MRVL » Topics » Fiscal 2009 Equity Awards

This excerpt taken from the MRVL DEF 14A filed May 29, 2009.

Fiscal 2009 Equity Awards

In determining the size of the stock option grants to the named executive officers, the executive compensation committee reviewed the equity awards granted by the companies in our peer groups at the 50th percentile based on (i) the percentage of our outstanding equity that was awarded; (ii) the value of awards as a percent of market capitalization; (iii) the value of awards calculated using current stock prices for the exercise price; and (iv) the current value of the awards at current stock prices but using the historical exercise prices. The executive compensation committee used these metrics to understand and evaluate the historical data for the companies in our peer groups in light of the significant depreciation in stock prices since the peer group data was compiled.

For Dr. Sehat Sutardja, our executive compensation committee determined that a stock option for 600,000 common shares approximated the 50th percentile value of an annual equity award for the primary peer group. As in fiscal 2008, the executive compensation committee split the proposed stock option grant evenly between a time-based vesting stock option and a performance-based vesting stock option. Based on its judgment of the degree of difficulty in achieving the performance objectives, the executive compensation committee increased the number of shares subject to the performance-based vesting option by 30%. Therefore, the executive compensation committee granted Dr. Sehat Sutardja a time-based vesting option to purchase 300,000 common shares and a performance-based vesting option to purchase 390,000 common shares.

The performance-based vesting stock option will vest based on our financial performance as measured over up to five annual performance periods. In each of the first four annual performance periods, beginning with fiscal 2010 and ending with fiscal 2013, 25% of the option shares (or 97,500 shares), may vest depending on our actual performance as measured against the following performance objectives.

 

 

 

Full vesting of an annual tranche occurs if, for each annual performance period, our Modified GAAP Operating Margin (as defined below) for such fiscal year is equal to or greater than the 60th percentile of the comparably calculated operating margin for the four consecutive fiscal quarters ending on or before our fiscal year end for the companies in our “Performance Peer Group” (as defined below).

 

   

If we do not meet the Modified GAAP Operating Margin (as defined below) target for any annual performance period, then the option shares otherwise eligible for vesting in such period are to be carried forward to the next performance period and aggregated with the option shares eligible to vest during that period and may vest upon achievement of the subsequent year’s performance objectives.

 

 

 

If, at the end of fiscal 2013, any option shares remain unvested, then such option shares may vest in a final annual performance period covering fiscal 2014 if our Modified GAAP Operating Margin (as defined below) for such fiscal year is equal to or greater than the 60th percentile of the comparably calculated operating margin for the four consecutive fiscal quarters ending on or before our fiscal year-end for the companies in our “Performance Peer Group” (as defined below).

For purposes of this performance-based stock option, “Modified GAAP Operating Margin” means the company’s operating margin calculated under generally accepted accounting principles and adjusted to exclude the impact of (i) non-cash stock-based compensation charges recognized under SFAS 123R and (ii) non-cash acquisition-related charges, including intangible amortization and in-process research and development charges.

For purposes of this performance-based stock option, the Performance Peer Group consists of Altera Corporation, Analog Devices, Inc., Broadcom Corporation, LSI Corporation, Micron Technology, Inc., National Semiconductor Corporation, NVIDIA Corporation, SanDisk Corporation, UTStarcom, Inc. and Xilinx, Inc. If there are less than eight of the companies remaining in the Performance Peer Group for any performance period, the Performance Peer Group will be expanded to include all of the U.S.-based publicly traded companies in the Philadelphia Stock Exchange’s Semiconductor Index at that point in time.

 

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The executive compensation committee believes it is useful for incentivizing superior company performance and increasing shareholder value that a portion of the stock options granted to Dr. Sehat Sutardja have performance-based vesting requirements in addition to a time-based vesting requirement and the inherent stock price performance requirements of a stock option. The executive compensation committee believes that the terms of the performance-based vesting stock option will incentivize Dr. Sehat Sutardja to drive superior performance for the company. The executive compensation committee believes that operating margin is a useful measure of company performance and appropriate to use for measuring our performance against the companies in the Performance Peer Group. Vesting was set at the 60th percentile of performance against the Performance Peer Group, because the 60th percentile reflects above-average performance and will be difficult to achieve on a consistent basis. The companies in the Performance Peer Group were selected based on the similarity of their business to ours. The Performance Peer Group is not the same as our primary peer group because we did not use revenue as a measure for determining the Performance Peer Group since similar revenue is not required to measure operating margin.

