This excerpt taken from the PNSN DEF 14A filed Apr 23, 2007.
We generally determine salaries for our executive officers based on their position and experience. Our compensation committee reviews salaries annually and may adjust the executive officers salary each year in its discretion, subject to any applicable employment contract. This adjustment is based on prior-year company performance, contributions made by the executive officer and other market factors. In June of 2006, as a result of our compensation committees annual review based on individual performance and market factors, we increased our chief financial officers salary from $225,000 to $234,000 and our general counsels salary from $425,400 to $442,416. We decreased our former chief financial officers salary from $275,000 to $144,375 as result of a change in his responsibilities.
We entered into employment agreements with our chief executive officer and our president pursuant to which we increased their base salary from $100,000 to $750,000 effective for the period beginning on January 1, 2006 and ending at the time of the initial public offering. Effective upon the initial public offering, our chief executive officers and our presidents base salaries were reduced to $500,000. We also provided our chairman with a base salary of $250,000 starting on January 1, 2006.
In early 2006, our president and our chief executive officer signed new contracts that linked their bonus compensation directly to specific revenue and income targets. Bonus compensation for our chairman and chief financial officer was also linked to the same specific net income and revenue targets. Bonuses for our other senior officers were determined in our compensation committees discretion but were generally based on the revenue and earnings of the Company and the performance of the executive. Starting in 2007, bonuses for all executive officers will be directly based upon specific net income and revenue targets, as well as the achievement of certain individual performance objectives. We believe that our performance-based bonus program provides our executive officers with the appropriate incentives to achieve the Companys short-term goals. We believe that revenue and net income are the most appropriate goals to reward because they reflect the growth of the Company and increases in efficiency.
The target bonus payable for 2006 to our chairman, chief executive officer, president, and chief financial officer was $250,000, $593,750, $593,750, and $225,000, respectively. Each of our chief executive officers and our presidents target bonus was reduced from $750,000 to $500,000 at the time of our initial public offering to reflect the reduction in their salaries as described under the heading Base Salaries. The $593,750 target number represents the pro rata allocation of the two bonus targets. We do not expect such additional bonus awards to continue in the future. One hundred per cent of the target bonus was to be paid if the target levels of revenue and net income were achieved; each of these goals was weighted 50%. No amount was payable with respect to a performance goal if the Company did not achieve at least 70% of the target for that performance goal; the bonus was to be pro rated to the extent the Company achieved between 70% and 110% of the performance goal. Up to 25% of the target bonus was payable following the end of each of the first three quarters of 2006 based on the level of achievement of cumulative quarterly targets for revenue and net income for such quarter. Any quarterly payments offset the bonus payable based upon performance for the 2006 year as a whole. However, the executive was not required to repay any amounts in the case where the bonus based on annual performance was less than the amounts previously paid to the executive as quarterly bonuses. The Committee had the discretion to increase or decrease the bonus paid to any executive officer as it deems appropriate, based on his or her individual contribution, including but not limited to performance of the Company that is due to the executive officers contributions. For 2006, our general counsel and our senior vice president-finance were awarded discretionary bonuses of $237,542 and $192,210, respectively, of which $105,000 and $41,960, respectively, were paid in 2007.
For the 2006 bonus program, year-to-date targets for revenue, net interest for each quarter were $42.2 million in the first quarter, $85.8 million in the second quarter, $131.7 million in the third quarter and $179.4 million in the
fourth quarter. Year-to-date net income targets for each quarter in 2006 were $4.1 million in the first quarter, $9.6 million in the second quarter, $16.6 million in the third quarter and $24.3 million in the fourth quarter.
Based on the levels of achievement of our revenue and net income during 2006, the compensation committee awarded bonuses of $268,652, $671,514, $671,514 and $236,250 to our chairman, our chief executive officer, our president and our chief financial officer, respectively, of which $76,217, $152,435, $152,435 and $71,340 were paid, respectively, in 2007 (the remainder paid in 2006). Additionally, the compensation committee awarded our chief executive officer an additional $100,000 in connection with the successful completion of our initial public offering. See information under the caption Summary Compensation Table for a discussion of the bonuses earned in 2005 and paid in 2006. The bonuses were paid in part during the year based on the level of achievement of cumulative quarterly targets with the remaining amounts paid in March, 2007. The compensation committee used its discretion to pay a bonus for one quarter at target even though the level of performance was slightly below target; however, that amount would have been earned at year end based on the levels of achievement of revenue and net income for 2006.
