voted for more than three directors and shareholders may not cumulate votes in the election of directors.
With respect to Proposals Nos. 2 and 3 you may vote For, Against or Abstain. If you Abstain from voting on any of these Proposals, the abstention will have the same effect as an Against vote.
Yes. Even if you sign the proxy card or voting instruction card in the form accompanying this proxy statement, vote by telephone or vote on the Internet, you retain the power to revoke your proxy or change your vote. If you are a shareholder of record, you can revoke your proxy or change your vote at any time before it is exercised by giving written notice to our Secretary or Assistant Secretary, 650 East Swedesford Road, Second Floor, Wayne, Pennsylvania 19087, specifying such revocation. You may also change your vote by timely delivery of a later-dated vote by telephone or on the Internet, or by voting by ballot at the Annual Meeting. If you hold your shares through a broker, bank or other nominee, you can revoke your proxy by contacting the broker, bank or other nominee and submitting a later dated voting instruction card.
All shareholders as of the record date, or their duly appointed proxies, may attend the Annual Meeting. Each shareholder may also bring one guest to the Annual Meeting, space permitting. Only our shareholders of record will be entitled to speak at the Annual Meeting.
In order to be admitted to the Annual Meeting, a shareholder must present an admission ticket or proof of ownership of our common stock on the record date. Any holder of a proxy from a shareholder must present the proxy card, properly executed, and an admission ticket to be admitted. Shareholders and proxy holders must also present a form of government-issued photo identification such as a passport or driver’s license.
An admission ticket is provided on the back cover page of your proxy statement. If you plan to attend the Annual Meeting, please keep this ticket and bring it with you to the Annual Meeting. If you receive this proxy statement electronically, you can obtain a ticket in advance of the Annual Meeting by printing the final page of this proxy statement. If a shareholder does not bring an admission ticket, proof of ownership of our common stock on the record date will be needed to be admitted. If your shares are held in the name of a bank, broker or other holder of record, a brokerage statement or letter from the bank or broker is an example of proof of ownership.
Admission to the Annual Meeting will begin at 7:30 a.m., EDT. Seating will be limited. In order to ensure that you are seated by the commencement of the Annual Meeting at 8:00 a.m., we recommend that you arrive early.>
The Annual Meeting will be held at the offices of Pepper Hamilton, LLP, Eighteenth and Arch Streets, 3000 Two Logan Square, Philadelphia, Pennsylvania 19103-2799. When you arrive, signs will direct you to the appropriate meeting room. Please note that due to security reasons, all bags will be subject to search. We will be unable to admit anyone who does not comply with these security procedures. Cameras and other recording devices will not be permitted in the meeting room.
We will bear the expense of printing and mailing proxy materials. In addition to this solicitation of proxies by mail, our directors, officers and other employees may solicit proxies by personal interview, telephone, facsimile or e-mail. They will not be paid any additional compensation for such solicitation. We will request brokers and nominees who hold shares of our common stock in their names to furnish proxy materials to beneficial owners of the shares. We will reimburse such brokers and nominees for their reasonable expenses incurred in forwarding solicitation materials to such beneficial owners.
This proxy statement and our 2011 Annual Report are available on our website at http://www.kenexa.com/Investor-Relations
The names of shareholders of record entitled to vote at the Annual Meeting will be available for review by shareholders at the Annual Meeting.
Preliminary voting results will be announced at the Annual Meeting, and final voting results will be published in a Current Report on Form 8-K which we will file with the SEC within 4 business days following the Annual Meeting. After that Form 8-K has been filed, you may obtain a copy by visiting our website, by contacting our Investor Relations department by calling (866) 888-8121, by writing to Investor Relations, Kenexa Corporation, 650 East Swedesford Road, Second Floor, Wayne, Pennsylvania 19087 or by sending an email to InvestorRelations@kenexa.com.
Shareholders of record may contact our transfer agent, StockTrans, a Broadridge Company, by calling 1-866-578-5350 or writing to StockTrans, a Broadridge Company, 44 West Lancaster Avenue, Ardmore, Pennsylvania 19003, or by visiting their website at www.StockTrans.com, to get more information about these matters.
Our principal executive offices are located at 650 East Swedesford Road, Second Floor, Wayne, Pennsylvania 19087.
Your vote is important. You may vote by telephone, on the Internet, by mail or by attending the Annual Meeting and voting by ballot, all as described below. For our shareholders of record, telephone and Internet voting facilities are available now and will be available 24 hours a day until 11:59 p.m., Eastern Daylight Time, on May 2, 2012.
The method or timing of your vote will not limit your right to vote at the Annual Meeting if you attend the meeting and vote in person. However, if your shares are held in the name of a broker, bank or other nominee, you must obtain a proxy, executed in your favor, from the holder of record of your shares to be able to vote at the Annual Meeting. You should allow yourself enough time prior to the Annual Meeting to obtain this proxy from the holder of record of your shares.
Those shares represented by the proxy cards received, properly marked, dated, signed and not revoked, will be voted at the Annual Meeting. If you sign and return your proxy card but do not give voting instructions, the shares represented by that proxy card will be voted as recommended by our board of directors.
Our board of directors is composed of eight members and is divided into three classes with staggered three-year terms. Unless otherwise specified in the accompanying proxy, the shares voted pursuant thereto will be cast for each of Renee B. Booth, Troy A. Kanter and Rebecca A. Maddox. If, for any reason, at the time of election, any of the nominees named should decline or be unable to accept his nomination or election, it is intended that such proxy will be voted for a substitute nominee, who would be recommended by our board of directors. Our board of directors, however, has no reason to believe that any of the nominees will be unable to serve as a director.
The following biographical information is furnished as to each nominee for election as a director and each of the current directors:
Nominees for Election to the Board of Directors for a Three-Year Term Expiring at the 2015 Annual Meeting>
Renee B. Booth, 53, has served as a member of our board of directors since May 2006. Since 1999, Dr. Booth has served as the president of Leadership Solutions, Inc., a boutique human resources consulting firm specializing in leadership assessments, selection, development and motivation. Dr. Booth received a B.A. in psychology from the University of Maryland and a M.S. and Ph.D. in industrial/organizational psychology from Pennsylvania State University.
