This excerpt taken from the NDAQ DEF 14A filed Apr 20, 2007.
Compensation of the President and Chief Executive OfficerNew Employment Agreement 2007
Nasdaq and Mr. Greifeld entered into the amended and restated employment agreement as of January 1, 2007. The agreement has an initial term ending on December 31, 2010. In May 2006, a year prior to the expiration of Mr. Greifelds original employment agreement, the management compensation committee began reviewing the terms of his compensation. The committee did this in order to provide sufficient time to consider, negotiate and finalize the terms of a new contract and to ensure that there was no gap between contracts or distraction from day-to-day business. The committee also was aware that most of the incentives in the original contract had either vested or would soon vest.
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 committee retained Fred Cook as its compensation consultant, and Shearman and Sterling LLP, as independent counsel to the committee, to advise on legal and corporate governance matters. Fred Cook provided independent advice, benchmarked current market conditions and helped design a compensation package that would be both competitive and effective at driving long-term performance. Fred Cook interviewed members of the management compensation committee, the chairman of the Nasdaq board and Mr. Greifeld individually to gather input in developing a proposal.
Fred Cook 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 committee requested additional proposals in this regard and met several times in the second half of 2006 to discuss and ultimately approve the amended and restated employment agreement.
The terms of the amended and restated employment agreement with Mr. Greifeld are substantially similar to the terms of his prior agreement, except that, under the amended and restated agreement, the terms for vesting and exercise of Mr. Greifelds restricted stock awards and stock options were extended in certain termination scenarios. 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 these options rather than provide smaller annual grants 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 performance share units 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 will be subject to a performance period from January 2007 until December 2009. 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 approved performance share units, which are shares of restricted stock that are forfeited if Nasdaq does not meet the performance goals set by the committee, in order to further encourage long-term performance and to gain favorable tax treatment of the grant.
The award is conditioned upon and subject to approval by Nasdaqs stockholders of performance-related criteria and related amendments to the Equity Plan, which, among other things, will secure the tax deductibility of payments made pursuant to the grant of performance share units under Section 162(m) of the Code. Such approval will be sought at the annual meeting. For further information, see Proposal IIIApprove Amended and Restated Equity Plan.
For a further description of the key terms of Mr. Greifelds amended and restated employment agreement, see Executive CompensationEmployment Agreement.