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NDAQ » Topics » Determining Executive Compensation

This excerpt taken from the NDAQ DEF 14A filed Apr 3, 2009.

Determining Executive Compensation

Our CEO’s compensation is set according to his amended and restated employment agreement, which was effective January 1, 2007 (the 2007 employment agreement). Our CEO and NASDAQ OMX’s human resources department develop compensation proposals for each other named executive officer. As part of this process, our CEO meets individually with each executive to discuss his or her performance against pre-established objectives during the previous year, as well as performance objectives for the coming year. This meeting gives each executive an opportunity to present his or her perspective of his or her performance and potential objectives and challenges for the upcoming year. Our CEO presents the results of the meetings with each executive to the management compensation committee for their review and consideration as part of the committee’s deliberation process. In making compensation decisions, the committee also reviews a peer group analysis, which is discussed further below, and tally sheets that detail the various elements of compensation, including equity compensation and retirement benefits, for each executive. The committee uses these tally sheets to evaluate the appropriateness of the total compensation package and to compare each executive’s total compensation opportunity with his or her actual payout.

 

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To determine the amounts and mix of compensation elements, the management compensation committee considers the following.

 

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Pay for Performance—Our primary focus is on pay for performance. Therefore, the committee considers the executive’s contribution to our short- and long-term financial performance, as well as his or her performance on other critical aspects of management that are qualitative in nature and may not be easily quantified into dollars (such as building our brand, employee development and regulatory excellence).

 

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Internal Equity—Our executives’ compensation generally increases with position and responsibility. We believe that compensation amounts should reflect the different levels of responsibilities and performance among our executives and between our CEO, who is responsible for the entire organization, and our other executives, who are responsible for a functional area or a line of business.

 

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Competitive Market Analysis—We identify compensation amounts that peers/competitors within the industry are paying to executives with similar positions and levels of experience, skills, education and responsibilities. The committee also considers industry and general economic conditions in assessing market competitiveness.

 

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Collateral Implications—The committee considers the tax burdens and other potential liabilities when determining long-term incentive payouts, as well as any associated regulatory compliance issues.

The committee considers all of these issues in structuring compensation packages to reward the individual executive. Each individual component of compensation is considered independently and is not based on a formula; however, each component is intended to be complementary to the overall compensation package awarded to the executive.

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