Areas of Relevant Experience: Practical experience in the HR assessment business and executive leadership consulting.
Troy A. Kanter, 44, joined us in 1997 and has served as a member of our board of directors since May 2006 and as our President and Chief Operating Officer since November 2006. From 2003 until November 2006, Mr. Kanter served as our president, Human Capital Management. From 1997 to 2003, Mr. Kanter served as our executive vice president, sales and business development. From 1997 to 1999, he managed our HCM Consulting, Retention Services operations. From 1995 to 1997, Mr. Kanter was the president of Human Resources Innovations, Inc., a company he co-founded that provided employee survey research and consulting and which we acquired in 1997. Mr. Kanter received a B.A. in corporate communications from Doane College.
Areas of Relevant Experience: Executive level experience in both large and medium size organizations serving in sales, business development and operations.
Rebecca J. Maddox, 58, has been a member of our board of directors since October 2006. Ms. Maddox is a founding principal, president and chief executive officer of Maddox Smye LLC, an international specialty sales consulting firm, and has served in that capacity since 1993. Prior to that, Ms. Maddox held positions that included chief executive officer of Capital Rose, Inc., senior vice president, marketing of Capital Holding, and senior vice president, marketing, Citicorp. Ms. Maddox received a B.S. in business administration from Pennsylvania State University and an M.B.A. in marketing and finance from Columbia University.
Areas of Relevant Experience: Knowledge gained from working in senior level positions within the financial services industry and relationship expertise on how gender plays a critical part in developing a successful marketing strategy.
While each of our board of director members possess specific qualities which make them well suited for their roles at Kenexa, their individual areas of expertise, stage in their career, and accumulated work experience are varied enough to ensure that there is adequate diversity among our board members. In determining whether a prospective board member is a good fit for Kenexa’s board, our governance committee considers, among other factors, how the prospect’s diversity will impact the effectiveness of the board.
Members of the Board of Directors Continuing in Office for a Term Expiring at the 2014 Annual Meeting
Barry M. Abelson, 65, has been a member of our board of directors since 2000. Since 1992, Mr. Abelson has been a partner in the law firm of Pepper Hamilton LLP, which has provided legal services to us since 1997. Mr. Abelson received an A.B. in sociology from Dartmouth College and a J.D. from the University of Pennsylvania Law School.
Areas of Relevant Experience: Executive level leadership at a well established law firm dealing with a myriad of corporate legal matters.
Nooruddin (Rudy) S. Karsan, 54, co-founded our predecessor company in 1987 and has served as the chairman of our board of directors since 1997 and as our chief executive officer since 1991. Prior to that, Mr. Karsan headed marketing actuarial services for the Mercantile & General Insurance Company in Toronto, Canada. Mr. Karsan received a B. Math in actuarial science from the University of Waterloo. Mr. Karsan holds the designation of Fellow of the Society of Actuaries.
Areas of Relevant Experience: Proven ability to drive and oversee our business strategy; comprehensive knowledge of our strategic and operational opportunities and challenges and our competitive environment.
John A. Nies, 43, has been a member of our board of directors since 2002. In July 2010, Mr. Nies was elected as the company’s lead independent director, reinforcing our commitment to best practices in the area of corporate governance. Mr. Nies is a managing director of JMH Capital, a private equity firm, which he joined in May 2006. From 2002 to 2006, Mr. Nies served as a principal of Sage River Partners, LLC and Maplegate Holdings, LLC, private equity firms investing on behalf of individual investors. From 2001 to 2002, Mr. Nies worked for Parthenon Capital, Inc., a private equity investment firm, most recently serving as its managing director, operations, a position in which he was responsible for post-transaction performance of portfolio companies. Mr. Nies received an A.B. in economics from Dartmouth College and an M.B.A. from Harvard Business School.
Areas of Relevant Experience: Business acumen derived from evaluating a variety of venture proposals and implementing the necessary corporate governance procedures to ensure an entity’s success.
Members of the Board of Directors Continuing in Office for a Term Expiring at the 2013 Annual Meeting
Joseph A. Konen, 64, has been a member of our board of directors since 2000. Mr. Konen, who is now retired, has held a number of executive positions, most recently serving from 1994 to 1999 as the president and chief operating officer of Ameritrade Holding Corporation, a provider of brokerage services. Mr. Konen received a B.A. in economics and an M.B.A. in finance and management from Indiana University at Bloomington.
Areas of Relevant Experience: Experience in executive level positions at multiple highly successful organizations, with specific areas of focus in operations and finance.
Richard J. Pinola, 66, has been a member of our board of directors since 2005. From 1992 until his retirement in 2004, Mr. Pinola served as the chairman and chief executive officer of Right Management Consultants, a human resources consulting firm. From 1989 to 1991, Mr. Pinola served as the chief operating officer of Penn Mutual Life Insurance Company. Mr. Pinola also serves as a director of Nobel Learning Communities, Inc., a for-profit provider of education and educational services; and Corporate Property Associates 14 Inc., Corporate Property Associates 15 Inc., and Corporate Property Associates 16 Inc., each a real estate investment trust. Mr. Pinola previously served as a director of K-Tron International, Inc., a manufacturer of material handling equipment and systems and Bankrate, Inc., an Internet financial services provider. Mr. Pinola received a B.S. in accounting from King’s College.
Areas of Relevant Experience: Experience in executive level positions at several highly successful organizations, with specific areas of focus in both operations and finance.
We regularly monitor developments in the area of corporate governance and review our processes and procedures in light of such developments. In those efforts, we review federal laws affecting corporate governance, such as the Sarbanes-Oxley Act of 2002, as well as rules adopted by the SEC and The New York Stock Exchange Euronext (“NYSE”). We believe that our procedures and practices, including the policies described below, are designed to enhance our shareholders’ interests.