Our committee will set the revenue and net income goals for the Company for each year with input from our chief executive officer. The committee may increase or decrease the revenue and net income objectives during the course of any fiscal year in its discretion. Examples of events that could cause our compensation committee to increase or decrease objectives would be increases or decreases to our revenue or net income due to material transactions, extraordinary general economic trends that have a material impact on our business or changes in the financial services industry in general.
We believe that providing a portion of our executive officers compensation in the form of equity awards is important to provide them with long-term incentives to support and build stockholder value. Grants of equity-based compensation for executive officers are solely at the discretion of our committee under the Companys 2000 Stock Incentive Plan and may be in the form of restricted stock units or options or other equity-based awards. The equity awards generally vest over a period of four years of service. Our compensation committee currently only grants options and restricted stock units. We believe that service vesting options and restricted stock units link the Companys performance to the recipients compensation because our executive officers would suffer losses for restricted stock units or would not fully realize gains from options if our stock price decreases between the relevant date of grant and date on which the grant fully vests. The grant of options or restricted stock units that vest over several years will increase retention and incentivize our executive officers to engage in long-term beneficial activities for the Company. The allocation between options and restricted stock units is set in our compensation committees discretion based in part on the expense the Company would incur and be required to report as a result of these grants, the anticipated tax consequences to the executive officers, and the stated preferences of the relevant executive officer.
We currently plan to make equity-based awards at the time we first employ new executive officers. Our compensation committee has determined that our current executive officers have a sufficient equity stake in the Company, and accordingly, we do not have plans to make additional equity grants to current executive officers, although we may do so in the future. In addition, we may grant equity-based awards at other times in connection with extraordinary transactions. We do not currently intend to reduce future grants due to the vesting of any options that have been previously granted to any executive officer or the executive officers overall ownership of our common stock. Each grant of options following our initial public offering had an exercise price equal to the closing price of our common stock on the NASDAQ Global Stock Market on the date of grant, and each grant of options prior to our initial public offering had an exercise price equal to the fair market value of our common stock on the option grant date.
Pursuant to employment contracts entered into in April of 2006 in contemplation of our initial public offering, our chief executive officer and our president each received an option grant for 100,000 shares of our common stock at an exercise price of $17.00, which vest over four years. Also in connection with our initial public offering, our chairman received an option grant of 50,000 shares of our common stock, vesting over four years, at an exercise price of $17.00. Each of our chief financial officer, our general counsel and our former chief financial officer
received 16,666 restricted stock units, vesting from January 1, 2006 over periods ranging from three and one-half years to four years, and options for 16,666 shares of our common stock, vesting over four years from May 16, 2006, at an exercise price of $17.00.
The Company does not have any program, plan or practice to time option grants in coordination with the release of material non-public information. Equity grants to new employees who do not report directly to the chief executive officer are generally awarded by our chief executive officer and reported to the compensation committee at the committees next regular meeting after the grant date. The exercise price of options is set at the closing selling price of the common stock on the NASDAQ Global Stock Market on the grant date.
Should the Board determine that an executive officer has engaged in fraudulent or intentional misconduct, it will attempt to remedy the misconduct by taking all appropriate action, including but not limited to, terminating the executive officer and initiating an action against him or her. In addition, if the executive officers action requires the restatement of any financial statements filed with the Securities and Exchange Commission, the Board will seek recovery of performance-based or equity based compensation from the executive officer that was awarded as a result of such incorrect statements.
Our executive officers are eligible to participate in our employee benefit plans, which include medical, dental, life insurance and 401(k) plans, all of which are available to all salaried employees and do not discriminate in favor of executive officers. Our executive officers do not receive any other perquisites not available to our salaried employees in excess of $10,000.