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This excerpt taken from the NXTM DEF 14A filed Apr 28, 2006. Report of
the Compensation Committee
The Compensation Committee determines the compensation of the
Company’s executive officers and oversees our executive
compensation programs. The Compensation Committee operates under
a charter that can be found on our website at
www.nxstage.com. This report of the Compensation
Committee addresses our
Table of Contents
compensation policies for 2005 as they affected
Mr. Burbank, our President and Chief Executive Officer, and
our other executive officers.
Compensation
Philosophy
Our executive compensation philosophy is to pay executives
performance-oriented compensation determined by reference to the
market in which we compete for talent. Executive compensation is
determined by NxStage’s performance as well as the
individual executive’s contribution to that performance.
Our compensation programs are designed to attract, retain and
reward executives who can help us achieve our business
objectives, incentivize executives to provide long-term growth
opportunities for our stockholders and align executives’
long-term interests with those of our stockholders.
Our executive officers are principally compensated through base
salary, performance-based annual bonuses and periodic equity
incentive grants. This three-part compensation approach enables
us to keep executive compensation competitive while ensuring
that executive officers are appropriately incentivized to
deliver short-term results while creating sustainable long-term
stockholder value. The Compensation Committee has chosen to put
a substantial portion of each executive’s pay at risk
contingent upon the achievement of objectives pre-determined by
the Committee.
In evaluating and establishing rates of base salary, bonus and
incentive pay, the Compensation Committee has periodically
sought the assistance of external compensation consultants who,
among other things, have assembled information concerning
compensation levels and philosophies adopted by comparable
companies. In 2005, we engaged an external compensation
consultant to assess our executive compensation relative to
other companies, including companies in our peer group. We set
our fiscal 2005 executive compensation levels and targets giving
due consideration to these comparisons and the size and
complexity of our business.
This Committee has reviewed the elements of the compensation of
our Chief Executive Officer and other executive officers,
including salary, bonus, and incentive compensation, and the
terms of executive employment agreements, including severance
and change of control benefits. Based on this review and in
light of all of the circumstances, this Committee has determined
the Chief Executive Officer’s and our other executive
officers’ total compensation to be reasonable.
Executive
Base Salary for 2005
We base the salaries paid to our executive officers (other than
the Chief Executive Officer) upon the recommendations of the
Chief Executive Officer presented to this Committee for approval
or modification. In general, the Compensation Committee sets
base salaries at levels consistent with the average rate paid
for equivalent positions by our competitors. In addition, this
Committee considers each executive’s current and prior year
salary and the executive’s actual performance compared to
the goals and objectives established for the executive at the
beginning of the year. To remain competitive in the industry and
to acknowledge individual officers’ contributions and
objectives, the Committee approved competitive base salary
increases for executive officers for 2005, as recommended by the
Chief Executive Officer.
Performance-Based
Annual Bonus for 2005
We paid a performance-based annual bonus to our executive
officers for the first time in 2005. Our 2005 Bonus Plan sought
to provide pay for performance by linking bonus awards to both
corporate and individual performance. Rewards were weighted
heavily towards the achievement of corporate objectives pre-set
by the Committee, based on the Committee’s belief that a
principal function of executive personnel is to increase overall
stockholder value. The Compensation Committee measured corporate
achievement on an annual basis against revenue goals. The
Compensation Committee measured individual achievement for an
executive officer by comparing the actual performance of the
executive to the goals and objectives established for the
executive at the beginning of the year.
Table of Contents
Long-Term
Incentive Grants in 2005
The Company’s stock option award program is intended to
attract, retain and motivate key employees for the long-term.
Options are typically granted at fair market value as of the
date of grant and vest over a period of four years. They are
exercisable until the seventh to tenth anniversary of the date
of grant or until the expiration of various limited time periods
following termination of employment. During 2005, we granted
stock options to purchase an aggregate of 553,776 shares of
our common stock to executive officers. All stock options
granted to executive officers during 2005 were granted at fair
market value as of the date of grant.
Compensation
of our Chief Executive Officer for 2005
Mr. Burbank is a founder of NxStage and has been our
President and Chief Executive Officer since 1999.
Mr. Burbank is eligible to participate in the same
executive compensation plans available to our other executive
officers. Mr. Burbank’s salary was $277,962 for fiscal
2005 and $269,100 for the fiscal year ended December 31,
2004. Mr. Burbank was awarded a bonus of $46,052 in
February 2006 for his performance in 2005. Additionally,
Mr. Burbank was awarded options to purchase
219,360 shares of NxStage common stock in 2005, all of
which were granted at fair market value as of the date of grant.
In determining Mr. Burbank’s compensation, the
Compensation Committee considered a number of factors, including
competitive compensation information and NxStage’s
performance in 2005 versus the goals and objectives established
for the year.
Compliance
with Section 162(m) of the Code
Section 162(m) of the Internal Revenue Code generally
disallows a tax deduction to public companies for certain
compensation in excess of $1 million paid to a
company’s chief executive officer and the four other most
highly compensated executive officers. Certain compensation,
including qualified performance-based compensation, will not be
subject to the deduction limit if certain requirements are met.
The Compensation Committee reviews the potential effect of
Section 162(m) periodically and generally seeks to
structure the long-term incentive compensation granted to its
executive officers through option issuances in a manner that is
intended to avoid disallowance of deductions under
Section 162(m). Nevertheless, there can be no assurance
that compensation attributable to awards granted under our
equity incentive plans will be treated as qualified
performance-based compensation under Section 162(m).
By the Compensation Committee of the Board
of Directors of NxStage
Philippe O. Chambon
Peter P. Phildius
Craig W. Moore, Committee Chair
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