Our business, property and affairs are managed under the direction of our board of directors. Members of our board of directors are kept informed of our business through discussions with our Chairman and Chief Executive Officer, President, Chief Financial Officer and other officers and employees, by reviewing materials provided to them, by visiting our offices and by participating in meetings of our board of directors and its committees.
During 2011, our board of directors met four times and the committees of our board of directors held a total of 23 meetings. Each director attended at least 75% of the total number of meetings of the board of directors and each committee of the board on which such director served.
Shareholders may initiate in writing any communication with our board of directors or any individual director by sending the correspondence to our General Counsel, c/o Kenexa Corporation, 650 East Swedesford Road, Second Floor, Wayne, Pennsylvania 19087 or by sending an email to ShareholderCommunications@kenexa.com. This centralized process assists our board of directors in reviewing and responding to shareholder communications in an appropriate manner. Any communication should not exceed 500 words in length and must be accompanied by the following information:
In addition, e-mails from shareholders to our board of directors should not contain attachments. Any attachments contained in such email messages will be automatically removed. If you wish to provide additional materials with your communications, please use regular mail, sent to the address above.
All communications that comply with the above procedural requirements will be relayed to the appropriate member of the board of directors. We will not forward any communications:
Although we encourage each member of our board of directors to attend our annual meetings of shareholders, we do not have a formal policy requiring the members of our board of directors to attend.
Our board of directors has and will continue to observe all applicable criteria for independence established by NYSE and other governing laws and applicable regulations. No director is deemed to be independent unless our board of directors determines that the director has no relationship which would interfere with the exercise of independent judgment in carrying out his or her responsibilities as a director. Our board of directors has determined that the following directors are independent as determined by the NYSE listing standards and other applicable regulations: Barry M. Abelson, Renee B. Booth, Joseph A. Konen, Rebecca J. Maddox, John A. Nies and Richard J. Pinola.
In 2005, we adopted a Code of Business Conduct and Ethics. We require all employees, including our principal executive officer and principal financial officer and other senior officers and our directors, to read and to adhere to our Code of Business Conduct and Ethics in discharging their work related responsibilities. Employees are required to report any conduct that they believe in good faith to be an actual or apparent violation of our Code of Business Conduct and Ethics. The Code of Business Conduct and Ethics is available on our website at http://www.kenexa.com/Investor-Relations and can be obtained by writing to Investor Relations, Kenexa Corporation, 650 East Swedesford Road, Wayne, Pennsylvania 19087 or by sending an email to InvestorRelations@kenexa.com.
Our board of directors maintains several standing committees, including an Audit Committee established in accordance with section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended, a Compensation Committee, and a Nominating and Governance Committee. These committees and their functions are described below. Our board of directors may also establish various other committees to assist it in its responsibilities.
Our board of directors has adopted a written charter for each of its standing committees. The full text of each charter is available on our website at http://www.kenexa.com/Investor-Relations and can be obtained by writing to Investor Relations, Kenexa Corporation, 650 East Swedesford Road, Second Floor, Wayne, Pennsylvania 19087 or by sending an email to InvestorRelations@kenexa.com.
The following table shows the current members (indicated by an “X” or “Chair”) of each of our standing board committees and the number of committee meetings held and number of actions taken by unanimous written consents during 2011:
Our Audit Committee is composed of Mr. Konen (chair), Ms. Maddox and Mr. Pinola. Our board of directors has determined that each of Messrs. Konen and Pinola is an “Audit Committee financial expert” as currently defined under the SEC’s rules implementing Section 407 of the Sarbanes-Oxley Act of 2002 and has appropriate accounting or related financial management expertise, as required by the rules of the NYSE. We believe that the composition and functioning of our Audit Committee complies with all applicable requirements of the Sarbanes-Oxley Act of 2002, NYSE and the SEC’s rules and regulations, including those regarding the independence of our Audit Committee members. We intend to comply with future requirements to the extent that they become applicable to us.
Our Audit Committee oversees our corporate accounting and financial reporting processes. Our Audit Committee:
Nominating and Governance Committee
Our Nominating and Governance Committee is composed of Mr. Nies (chair), Mr. Abelson and Dr. Booth. We believe that the composition of our Nominating and Governance Committee complies with any applicable requirements of the Sarbanes-Oxley Act of 2002, NYSE and the SEC’s rules and regulations, including those regarding the independence of our Nominating and Governance Committee members. We intend to comply with future requirements to the extent that they become applicable to us.
Our Nominating and Governance Committee’s responsibilities include the selection of potential candidates for our board of directors. The committee also makes recommendations to our board of directors concerning the structure and membership of the other board committees and considers director candidates recommended by others, including our Chief Executive Officer, other board members, third parties and shareholders. In addition, our Nominating and Governance Committee develops and monitors our corporate governance guidelines, and assesses succession planning for senior management of the company.
Our Compensation Committee is composed of Dr. Booth (chair), Ms. Maddox and Mr. Pinola. We believe that the composition and functioning of our Compensation Committee complies with all applicable requirements of the Sarbanes-Oxley Act of 2002, NYSE and the SEC’s rules and regulations, including those regarding the independence of our Compensation Committee members. We intend to comply with future requirements to the extent that they become applicable to us.
Our Compensation Committee administers the compensation program for our executive officers. Our Compensation Committee:
In deciding upon the appropriate level of compensation for our executive officers, the Compensation Committee regularly reviews our compensation programs relative to our strategic objectives and emerging market practice and other changing business and market conditions. In addition, the Compensation Committee also takes into consideration the recommendations of our Chief Executive Officer concerning compensation actions for our other executive officers and any recommendations of compensation consultants. The primary role of consultants is to provide objective data, analysis and advice to the Compensation Committee. In providing data and recommendations to the Compensation Committee, our consultants work with our Chief Executive Officer and management to obtain information needed to carry out its assignments. See the section below entitled “Executive Compensation and Executive Officers—Compensation Discussion and Analysis” for further discussion of the Compensation Committee’s role in determining the compensation of our executive officers.