For Dr. Pantas Sutardja, our executive compensation committee determined that the 50th percentile of the annual equity award value for the primary peer group equaled a stock option to purchase 120,000 common shares. Vesting for this option is our standard service-based schedule of four years with 25% of the option shares vesting each year on the anniversary of the grant date.

In connection with his acceptance of employment with us, the executive compensation committee granted Mr. Hosein a time-based vesting stock option for 450,000 common shares that vests over a five-year period. In addition, the executive compensation committee granted Mr. Hosein a stock option for 200,000 common shares that vests upon the achievement of certain performance objectives as described below. The size of these awards were based on review of market data for chief financial officer equity compensation as well as the negotiations with Mr. Hosein. In addition, in December 2008, in connection with the review of executive compensation, the executive compensation committee granted Mr. Hosein a time-based vesting stock option for 100,000 common shares that vests over four years. The executive compensation committee determined the size of this award based on its determination of the competitive level of annual equity awards for the primary peer group using the various measures of equity compensation value described above. This award was pro-rated based on Mr. Hosein’s time of service with the Company.

Mr. Hosein’s performance-based vesting option granted in connection with his commencement of employment vests upon our achievement of pro forma earnings per share equaling or exceeding 200% of the baseline earnings per share. Performance is measured over six one-year performance periods with the first performance period beginning with the first fiscal quarter after Mr. Hosein commenced employment. For the first five performance periods, 20% of the option shares plus any option shares that did not vest in a prior performance period will vest if our actual pro forma earnings per share equal or exceed 200% of the baseline. In the sixth performance period, any option shares that did not vest in a prior performance period will vest if our actual pro forma earnings per share equal or exceed 200% of the baseline. Pro forma earnings per share are calculated by adjusting earnings per share calculated under generally accepted accounting principles for (i) non-cash stock-based compensation charges recognized under SFAS 123R and (ii) non-cash acquisition-related charges, including intangible amortization and in-process research and development charges. Baseline earnings per share equal the pro forma earnings per share for the four fiscal quarters immediately prior to Mr. Hosein’s commencement of employment.

The executive compensation committee based the performance terms for Mr. Hosein’s award on the terms used for Dr. Sehat Sutardja’s fiscal 2008 performance-based vesting stock option. The executive compensation committee believed that using similar terms would align the incentives for Dr. Sehat Sutardja and Mr. Hosein.

This excerpt taken from the MRVL DEF 14A filed Jun 2, 2008.

Fiscal 2008 Equity Awards

        Our executive compensation committee determines the appropriate size of any annual stock option grants to Dr. Sehat Sutardja, our Chief Executive Officer, based on our performance against the two peer groups and our strategic performance. In December 2007, the executive compensation committee determined that we performed at the 75th percentile relative to the performance of the peer group companies. The executive compensation committee considered four factors in making its determination: revenue growth, earnings growth, shareholder value creation and achievement of strategic and/or operational initiatives. The executive compensation committee does not have fixed weightings for each factor and instead uses its judgment in determining the importance of each factor annually based on our specific circumstances. For fiscal 2007, the executive compensation committee noted that our one and three year revenue growth was at or above the 75th percentile of the peer groups, that net income growth was below the 10th percentile in comparison to our peer groups due to our recent acquisition of Intel's communications and application processor business, that our stock price had not appreciated in fiscal 2007 and that for fiscal 2007 we had made a significant strategic acquisition of Intel's communications and application processor business. The executive compensation committee considered the revenue growth and the execution of the acquisition to be the most important performance factors in fiscal 2007. The executive compensation committee determined that for fiscal 2007 the acquisition was a significant factor but that net income was not as significant a factor, because of the tremendous potential of the acquisition to increase the size and value of the Company in the medium to long-term and the understanding of the executive compensation committee and our board of directors at the time of the acquisition that the acquisition would have a significant negative short term effect on net income.

