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 Companys 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
compensation policies for 2005 as they affected Mr. Burbank, our President and Chief Executive Officer, and our other executive officers.
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 NxStages performance as well as the individual executives 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 executives 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 Officers 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 executives current and prior year salary and the executives 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 Committees 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.
Long-Term Incentive Grants in 2005
The Companys 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. Burbanks 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. Burbanks compensation, the Compensation Committee considered a number of factors, including competitive compensation information and NxStages 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 companys 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