Mr. Karsan serves as both the Chairman of our board of directors and our CEO. Our board of directors’ decision to assign these two roles to a single person was guided by several important attributes of Mr. Karsan, including:
While these attributes were important, our board of directors would not have considered combining the roles of Chairman and CEO if it did not firmly believe that we have in place sound checks and balances to ensure that we maintain the highest standards of corporate governance and continued accountability of the CEO to the board of directors. For example:
Mr. Nies serves as both the lead independent director and Chairman of our Nominating and Governance Committee. The primary roles and responsibilities of the lead director include:
The following table sets forth the amount of compensation that we paid to each of our directors for the year ended December 31, 2011, other than our employee directors who did not receive any additional compensation for their role as a director.
Each member of our board of directors, other than those directors who are our employees or employees or partners of our affiliates, are entitled to receive an annual retainer of $30,000 for service on our board of directors. The chair of each of our Compensation Committee and our Nominating and Governance Committee receives an additional annual fee of $5,000, while each other member of those committees receives an annual fee of $2,500 for each committee upon which the member serves. The chair of our Audit Committee receives an additional annual fee of $10,000 and each other member of our Audit Committee receives an additional annual fee of $5,000. The lead independent director receives an additional fee of $20,000. We also reimburse members of our board of directors for travel, lodging and other reasonable out-of-pocket expenses incurred in attending board and committee meetings.
Our Compensation Committee periodically reviews the compensation that we offer to our non-employee directors in light of the duties of our directors and the compensation offered by our peer companies to their directors. Based upon this review, we may from time to time adjust the compensation that we offer to our non-employee directors in order to help us attract and retain the most qualified individuals to serve on our board of directors. In February 2012, the Compensation Committee approved an increase in the fees payable to the chairs of the Audit and Compensation Committees, effective as of January 1, 2012, to $12,500.
As of December 31, 2011, each of our directors held restricted stock and options to purchase shares of our common stock as follows:
In making its recommendations as to nominees for election to our board of directors, our Nominating and Governance Committee may consider, in its sole judgment, recommendations of our Chief Executive Officer and other senior executives, other board members, shareholders and third parties. Our Nominating and Governance Committee may also retain third-party search firms to identify candidates. Shareholders desiring to recommend nominees should submit their recommendations in accordance with the instructions in the section of this proxy statement below entitled “Shareholder Nominations of Directors and Other Business-Recommendations of Nominees.” The Committee has not adopted any criteria for evaluating a candidate for nomination that differ depending on whether a candidate is nominated by a shareholder versus by a director, member of management or other third party.
Our Nominating and Governance Committee considers the following criteria in determining whether a nominee is qualified to serve on our board of directors:
Our Nominating and Governance Committee also considers such other factors as it deems appropriate, including the current composition of our board of directors.
If the committee decides, on the basis of its preliminary review of a candidate, to proceed with further consideration of a candidate, members of the committee, as well as other members of our board of directors as appropriate, interview the candidate. After completing this evaluation and interview, the committee makes the final determination whether to nominate or appoint the candidate as a new board member.
Shareholder Nominations of Directors and Other Business. Our bylaws provide procedures by which a shareholder may nominate for election to our board of directors at any meeting of shareholders individuals or bring business before an annual meeting of shareholders. A shareholder desiring to nominate a director for election to our board of directors, or to bring any other business before an annual meeting of shareholders, should deliver a notice to our Secretary at our principal executive offices at 650 East Swedesford Road, Second Floor, Wayne, Pennsylvania 19087, no later than the 60th day nor earlier than the 90th day prior to the first anniversary of the preceding year’s annual meeting of shareholders. In the event that the date of the annual meeting of shareholders is more than 30 days before or more than 60 days after the anniversary of the preceding year’s annual meeting of shareholders, notice by the shareholder must be so received not earlier than the 90th day prior to the annual meeting of shareholders and not later than the later of the 60th day prior to the annual meeting of shareholders or the 15th day following the day on which public announcement of the date of the meeting is first made. In the event that a special meeting of shareholders is called at which directors are to be elected pursuant to the notice of that meeting, a shareholder desiring to nominate a director for election to our board of directors at that meeting should deliver a notice to our Secretary at our principal executive offices at 650 East Swedesford Road, Second floor, Wayne, Pennsylvania 19087, not later than the later of the 60th day prior to that meeting or the 15th day after the public announcement of that meeting nor earlier than the 90th day prior to that meeting.
The shareholder’s notice must set forth:
Shareholder Recommendations of Nominees. Our Nominating and Governance Committee considers suggestions from many sources, including shareholders, regarding possible candidates for director. The committee will give consideration to shareholder recommendations for positions on our board of directors where the committee has determined not to re-nominate a qualified incumbent director. The committee will only consider recommendations of candidates who satisfy the minimum qualifications prescribed by the committee for board nominees, including that a director must represent the interests of all shareholders and not serve for the purpose of favoring or advancing the interests of any particular shareholder group or other constituency.
To be considered by our Nominating and Governance Committee, a shareholder recommendation must be submitted to our Secretary and include a complete description of the nominee’s qualifications, experience and background, together with a statement signed by the nominee in which he or she consents to serve as a director if nominated and elected.
Although our Nominating and Governance Committee has not established a minimum number of shares that a shareholder must own in order to suggest a candidate for consideration, or a minimum length of time during which the shareholder must own its shares, the committee will take into account the size and duration of a recommending shareholder’s ownership interest. Our Nominating and Governance Committee will also consider the extent to which the shareholder making the suggestion intends to maintain its ownership interest in shares of our common stock.
During the last fiscal year, Dr. Booth, Ms. Maddox, and Mr. Pinola served as members of our Compensation Committee. None of these individuals was at any time an officer or employee of ours. In addition, none of our executive officers serves as a member of the board of directors or Compensation Committee of any entity that has one or more executive officers serving as a member of our board of directors or Compensation Committee.
