This excerpt taken from the TSRA DEF 14A filed Apr 2, 2008.
Annual Cash Incentives
Our named executive officers are eligible to receive an annual cash incentive bonus under our 2007 Performance Bonus Plan for Executive Officers and Key Employees, or the Management Bonus Plan. Bonuses paid to our executive officers under our Management Bonus Plan are based on Tesseras achievement of certain predetermined corporate performance goals which are established at the beginning of each year and upon an evaluation of the individual officers performance for the year.
Annual Cash Incentive Bonus Targets
At the beginning of each year, the Compensation Committee also approves threshold, target and maximum bonus opportunities for each named executive officer. Under this program in 2007, the Chief Executive Officer is eligible to earn up to 100% of his base salary, the Chief Financial Officer is eligible to earn up to 80% of his base salary, each of the executive vice presidents is eligible to earn up to 80% of his or her base salary and each of the senior vice presidents is eligible to earn up to 50% of his or her base salary. These target bonus levels were set following consultation with Compensia and are intended to be generally aligned with median competitive practices of our peer group of companies for on-target performance. Participants may receive a smaller award (or no award) if Tessera does not achieve a target and a larger award (capped at a level that approximates the 75th percentile of the peer groups compensation) if Tessera exceeds target.
Tessera structures its annual cash compensation program to reward executive officers based on Tesseras performance and the individual executives contribution to that performance. This allows executive officers to receive bonus compensation in the event certain specified corporate and individual performance measures are achieved. In determining the compensation awarded to each executive officer based on performance, Tessera evaluates company and individual performance in a number of areas.
The general criteria for evaluating the performance of Tessera and executive officers is based on the corporate objectives established by the Compensation Committee at the beginning of each year, which generally include financial goals as well as strategic goals that are critical to the success of Tessera. In addition, each executives performance is also measured against individual objectives that support the overall corporate objectives. Fifty percent of the executives annual bonus is based on the corporate goals and the remaining 50% is based on his performance against his individual goals. The only exception to this is the Chief Executive Officer, whose annual bonus is tied in full to the corporate goals.
For 2007, the amounts payable for corporate performance under Tesseras annual incentive plan were determined based upon Tesseras actual performance measured against the following performance criteria:
In the event certain threshold performance levels are exceeded but applicable target levels are not achieved, the executive officers will earn proportionally smaller awards. Payments of above-target bonuses may be made only if the company exceeds its corporate financial objectives. At the time the performance goals for the executive officers under the Management Bonus Plan were set, the Compensation Committee believed that the goals would be difficult but achievable with significant effort. Both the corporate goals and the strategic goals assigned to each executive officer are intended to reward performance that is specifically tied to the executives contribution in helping the company reach or potentially exceed the business plans. These objectives are designed to be challenging and difficult but not impossible to attain. Based on the performance analysis conducted as part of the annual market comparison analysis, achievement of the target corporate financial goals has resulted in approximately 60th to 75th percentile performance of GAAP revenue and earnings performance relative to peer companies.
For 2007, the Compensation Committee also determined the portion of each named executive officers bonus related to individual performance (other than Dr. McWilliams, whose bonus was based solely on corporate performance) based upon his achievement of individual performance goals established at the beginning of the year. Individual performance goals established for our named executive officers in 2007 included the financial performance of specific areas of responsibility, strategic objectives for which the executive has direct
responsibility and interdepartmental goals critical to the success of the business. The 2007 individual performance objectives were designed to achieve Tesseras strategic business plan and were designed to be achievable, but to require a substantial effort and initiative on the part of the named executive officers.
2007 Annual Cash Incentive Bonuses
The Compensation Committee reviews and approves the achievement level and incentive payment for each named executive officer under the Management Bonus Plan. The achievement levels and incentive payments approved by the Compensation Committee for the named executive officers for 2007 are summarized in the table below:
Incentive amounts to be paid under the Management Bonus Plan may be adjusted by the Compensation Committee to account for unusual events such as extraordinary transactions, asset dispositions and purchases, and mergers and acquisitions if, and to the extent, the Compensation Committee does not consider the effect of such events indicative of company performance. No such adjustments were made in 2007.