        Based on this determination of our performance, the executive compensation committee used a blended rate of the 75th percentile of both of our peer groups to determine the size of the stock option award to Dr. Sehat Sutardja, our Chief Executive Officer. The executive compensation committee then decided to split the award between service-based vesting and performance-based vesting options, with the option grant split evenly between the two, with the number of shares subject to the performance-based options increased by 20% to take into account the additional risks associated with a performance-based stock option. The executive compensation committee determined, in its judgment, that a 20% premium was the appropriate adjustment to take into account the additional degree of difficulty in achieving the performance goal. The amount of the stock option granted to Dr. Pantas Sutardja, our Chief Technology Officer, reflected the executive compensation committee's determination to compensate Dr. Pantas Sutardja at 4/9th of the level of Dr. Sehat Sutardja.

        Dr. Sehat Sutardja was granted a service-based option for 189,000 shares and Dr. Pantas Sutardja was granted a service-based option for 84,000 shares. Both of these options vest ratably over four years. Dr. Sehat Sutardja was granted a performance-based option for 226,800 shares and Dr. Pantas Sutardja was granted a performance-based option for 101,000 shares. Both of these options vest based on achievement of a performance goal, as described in the next paragraph. In addition, in lieu of an annual cash incentive, as described above in the Section entitled "Annual Cash Incentive Awards," the executive compensation committee granted Dr. Sehat Sutardja an additional service-based option for 46,000 shares and Dr. Pantas Sutardja an additional service-based option for 12,000 shares that vest ratably over four years.

        The performance-based stock options will vest only if our pro forma earnings per share for any of the fiscal years from fiscal 2008 through fiscal 2011 is greater than 200% of the pro forma earnings per share for fiscal 2007, which is a target of $1.06 per share (Please see to footnote 4 of the "Grants of Plan-Based Awards in Fiscal 2008" table for a further description of the vesting terms of these options, including a description of the calculation of pro forma earnings per share). The executive compensation committee believes that the pro forma earnings per share target will be difficult to achieve and that it will reflect significant growth in earnings and shareholder value. The executive committee determined

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the 2x multiple based on its analysis of our historical performance and the median performance of the high growth peer group.

        In fiscal 2008, Ms, Dai, our former Chief Operating Officer, and Mr. Hervey, our former Chief Financial Officer, did not receive any stock option grants before they transitioned out of their positions. Ms. Dai agreed to cancel options for 1,502,667 shares in connection with her transition from Chief Operating Officer to Director of Strategic Marketing and Business Development. Mr. Tate, a former interim Chief Financial Officer, did not receive any stock option grants during fiscal 2008 prior to his departure.

        At the December 2007 meeting, the executive compensation committee also approved a service-based stock option grant to Mr. Rashkin, our other former interim Chief Financial Officer, for 20,000 shares that would vest ratably over four years. The executive compensation committee determined the amount of Mr. Rashkin's stock option award based on the recommendation of Dr. Sehat Sutardja, who determined the number of shares subject to the stock option based on his judgment of Mr. Rashkin's performance during fiscal 2007 as Vice President of Taxes and General Tax Counsel of MSI. In addition, the executive compensation committee approved a fully vested stock option grant to purchase 13,179 shares as part of his annual bonus as discussed above in the section entitled "Annual Cash Incentive Awards."

        Because Mr. Rashkin was not permitted to participate in our broad-based program to allow individuals who held certain stock options subject to adverse tax consequences under Section 409A of the Internal Revenue Code and parallel California laws (referred to as Section 409A), the executive compensation committee discussed alternatives available to allow Mr. Rashkin to avoid these adverse tax consequences. The executive compensation committee authorized the Company to offer Mr. Rashkin the opportunity to increase his stock option exercise prices to the prices necessary to avoid the adverse tax consequences under Section 409A. In exchange for his accepting this offer, the executive compensation committee authorized the grant to Mr. Rashkin of restricted stock units for an aggregate of 8,936 common shares.

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