Board of Directors Role in Risk Oversight
Our board of directors as a whole has responsibility for risk oversight, with reviews of certain areas being conducted by the relevant committees that report on their deliberations to the board of directors. The oversight responsibility of our board of directors and its committees is enabled by management reporting processes that are designed to provide visibility to our board of directors about the identification, assessment and management of critical risks and management’s risk mitigation strategies. These areas of focus include competitive, economic, operational, financial (accounting, credit, liquidity and tax), legal, regulatory, compliance and reputational risks. The board of directors and its committees oversee risks associated with their respective principal areas of focus, as summarized below.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 20, 2012, with respect to the beneficial ownership of our common stock by: (i) each shareholder known by us to be the beneficial owner of more than 5% of our common stock; (ii) each director or director nominee; (iii) each executive officer named in the Summary Compensation Table under “Executive Compensation and Executive Officers” in these proxy materials; and (iv) all current executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the SEC. Shares of our common stock subject to options currently exercisable or exercisable within 60 days of March 20, 2012 are deemed to be outstanding for calculating the percentage of outstanding shares of the person holding those options, but are not deemed outstanding for calculating the percentage of any other person. Percentage of beneficial ownership is based upon 27,268,111 shares of our common stock outstanding as of March 20, 2012. To our knowledge, except as set forth in the footnotes to this table and subject to applicable community property laws, each person named in the table has sole voting and investment power with respect to the shares set forth opposite such person’s name. Except as otherwise indicated, the address of each of the persons in this table is c/o Kenexa Corporation, 650 East Swedesford Road, Second Floor, Wayne, Pennsylvania 19087.
EXECUTIVE COMPENSATION AND EXECUTIVE OFFICERS
The following are biographical summaries of our executive officers, except for Messrs. Karsan and Kanter, whose biographies are included under the heading “Board of Directors.”
Donald F. Volk, 62, has served as our Chief Financial Officer since December 1996. Prior to joining us, Mr. Volk was a partner in the accounting firm of Brinker, Simpson, Nicastro & Volk. Mr. Volk received a B.S. in Accounting from Villanova University and an M.S. in Taxation from the Villanova University School of Law. Mr. Volk became a Certified Public Accountant in 1974.
Archie L. Jones, Jr., 40, has served as our Vice President of Business Development since August 2005. In 2008, his responsibilities were expanded to include Global Operations and Delivery and its financial impact. From 2003 until 2005, Mr. Jones served as managing director of Maplegate Holdings, a private equity investment firm that he co-founded that focuses on small-cap buyouts. From 1998 until 2002, Mr. Jones was a principal and charter member of Parthenon Capital, Inc., a private equity investment firm. Mr. Jones served on our board of directors from 1999 until 2002. He served on the board of directors of Franco Apparel Group from 1998 until 2004 and held the role of that organization’s interim CFO in 1999. Mr. Jones received an M.B.A. from Harvard Business School and a B.A. in Accounting and Business Administration from Morehouse College.
James P. Restivo, 51, has served as our Chief Technology Officer since October 2006. Prior to joining us, Mr. Restivo was the founder, President and Chief Executive Officer of Blue Angel Technologies. Between 1993 and 1997, he also served as the Vice President of Development for Vertex Inc., the leading provider of corporate sales tax software. Mr. Restivo received an S.M. in electrical engineering and computer science from the Massachusetts Institute of Technology and a B.S. with a double major in computer science and applied mathematics and statistics the State University of New York at Stony Brook.
Compensation Discussion and Analysis
The Role of the Compensation Committee in Determining Executive Compensation
The Compensation Committee of the board of directors, which is comprised entirely of independent directors, is responsible for ensuring that our executive compensation policies and programs are competitive within the markets in which we compete for talent and reflect a strong focus on shareholder value. The Compensation Committee reviews and approves (with respect to our Chief Executive Officer), or recommends for the Board’s approval (with respect to the other named executive officers), compensation levels and benefit programs for annual salary, bonus, stock options, and other benefits (direct and non-direct). Our named executive officers, or “NEOs”, consist of Mr. Karsan, our principal executive officer, Mr. Volk, our principal financial officer, Mr. Kanter, Mr. Jones and Mr. Restivo, who are our most highly compensated executive officers (other than our principal executive officer and principal financial officer) serving as of December 31, 2011 and whose total compensation exceeded $100,000 during the year ended December 31, 2011. The Compensation Committee reviews and approves the corporate goals and objectives relevant to the NEOs’ compensation, reviews the evaluation of their performance against these objectives and, based on that evaluation, approves (or recommends for Board approval) the NEOs’ compensation programs.
In 2011, the Compensation Committee retained Exequity, LLP (“Exequity”) as its independent compensation consultant. Exequity reports directly to the Compensation Committee, which retains full authority over Exequity’s activities, including the authority to terminate the relationship. The Compensation Committee commissioned Exequity to gather, among other things, customized peer group data for both its NEOs and outside Directors. Exequity completed its competitive benchmarking analysis for the Compensation Committee on the pay of our top executive officers compared to the market. Exequity also provided the Compensation Committee with general information on recent trends in executive compensation.
As part of its duties, the Compensation Committee annually reviews the independence of its compensation consultant and in 2011, concluded that Exequity was independent.
Our management and compensation staff provides additional analysis and counsel as requested by the Compensation Committee. You can learn more about the Committee’s purpose, responsibilities, structure, and other details by reading the Compensation Committee’s charter which can be found in the Corporate Governance section of our website at www.Kenexa.com. See “Structure and Practices of The Board of Directors - Committees” on page 6.
2011 was one of the most successful years in the history of Kenexa: GAAP revenues were up 44% and non-GAAP revenues were up 46%. The increase in revenue was due to continued demand across our product and service offerings for both subscription and other revenue. Non-GAAP operating income was up 68% and Kenexa’s stock price increased by 23% compared to 2010 levels.
