This excerpt taken from the NDAQ DEF 14A filed Apr 20, 2007.
Annual Cash Incentives
Annual cash incentives are an integral part of our executive compensation program. Our annual cash incentive plan is structured to ensure that a significant portion of each executives total cash compensation is contingent on performance and continued employment and, therefore, at risk. Most of our annual cash incentives to our executives, including the named executive officers, are paid through our Executive Corporate Incentive Plan (ECIP). The ECIP has been structured to allow deductibility for federal income tax purposes of the amounts paid to certain key executive officers.
Performance for purposes of the ECIP is measured through corporate and individual goals. The management compensation committee and the board of directors select at the beginning of each year from among twelve financial, corporate and business unit performance goals established in the plan. Minimum and target thresholds are set for each goal. Since some of the objective performance goals allow award payouts of up to 200% of the target award, minimum, target and maximum thresholds are set for these goals. Performance below the minimum does not qualify for an ECIP payment. Performance at the target qualifies for 100% of the target and, for goals eligible, performance at the maximum threshold qualifies for 200% of target payout. Performance between the minimum and maximum results in incremental changes in award payments on a straight-line basis.
Under the ECIP, the maximum award payable to any participant for any plan year is not to exceed the greater of 3% of Nasdaqs before tax net income or $3 million. In 2006, there were no guaranteed minimum cash incentives for any executive. All payments are subject to adjustment downward at the discretion of the management compensation committee to ensure compliance with all applicable laws and high standards of regulatory and market integrity.
For 2006, the target annual incentive award opportunity for Mr. Greifeld was $2,000,000. Under his amended and restated employment agreement, Mr. Greifelds target annual incentive award opportunity for 2007 and in future years during the agreements term is 200% of his base salary. The target annual incentive award opportunity for each of the other named executive officers was $400,000 for 2006 and is $500,000 for 2007.
The table below shows the performance measures that were applied to each named executive officer for 2006, and the percentage of the executives target incentive award opportunity that was tied to each performance measure.
Nasdaqs operating income (pre-tax run rate) of $244.7 million in 2006 exceeded the maximum target performance threshold of $188.8 million and Nasdaqs total revenue (corresponding to gross margin on our consolidated statements of income) of $687.4 million in 2006 exceeded the maximum target performance threshold of $623.7 million. As a result, both of these performance measures, representing 90% of the bonus opportunity for our President and Chief Executive Officer, were eligible for payout at 200% of the target bonus amount. The management compensation committee sets business unit strategic measures at levels so that the metric for maximum payout is difficult to achieve and well beyond budget assumptions. For 2006, one measure resulted in 0% payout, three resulted in 200% payout and seven resulted in payments at percentages in between.
In addition to the ECIP, the management compensation committee has the authority to grant discretionary bonuses designed to reward executives, including named executive officers, for specific projects or performance. In 2006, the management compensation committee granted two material discretionary bonuses: $51,200 to Ms. Friedman and $60,000 to Mr. Concannon. The management compensation committee granted the bonus to Ms. Friedman because it did not believe that the ECIP business unit strategic measure for corporate strategy (which was not eligible for payment above 100% of target bonus) adequately rewarded her for significant effort and achievements during 2006. The committee determined that the bonus to Mr. Concannon was appropriate given the significant increase in Nasdaqs share of trading in NYSE-listed securities, which exceeded the maximum market share threshold set for ECIP purposes by 3.2%. Each percentage of market share has a significant positive impact on Nasdaqs revenue, and the committee did not believe that this success was adequately rewarded under the ECIP.