This excerpt taken from the NDAQ DEF 14A filed Apr 17, 2008.
Compensation of the Chief Executive Officer2007 Employment Agreement
Nasdaq and Mr. Greifeld entered into the amended and restated employment agreement as of January 1, 2007. The management compensation committee and the board of directors considered the following factors important in negotiating the amended and restated employment agreement:
In negotiating the terms of the new agreement, the management compensation committee retained Frederic W. Cook & Co., Inc. (Cook & Co.), a national compensation consulting firm, to provide compensation advice, and Shearman and Sterling LLP, as independent counsel to the committee, to advise on legal and corporate governance matters. With respect to the engagement, Cook & Co. was instructed by the management compensation committee to develop a fair and competitive compensation proposal for Mr. Greifelds continued employment as the companys chief executive officer with the goal of motivating him to: (i) accept a renewal of his contract, (ii) remain open to merger and acquisition activity of all types, and (iii) increase shareholder value throughout the term of the contract. Cook & Co. also was asked by the management compensation committee to provide benchmarking information from a cross-section of comparable companies with respect to the individual elements of Mr. Greifelds compensation. Cook & Co. interviewed members of the management compensation committee, the chairman of the Nasdaq board and Mr. Greifeld individually to gather input in developing a proposal.
Cook & Co. advised, and the management compensation committee and Mr. Greifeld agreed, that the terms of the original employment agreement were sufficient in most respects (base salary, benefits and short-term incentives) and should be amended rather than replaced with respect to those terms. With respect to long-term incentive compensation, the committee believed that a high percentage of equity compensation should be at risk through stock options and other equity grants that have no value unless Nasdaqs stock price is above the exercise price after the options vest or Nasdaq meets other performance requirements for the award.
The terms of the amended and restated employment agreement with Mr. Greifeld, as approved by the committee, are substantially similar to the terms of his prior employment agreement, except that, under the
amended and restated agreement, Mr. Greifelds PSUs and stock options would continue to vest for a longer period of time and the period in which he could exercise vested awards would be extended in certain termination scenarios. By extending the vesting for these awards, the committee intended to align the interests of shareholders with those of Mr. Greifeld for a longer period of time and provide incentives to Mr. Greifeld to continue to build shareholder value through and beyond the date of any termination. The amended and restated agreement also increased the amounts that Mr. Greifeld will receive if his employment is terminated following a change in control of the company.
In connection with the amended and restated employment agreement, Mr. Greifeld received two forms of equity award. First, he received a stock option grant for 960,000 shares of Nasdaqs common stock. This option has a 10-year term and an exercise price of $35.92 per share, which is equal to the closing price of Nasdaqs common stock on the date of grant, December 13, 2006. The option vests over a six-year period. The management compensation committee determined that it was appropriate to front load this option grant (that is, provide a single larger one-time grant rather than a series of smaller annual grants over several years) because front loading at the start of the employment term eliminates incentives for the CEO to influence the timing of potential value-creating events based on the grant schedule.
Second, Mr. Greifeld will be granted 80,000 PSUs annually for four years. Each annual grant will be subject to continued employment and a three-year performance period. For example, the 80,000 units granted in 2007 are subject to a performance period from January 2007 until December 2009 and the 80,000 units granted in 2008 are subject to a performance period from January 2008 to December 2010. At the end of the performance period, Mr. Greifeld may earn from 0% to 150% of the 80,000 shares granted, depending upon the attainment of goals established by the management compensation committee. The management compensation committee determined to use PSUs, where economic value is forfeited if Nasdaq does not meet the performance goals set by the committee, in order to further encourage long-term performance and to secure favorable tax treatment for the award.
The PSU awards were conditioned upon and subject to approval by Nasdaqs stockholders of performance-related criteria and related amendments to the Equity Plan, which, among other things, secured the tax deductibility of payments made pursuant to the grant of performance share units under Section 162(m) of the Code. Such approval was sought and obtained at the 2007 annual meeting.
As Nasdaqs CEO, Mr. Greifelds total compensation is significantly higher than that of the companys other executives, reflecting the greater responsibility of his position, the significant impact of his performance on Nasdaq as a whole, and the greater emphasis on longer-term pay-for-performance incentives in his compensation package. In addition, Mr. Greifeld serves as the companys chief spokesperson and has more visibility than any other executive. The management compensation committee does not use a specific multiple or formula to compare Mr. Greifelds total compensation to the compensation of Nasdaqs other executives, as the committees decisions about his compensation are entirely based on his individual performance and the level of his responsibilities.
For a further description of the key terms of Mr. Greifelds amended and restated employment agreement, see Executive CompensationEmployment Agreements.