Compensation Objectives & Philosophy
Kenexa takes pride in maintaining executive pay arrangements that are commonly recognized as “best practices” within the executive compensation arena. Kenexa’s executive pay program includes these leading practices:
As a provider of integrated human capital solutions, we believe that the value we deliver to our customers depends in large part upon the quality of our people. Our business model is based on our ability to establish long-term relationships with customers, and to maintain a strong mission, customer focus, entrepreneurial spirit, and team orientation. The compensation programs we provide to our executives are designed to support our vision to become the most profitable and recognized leader for integrated human capital solutions by:
Providing a strong focus on critical corporate metrics and the creation of shareholder value. Our executive compensation program is designed to align pay with corporate performance and the creation of shareholder value, and to manage pay as an important operating expense. Accordingly, in 2011, our executive compensation program was heavily weighted toward variable pay in the form of annual cash incentives, which tie a substantial portion of an executive’s compensation to our success in achieving specified performance goals, and long-term incentive awards (primarily in the form of stock options) which tie a significant portion of an executive’s compensation to the creation of shareholder value. We believe that these programs provide us with the ability to ensure that the compensation paid to our executives correlates with benefits to our shareholders.
Encouraging continued service by providing a significant portion of compensation through long-term incentives. We align our top executives’ compensation opportunities with shareholders’ interests by awarding a blend of restricted stock units and stock options. The awards granted beginning in 2009 vest over several years of continuous service, to promote the achievement of long-term operating objectives, and to provide incentives for loyal and long-term service to us. The Compensation Committee believes that market and operating conditions we currently face require a balanced, market-competitive portfolio of long-term and short-term incentive opportunities, and that such a balanced portfolio is an important factor in retaining our executive team and motivating them to contribute to shareholder value creation.
Reinforcing our mission and values, and our focus on customer service. Our values emphasize the importance of human potential, growth through service excellence, and performance-based rewards. Consistent with our advice to our own clients, we believe that our executive compensation program reinforces our primary focus on corporate performance, and, as a result, bonuses are based in part on key organizational measures.
Creating accountability for results. Our compensation program emphasizes variable, at-risk incentive award opportunities by providing our executive officers with approximately 35% to 45% of his/her target cash compensation through at-risk bonus compensation. However, depending upon our results, our bonus structure permits for the variable component of our compensation program to be either 0%, or significantly in excess of 50%, of total compensation. In this way, we seek to reward our executives for exceptional performance.
Rewarding individual performance and contributions. Salary, annual awards, and long-term incentive awards are based on both an individual’s position as well as performance against specified financial, operational and strategic goals, as appropriate to the individual’s position. As we advise our own clients, we feel it is in our best long-term interests for our high performing employees to be rewarded for personal and professional development and the achievement of individual objectives.
Allowing us to compete effectively for talent. The compensation program design and levels are set considering the practices of similar companies with which we compete for talent. We seek, as part of our compensation philosophy, to target our base salaries at the market median, with target total compensation generally targeted between the median market levels and the 75th percentile of market, dependent on continued positive financial results, to reward achievement of individual objectives. We define our market for this purpose to include software, business process outsourcing, and consulting firms, among other types of organizations identified below under the heading “Market Benchmarking.” We believe it is the most appropriate competitive reference based on our competitive market for executive talent.
To aid in its analysis, the Compensation Committee also considers the comparative performance of our peer group companies. More specifically, the Compensation Committee reviews the following quantitative and qualitative factors to determine target total compensation:
The Committee reviewed the above factors in 2011 and determined that we reached our stated goals as set forth in further detail below and therefore our NEOs were paid accordingly.
Consideration of Risk
One of the responsibilities of our Audit Committee is to review and assess our business risk management process, including the adequacy of our overall control environment and controls in selected areas representing financial and business risk. We believe that our current compensation program mitigates potential risks presented by standard incentive compensation programs through the following design features:
We benchmark our executive compensation programs against a group of companies with which we compete, which we refer to as our “Peer Group.” The Compensation Committee uses market data provided on a periodic basis by external compensation consultants. This market data includes SEC filings for peer companies and compensation data reported in published compensation surveys from reputable survey providers. The Peer Group is compiled by identifying companies who either compete directly with us for customers or compete directly with us for talent, and which are roughly the same size in revenue and/or market capitalization to us. The Compensation Committee solicits input from management and our compensation consultants, and carefully reviews the Peer Group composition for appropriateness.
In 2011, management worked with Exequity and the Compensation Committee to assess the continued evolution of the company’s operating environment and market for top executive talent and developed an updated group of peer companies for compensation comparison purposes. Exequity and management identified the most relevant operational and structural equivalents to Kenexa, and identified a list of companies from the following industries: Application Software, Software Services, Data Processing and Outsourced Services, BPO, and IT Consulting. The 17 companies had a median revenue base of $228 million, compared to Kenexa’s revenues of $291 million. The Compensation Committee reviewed and approved the proposed list of peers.
For the annual executive compensation review, Exequity provided the Compensation Committee with benchmark data for base salary, perquisites, annual incentives and equity awards. Exequity draws data from proxy statements and reports filed with the Securities and Exchange Commission. In practice, total compensation for each NEO may vary in any given year depending on the NEOs’ performance and achievement against several performance criteria
The Peer Group companies for the 2011 pay assessment and market alignment were:
Stockholder Say-On-Pay Vote
In light of the strong shareholder support for the company’s executive compensation program, as reflected in the stockholders’ adoption of an advisory resolution approving executive compensation contained in the 2011 proxy statement, as well as the company’s performance vis-a-vis the Peer Group companies and other factors described above, the Compensation Committee concluded that no significant changes were required to be made to our executive compensation program.
The aggregate compensation of each of our NEOs consists of a number of key elements:
Each NEO’s base salary, annual incentive, and long-term incentives are established after considering the following factors:
Base Pay (Fixed)
Initial base salaries for our NEOs are determined by the Compensation Committee, based upon each NEO’s level of responsibilities and role, and on benchmark data for similar positions at Peer Group companies. The Compensation Committee reviews each NEO's base salary annually and makes adjustments based on updated Peer Group data and on a subjective evaluation of the individual's contribution to our performance. For NEOs other than the CEO, evaluations are performed by the CEO, who may also make specific salary adjustment recommendations to the Compensation Committee. The CEO’s evaluation is performed by the Compensation Committee, in conjunction with the other independent members of the board of directors, in light of both corporate and individual performance. Base salaries may also be adjusted when new roles and responsibilities are assumed. In order to continue to emphasize our pay-for-performance compensation philosophy, the Compensation Committee did not make any adjustments to our NEOs’ base salaries in 2011 compared to the prior year. Base salaries for 2011 were as follows:
Annual Cash Incentives
In line with our compensation philosophy, a significant portion of each NEO’s compensation is tied to company performance. The annual cash incentive component of our executive compensation program has three primary prongs: the Executive Officer Bonus (in which four of our five NEOs participate), the Management by Objective Plan (in which two of our five NEOs participate) and the Internal Measurement Metric Bonus (in which all employees, including all NEOs, participate). Each of these prongs is described below (see “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table below for the actual payment amounts).
Executive Officer Bonus
The target and maximum amounts payable to our executives vary by position and seniority and are determined by reference to, among other things, the annual cash incentive practices of the companies within our Peer Group. Actual cash incentive payments are determined each February (and typically paid in March) with respect to performance in the prior year. The “target” annual cash incentive for each of our NEOs ranges from 57% to 80% of base salary; the range of potential 2011 cash incentive payouts is presented in the Grants of Plan-Based Awards table below. Actual 2011 cash incentive payouts for the NEOs are shown in the Summary Compensation Table in the column labeled “Non-Equity Incentive Plan Compensation.”
Messrs. Karsan, Kanter, Volk and Restivo participate in our Executive Officer Bonus program, and their payments under this program are calculated based upon our annual non-GAAP income from operations. This measure is defined as GAAP income from operations, adjusted for share-based compensation, amortization of intangibles associated with acquisitions and other non-recurring expenses as management deems applicable. Each year, the Compensation Committee sets targets for non-GAAP operating income; actual performance is then compared to these targets.
In 2011, the Compensation Committee set the non-GAAP operating income target at $22.1 million, with the maximum cash incentives payable if non-GAAP operating income equaled or exceeded $26.9 million. Under our cash incentive program, no cash incentive is payable if we achieve less than 75% of the targeted non-GAAP operating income. If our actual non-GAAP operating income is between the threshold of $17.2 million and targeted level of $22.1 million, the named executive officer will earn a bonus based on linear interpolation. The table below shows the maximum cash incentive payments for each NEO, which were achieved, due to the fact that the company’s 2011 non-GAAP operating income exceeded $26.9 million:
Management By Objective Plan
In addition to the annual cash incentive plan, we maintain the Management By Objective (“MBO”) plan to reward executives for progress with respect to individualized objectives determined on an annual basis by the Compensation Committee. In 2011, Messrs. Restivo and Jones were eligible to receive cash payments under our MBO plan based upon their achievement of the following objectives:
Internal Measurement Metric
All of our employees, including each NEO, participate in our company-wide internal measurement metric (“IMM”) bonus program. Our IMM, the elements and target levels of which were formulated by the Compensation Committee, with input from management, is calculated as follows:
Achievement of target IMM scores closely correlates to our underlying performance because the IMM consists of three variables that drive our current and future success. Upon recommendation from our CEO, our NEOs’ goals are reviewed and approved by the Compensation Committee. The NEOs are notified of the IMM objectives in January of each year and throughout the year they are provided with periodic updates of their progress towards the goal.
If the IMM is below the 80% threshold, no IMM Bonus is payable to employees (including NEOs). If the IMM exceeds 80% of the threshold (which, for the year ended December 31, 2011, was 28.8), then the NEOs become eligible to receive the payments described below. For the year ended December 31, 2011, the actual IMM index was 44.5.
Performance in 2011 in relation to the IMM metrics was exceptional, and therefore maximum payments were made under the IMM bonus program. The IMM payment scale and actual payments with respect to performance in 2011 for each NEO were as follows:
Overall Cash Incentive Mix and Targets
As noted earlier, Kenexa’s performance in 2011 was exceptional, and as a result, the annual cash incentives were earned at levels above target. In 2011, our NEOs had the following total cash incentive payment targets and payouts.
NEOs have the ability to earn up to a maximum of 150% of base salary for exceeding targets. Conversely, performance below 78% of the established target will result in no bonus payments on either the IMM or the Executive Officer Bonus. Performance is interpolated in between the threshold, target, and maximum as set forth under the section “Grants of Plan Based Awards” below.
At the time the Compensation Committee approved the performance goals for 2011, we believed that the performance goals were aspirational, but reasonably attainable. The 2011 goals were based on a budget aligned with the economic conditions in existence at the time.
Long-Term Incentive Compensation
The company targets pay levels in the 75th percentile of total pay; however, in recent years pay levels have fallen short of the 75th percentile target objectives. In efforts to transition total pay levels closer to the 75th percentile, the company increased long-term incentive compensation opportunities in 2011 while maintaining base pay and bonus levels from 2010. Overall in 2011, the company still fell below the 75th percentile in total pay levels, but was able to close the gap through pay for performance vehicles. We believe that long-term incentives meaningfully align the interests of our NEOs with those of our shareholders. Additionally, we view long-term incentives as an important tool to attract and retain key executive talent. To that end, we have traditionally awarded long-term incentives in the form of equity-based opportunities, specifically, non-qualified options to purchase our common stock and restricted stock units. In 2011, we awarded a combination of stock options and restricted stock units to our NEOs, both of which vested over a period of four years, subject to continued employment with the Company. Stock options tie our executives’ rewards directly to shareholder value creation, and restricted stock units balance the incentive leverage provided by options. As such, the options reinforce a tight pay-for-performance objective, and the restricted stock units further align executives with shareholder interests while serving as a powerful retention incentive.
The Compensation Committee believes a balanced mix of long term-term incentive vehicles is an important factor to retain and motivate our NEO’s in driving shareholder value creation. The Compensation Committee reviews the components of our long-term incentive compensation on an annual basis in light of our overall business strategy, existing market-competitive best practices, and other factors. Stock options and restricted stock units are highly prevalent in our industry, especially among our publicly-traded peers.
The Compensation Committee may make long-term incentive grants from time to time to executives whose contributions have, or we expect will have, a significant impact on our long-term performance. The Compensation Committee evaluates all overall compensation levels and designs when deciding to make a new long-term incentive awards, including consideration of current and other equity holdings. Pursuant to our 2005 Equity Incentive Plan, options are granted with an exercise price equal to the fair market value (i.e., the closing price of our common stock) on the date that the Compensation Committee approves the award. 2011 option and restricted stock unit grants to our NEOs are set forth in the “Grants of Plan Based Awards” table below.
Our Compensation Committee continues to believe that equity awards provide the most meaningful long-term incentive for our executive officers and intends to continue granting equity-based pay opportunities going forward based on the following criteria:
The annual equity grant date for all employees (including the NEOs) for awards recognizing performance in the prior year is traditionally the date of the February meeting of the Compensation Committee, or as soon as all pertinent data related to prior year performance goals is available. We have not granted discounted, backdated or retroactive options. The Compensation Committee may make additional grants from time to time to executives whose contributions have, or are expected to have a significant impact on our long-term performance. Although Kenexa has identified a 75th percentile long-term incentive pay target, the long-term incentives generally fall below the target levels of the median peer groups. The Compensation Committee has taken this position to contain cost and manage share dilution.
We calculate the accounting cost of equity-based long-term incentive awards under FASB ASC 718, “Compensation-Stock Compensation.” As such, the grant date accounting fair value, which is fixed at date of grant, is expensed over the vesting period.
We provide very limited perquisites to our NEOs. Instead, consistent with our compensation philosophy, we attempt to limit fixed compensation and provide the opportunity for additional pay through performance-based compensation. Benefits and perquisites are not considered or intended to differentiate us as an employer.
We do not offer our NEOs defined benefit plans, supplemental executive retirement plans or benefit restoration plans. Instead, our NEOs are eligible to participate in benefit plans that are offered generally to all of our other salaried employees, such as short and long-term disability, life insurance, health and welfare benefit and 401(k) plans, our employee stock purchase plan, and paid time-off.
We provide a matching contribution to each employee, including our NEOs, who participate in our 401(k) plan, the rate of which is based on our annual performance as measured by the IMM. This matching contribution may be raised or lowered at the discretion of management.
We implemented our employee stock purchase plan in 2006, which allows substantially all of our employees, including our executive officers, to purchase shares of our common stock at a 5% discount to the closing market price at the time of purchase. This plan is intended to qualify participants for beneficial tax treatment under Section 423 of the Internal Revenue Code.
In order to provide flexibility in handling separation situations as well as to support our pay-for-performance culture, we have not entered into employment agreements with our NEOs; however, the company has entered into both confidentiality and non-compete agreements with them.
Our business needs and compensation strategy are the main drivers of our compensation design. However, accounting and cost impact are one of several factors considered in program design and administration.
Section 162(m) of the Internal Revenue Code generally provides that a publicly held company may not deduct compensation paid to most NEOs in excess of $1,000,000 per year, unless certain requirements are met. The Compensation Committee monitors, and will continue to monitor, the effect of Section 162(m) on the deductibility of such compensation and intends to optimize the deductibility of such compensation to the extent such deductibility is consistent with the objectives of our executive compensation program. The Compensation Committee weighs the benefits of full deductibility with the other objectives of the executive compensation program and, may accordingly pay compensation subject to the deductibility limitations of Section 162(m).
Insider Trading and Speculation in Kenexa Stock
We have adopted policies prohibiting our officers, directors, and employees from purchasing or selling Kenexa securities while in possession of material, nonpublic information, or otherwise using such information for their personal benefit or in any manner that would violate applicable laws and regulations. In addition, our policies prohibit our officers, directors, and employees from short selling (profiting if the market price of our stock decreases). Our Compensation Committee does not time the grants of long-term incentive awards around Kenexa’s release of undisclosed material information.
Change in Control Severance Plan
On March 29, 2012, the board of directors, upon the recommendation of the Compensation Committee, adopted the company's Change in Control Severance Plan (the “Severance Plan”) covering the NEOs and certain other employees of the company. The Severance Plan is an ERISA-regulated change in control severance plan. We believe that the Severance Plan will play an important role in our executive retention efforts by mitigating the harm that our NEOs would suffer if their employment is terminated by the company for reasons beyond their control in conjunction with a change in control of the company.
The Severance Plan provides for specified levels of payments and benefits to eligible employee whose employment with the company ceases during the one-year period (or, with respect to Messrs. Karsan and Kanter, the two-year period) following a change in control of the company due to (i) a termination without “cause” or (ii) a resignation for “good reason.” In such circumstances, each eligible employee is entitled to (i) a lump sum severance payment and (ii) a pro-rata annual bonus for the year of termination. Additionally, each eligible employee is entitled to full vesting of any outstanding equity awards upon the occurrence of a change in control, provided that the eligible employee remains continuously employed by the Company through the date of such change in control. Please see the discussion under the heading “Potential Payments upon Termination or Change in Control” for a more detailed discussion of the payments and benefits potentially payable to our NEOs under the Severance Plan. Cash payments under the Severance Plan are conditioned on the participant’s execution of a general release of all claims against the company and its affiliates.
SUMMARY COMPENSATION TABLE
The following table sets forth summary information concerning compensation for the years ended December 31, 2011, 2010 and 2009.
GRANTS OF PLAN BASED AWARDS
The following table sets forth each award made to a NEO during the year ended December 31, 2011 and, with respect to non-equity incentive plan awards and equity incentive plan awards, represents the threshold, target and maximum payouts designated under such plan. Our non-equity incentive annual bonus plans, and the actual payouts under those plans, are discussed above under “Compensation Discussion and Analysis”.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table sets forth unexercised and unvested stock options outstanding as of December 31, 2011 for each of our NEOs.